Strong Rebound Expected This Year
The German sportswear business reported Q4 sales rose 1% to €5.55 billion ($6.60 billion), but operating profit fell slightly to €225 million ($267.6 million). These figures topped estimates of €5.47 billion ($6.51 billion) in revenues and €202 million ($240.2 million) in operating profit expected by analysts.
Net profits crashed 78% to €432 million ($513.8 million) in 2020 from €1.97 billion ($2.34 billion) on a year-to-year (YOY) basis. Full-year sales also fell to €19.8 billion ($23.55 billion). The sportswear company reported that it suffered from store closures in Q4, with about half of its stores closed in Europe at the end of the year. Globally, about 95% of stores are now open.
Losses in the sportswear business segment were partially offset by soaring online sales, which were up 43%. Sales in the flagship Adidas brand fell by 13% in 2020, while Reebok sales dropped 16%.
“Our business continued to recover towards year-end and we returned to growth in the fourth quarter. E-com was a standout throughout the year as we grew revenues in our most important store by 53% in 2020 to significantly more than € 4 billion. We are confident about 2021 and will be fast out of the gate in the first year of our new strategic cycle, delivering mid- to high-teens sales growth globally,” said CEO of the company Kasper Rorsted.
On a more positive note, sales have already recovered in Q4, and the business expects this trend to extend into 2021. Net income from the ongoing operations is expected to rise to a range of €1.25 billion ($1.49 billion) to €1.45 billion ($1.72 billion) in 2021, with the business expecting to pay a dividend of €3 per share ($3.57 per share).
The company expects to record a sales growth rate in the “mid-to-high teens.” In this business segment, the company is expecting sales growth rate to rise as much as 30% in Asia, China in particular, and Latin America. In North America, sales are projected to rise in a “high single-digit percentage.”
“The 2021 outlook appears broadly consistent with consensus estimates once Reebok stranded costs are added back,” said Jefferies analyst James Grzinic.
The sportswear company also said it is forecasting to take a hit of €250 million ($297 million) to its operating profit as it works to divest Reebok. This figure is expected to decrease by a third in 2022.
In February, the sportswear company announced plans to sell its underperforming Reebok brand. The German company is expected to take a huge hit on Reebok, as it spent $3.8 billion to acquire Reebok in 2006.
Adidas valued Reebok at about €2 billion ($2.38 billion) prior to the pandemic, but it was forced to write down the brand’s value to €842 million ($1 billion) last year. Reebok generated €1 billion in revenues for Adidas in the first nine months of 2020.
Adidas stock price soared 5.7% in Frankfurt today.
Adidas reported better-than-expected Q4 results and a high multi-year sales growth guidance after its 2020 profits crashed 78% amid the COVID-19 pandemic.
About the Author
Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.