By Joshua Kirby


Adidas AG on Friday set out a much less optimistic view on its prospects in Greater China this year, newly forecasting a fall in sales in the key market as pandemic-related lockdowns strangle demand.

Falling China sales means the German sportswear giant now expects no expansion in its margins this year.

Adidas's Greater China sales fell 35% at constant currency in the first quarter, offsetting growth of 13% in North America and 9% in the EMEA region to result in a total 3% decline in net sales to 5.3 billion euros ($5.59 billion.)

The company noted the challenging market environment in China, exacerbated by new pandemic-related lockdowns that have led to store closures and greatly reduced customer traffic. Since the end of March, China has imposed strict lockdowns in a number of cities in a bid to combat rising cases of Covid-19.

The pandemic situation means Adidas now expects full-year Greater China sales to decline significantly, it said. At 2021 results earlier this year, the company had guided for a return to China sales growth in 2022.

Adidas nevertheless backed its full-year sales target of 11%-13% organic growth, but said it expects to meet the lower end of the range. The company expects to return to positive growth in the second quarter, at around 20%, as supply pressures ease and demand recovers in Asia-Pacific, adding to momentum in Western markets, it said.

However, as a result of the less favorable geographic mix, the company no longer expects its margins to expand on year. Adidas had previously targeted a gross margin of 51.5%-52% and an operating margin of 10.5%-11% for the year, growing from the 50.7% and 9.4% it booked in 2021, respectively.

Despite the less optimistic margin outlook, the company said it still expects to meet its target for net income from continuing operations for the year, though, as with the sales target, at the lower end of a guided range of EUR1.8 billion-EUR1.9 billion.

As well as the pandemic situation, Adidas and peers including Nike Inc. and Germany's Puma AG have seen their China performance dragged in successive quarters by a consumer boycott sparked at the end of March last year. The boycott relates to Western brands' stance on cotton produced in China's Xinjiang region, where activists and some governments allege forced labor is used.

Puma Chief Executive Bjorn Gulden said at the company's recent first-quarter results--when it booked its own Greater China sales slump of 37%--that the consumer boycott remained the primary headwind in the country. It remains difficult to assess when this issue will be resolved, he added.


Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby


(END) Dow Jones Newswires

05-06-22 0248ET