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Direct-to-consumer sales boost Adidas, but higher supply chain costs hit profits

Image courtesy of Adidas

Direct-to-consumer (DTC) sales helped to boost revenue at Adidas in the second quarter of its financial year. Its own ecommerce website now accounts for more than 20% of its business and the sportswear brand today says that online sales grew by double-digits in the second quarter of the year. However, while sales rose in the first half and the second quarter of the year, profits fell following “significantly higher supply chain costs”. 

The business has now boosted inventories by more than a third (+35% to €5.5bn) ahead of expected strong sales growth in the second half of the year. 

The update comes as Adidas today reports net sales of €5.6bn in its second quarter, to June 30 2022. That’s 10.2% higher than a year earlier. Sales rose in its largest EMEA (+8.8% to €2.1bn) and North America (+36.5% to €1.7bn) markets but fell in greater China (-28.3% to €719m) where Covid-19 restrictions continue to limit sales growth. The sportswear brand also said that its decision to suspend operations in Russia reduced revenues by more than €100m during the quarter. 

Pre-tax income – a measure of profitability – fell by 41.1% to €300m, from €510m last time, while net income from continuing operations fell 7% to €360m. 

The brand continued to invest in its DTC business, from its digital capabilities to its logistics infrastructure, which pushed overhead operating expenses to €1.8bn, although the proportion of sales spent on marketing and point-of-sale fell by 0.3 percentage points to 11.8%. 

In the first half of the year, revenues grew 5% to €10.9bn while net income from continuing operations came in at €671m, 25% lower than the previous year. 

Looking ahead, Adidas now expects revenues to grow by a single digit rate in the whole of 2022, reflecting an expected double-digit decline in Greater China. It expects that net income from continuing operations will reach about €1.3bn – lower than the €1.8bn to €1.9bn that it previously expected. 

Adidas is ranked Top50 in RXUK Top500 research.

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