Adidas E-Commerce Boom Helps Out as Store Traffic Picks Up

(Bloomberg) -- Adidas AG's sales are bouncing back faster than expected, with a surge in e-commerce and hot demand for casual items like sandals and yoga pants helping the German sportswear company ride out the coronavirus pandemic.

Store operations are starting to return to normal and the 34% sales drop the company reported for the second quarter beat analysts' estimates, prompting a rally in the stock. In the third quarter, revenue will probably fall by a mid to high single-digit percentage from a year earlier, the company said.

After closing 70% of its stores globally because of the pandemic, Adidas is grappling with the new normal between online shopping and physical retail as it seeks to rekindle growth. With more than nine out of 10 stores open again globally, fewer customers are coming in but more of them are buying.

The stock rose as much as 4.3% in Frankfurt, limiting this year's decline to 14%.

There's still too much uncertainty about the pandemic, the pace of shopping in re-opened stores and the global economy to offer a full-year forecast, Adidas said. While China is seeing double-digit growth again -- in part thanks to lifting lockdowns as early as March -- North America and Latin America are still suffering from disruptions as the coronavirus rages.

With people settling into new routines working from home and working out alone, Adidas is seeing a boom in demand for athleisure products along with running and yoga gear. Sales of the Adilette Slides sandals are up 200% during the pandemic, Chief Executive Officer Kasper Rorsted said.

“The entire dress for work changed overnight,” Rorsted said on a call. “The likelihood that many people will come back wearing suits and brown shoes moving forward is dramatically decreased. That will, of course, play into us.”

Conversely, sales are down for equipment related to group sports including soccer, Rorsted said.

Diversity Issues

Other challenges loom for the company. After cutting costs and benefiting from strong demand for retro footwear in recent years, Rorsted needs to tap his team's creative side as Adidas prepares to unveil a new strategy cycle heading into 2021.

And while Rorsted just agreed to a five-year contract extension, he's under growing pressure to create more opportunities for minorities and women. Adidas's human resources chief recently resigned after complaints from Black employees about her handling of diversity issues.

Since Rorsted assumed leadership of human ressources matters in recent weeks, he's engaged in listening sessions with employees around the world and heard about some people's discomfort with Adidas's handling of diversity matters, he said.

“It has at times been a humbling experience,” Rorsted said. “Particularly America, we have not made the progress with the Black community and we're taking that very serious.”

Rorsted pledged to fix the situation and make a company that “everybody can be proud of.”

Second-quarter sales of 3.58 billion euros ($4.25 billion) were above analysts' estimate of 3.24 billion euros. E-commerce almost doubled in the period.

Adidas said it expects to turn an operating profit in the third quarter of between 600 million euros and 700 million euros -- another improvement after a loss of 333 million euros by that metric in the second quarter.

©2020 Bloomberg L.P.