Shares Of Adidas Fall 11% As Market Weakness Takes Hold
(CTN News) – Adidas’ next chief executive is set to inherit a tough job.
The company has warned that unsold goods are piling up as consumer demand weakens in China and western markets as a result of weak consumer spending.
Consequently, the shares of the German sport clothing manufacturer fell by 11% as a result of this.
Kasper Rorsted, the outgoing CEO of the company, is facing a string of problems, including a PR crisis due to an alliance with the rapper and designer Kanye West.
As the future of the bestselling Yeezy line is uncertain, whoever takes over as CEO next year has to come up with buzzy products. This is if the brand is to sustain its success.
During the last six years, Adidas shares have lost almost all the gains they made during the tenure of Mr Rorsted. This leaves the company with a market value that is only about a sixth of its US rival Nike’s.
A gloomier outlook from Adidas – its second profit warning in three months – resulted from a slowdown in demand for adidas products in western markets since September and a decline in store traffic trends in China.
This is likely to result in a backlog of stocks that will have to be discounted as a result of the overhang.
As Adidas had already warned in July, there was weakness in the Chinese market. Consumer boycotts and Covid restrictions have hampered the brand’s growth in the country, which was once its biggest growth engine.
There has been a significant decrease in consumer spending power across western markets as a result of rising inflation.
The company expects its full-year revenue to grow by a mid-single digit rate as opposed to a mid- to high-single digit rate, Adidas said.
As a result of the surprise update, the German company has lowered its forecast for this year’s operating margin from 7% to 4%.
Piral Dadhania of RBC analyst said in a research note that Adidas may only be halfway through its process of lowering earnings expectations at the moment.
Adidas’s financial targets through 2025 could be abandoned if it fails to implement discounts in order to clear inventory, according to Mr Rorsted’s successor.
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