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-Adidas expects first-quarter sales in Greater China to fall by up to $1.14 billion

-Puma warned its 2020 view was based on expectations now proving to be too optimistic as the virus spreads

-Both companies said the situation is too unpredictable to say what it means for their full-year results

 
   By Cristina Roca 
 

Shares in adidas AG traded sharply lower on Wednesday after the company warned its sales in Greater China could fall by more than $1 billion during the first quarter of the year because of the coronavirus, and that it can't calculate the impact the epidemic will have on its full-year results.

News from the competition was also grim, with Puma SE saying Wednesday that its 2020 guidance could be at risk. The German sporting-goods company's earlier expectations that the situation around the virus would quickly normalize are now proving too optimistic with the epidemic now spreading to Europe and the U.S., Puma said.

At 1202 GMT, shares in adidas traded 7.9% lower at 203.70 euros ($231.1). Shares in its cross-town rival Puma were down 4.4% at EUR56.05.

Adidas raised its dividend after a strong increase in fourth-quarter net profit and sales helped boost results for 2019. But all eyes were on 2020, Citi analysts said. Adidas said it expects its sales to drop by more than 10% during the first quarter due to the coronavirus, and said visibility was too low to estimate the impact of the epidemic on its performance for the full year.

The German company said its business in China has been significantly affected by the virus. Due to the closure of many stores and lower traffic in those that remained open, revenue in the Greater China region dropped about 80% between late January and the end of February. Since then, the situation has improved slightly, with stores gradually reopening and traffic picking up.

Adidas said it expects first-quarter revenue in the region to be between 800 million euros and 1 billion euros ($908 million-$1.14 billion) lower compared to a year earlier, with operating profit for the quarter falling between EUR400 million and EUR500 million.

In order to adjust its inventory to the drop in demand, adidas said it cancelled all February shipments and that it could accept a "significant amount of product takebacks, which the company plans to clear through its own channels throughout the remainder of the year."

The virus-caused hit to the first quarter looks worse than feared, Jefferies analysts said. Citi analysts estimated that it will translate into a 15%-20% hit to the company's net profit for 2020.

The company's full-year guidance didn't account for any impact from the coronavirus. "We cannot yet reliably quantify the magnitude of the overall financial impact in 2020," Chief Executive Kasper Rorsted said.

Adidas said it expects revenue growth of between 6% and 8% at constant currencies in 2020. Operating margin is seen increasing to between 11.5% and 11.8%, while the company targets growth of 10%-13% in net income from continuing operations. The company warned its guidance is subject to change as it could be hit by the coronavirus.

Adidas also said it would propose a 15% increase in the dividend to EUR3.85 a share. It said net profit for the last quarter of 2019 rose 54% to EUR167 million, while revenue grew almost 12% to EUR5.84 billion.

However, the company's earnings before interest and taxes came below consensus expectations, analysts at UBS and RBC said, which probably contributed to Wednesday's negative share-price reaction.

Separately on Wednesday, Puma, which like rival adidas is based in the Bavarian town of Herzogenaurach, said it no longer expects a short-term normalization of the situation around the virus--an assumption based on which the company last month guided for currency-adjusted sales growth of 10% as well as a strong rise in EBIT for 2020.

Puma said it can't yet calculate what this will mean for its full-year performance.

The sporting-goods company said it is seeing significantly lower store traffic in Europe at the moment, even though almost all its stores in the region are still open. In China, the company is seeing early signs of improvement, with most stores back open and traffic beginning to pick up.

Puma said it is so far only experiencing minor delays as far as the impact of the virus on its global supply chain is concerned.

"The supply side seems much less of an issue than feared" for European sporting-goods players, Citi analysts say. Adidas also said its global sourcing hasn't been impacted by the virus thus far.

Write to Cristina Roca at cristina.roca@dowjones.com

(END) Dow Jones Newswires

March 11, 2020 08:59 ET (12:59 GMT)

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