adidas Delivers a Profit Improvement of Over $1.2 Billion USD in Q3
The company reports lower traffic but higher conversion rates in-store compared to last year, reflecting a large shift in consumer buying habits.
adidas has posted a strong recovery in the third quarter of 2020, bringing top and bottom-line results close to last year’s level and reporting more than a €1.1 billion EUR ($1.2 Billion USD) profit improvement compared to Q2. adidas CEO Kasper Rorsted attributes this success to a focus on “healthy inventories, profitable sell-through and disciplined sell-in” in a company statement.
adidas’s overall direct-to-consumer business increased by a currency-neutral 13 percent and accounted for 35 percent of total sales in the quarter. E-commerce improved by 51 percent, coinciding with double-digit growth in full-price sales. With more than 90 percent of the adidas retail outposts now open for business, the company reported improvements in traffic levels which remained under last year benchmark. However, customers who visit stores these days have more serious buying intent and conversion rates have remained elevated. This change in in-store buying habits appears to be widespread, as Puma reported a similar shift in brick-and-mortar business.
Looking ahead to Q2, adidas cautions that uncertainty around the COVID-19 pandemic remains high; an increase in cases in key markets has lead to reinstated lockdowns and social distancing measures, causing the adidas store opening rate to fall to 93 percent, compared to 96 percent at the end of September. The company expects its top-line to develop similarly in the coming quarter: a low to mid single-digit, currency-neutral revenue decline. And — assuming no major lockdowns or slowdown in global store traffic and a store opening rate of at least 90 percent — gross margin is expected to be around last year’s Q4 level with an operating profit between €100 million and €200 million EUR ($117.6 million and $235.2 million USD) in Q4, thanks to a focus on profitable sell-through and disciplined sell-in.
“While at the beginning of the quarter we were on track for growth in Q4, a worsening of the pandemic in many regions of the world is again requiring our patience and support. However, this is not taking us by surprise. Thanks to our prudent approach, we are now well-prepared to cope with these short-term uncertainties,” Rorsted said.
A recent third quarter report from Under Armour reflected a similar, still precarious recovery.
