Adidas fears 'everybody will lose' in US-China currency war

Agence France-Presse

Posted at Aug 08 2019 08:20 PM

FRANKFURT AM MAIN - German sportswear maker Adidas warned Thursday that "everybody will lose" if a currency war ignites between China, the United States, and other countries, while reporting continued strong earnings in its second quarter.

American tariffs on Chinese goods -- with another $300 billion in imports targeted by President Donald Trump last week -- are less harmful to the brand with the three stripes than a potential exchange rate battle, chief executive Kasper Rorsted said.

"What is much more severe is that we start to have a currency war between China, the US and the rest of the world, that's going to be a situation where everybody will lose," he told journalists in a telephone conference.

Since the tariffs announcement, Beijing has allowed the yuan to sink below a seven-to-the-dollar lower bound its central bank had previously defended, prompting the US Treasury Department to cry currency manipulation.

"Currency war will over time slow the economy down," Adidas chief Rorsted predicted, as well as imposing a "severe impact" on global businesses like the shoes and sportswear maker.

Weaker exchange rates against the euro would batter Adidas' sales and profitability through the conversion into its home currency, as the US and Chinese markets combined account for 45 percent of revenue.

SPRINTING AHEAD

For now, the Bavarian group says its strong growth continued into the second quarter, seeing its biggest problems in overcoming bottlenecks in its supply chain.

Net profit at the Bavarian group added 34 percent over April-June 2018, reaching 531 million euros ($595 million) to beat analysts' forecasts.

Revenues grew by 4.7 percent to 5.5 billion euros, making for an operating profit up 8.6 percent at 643 million euros.

Sales at the flagship Adidas brand were up four percent thanks to its "sport inspired" streetwear, while its "performance" sportswear fell back in comparison with 2018's football World Cup-powered revenues.

Long-struggling American subsidiary Reebok returned to growth in sales in the second quarter, adding three percent thanks to its "classics" line.

The unit also returned to profitability, Rorsted said.

Adidas' online direct sales business grew 37 percent, while in its different regions only China saw double-digit growth.

North America picked up the pace of sales expansion as the group managed to overcome supply bottlenecks for in-demand products, while sales in Europe held steady.

Adidas' closely-watched gross margin increased 1.2 percentage points, to 53.5 percent, a slower pace than in the previous quarter.

"Higher air freight costs to mitigate the supply chain shortages and a less favorable pricing mix" weighed on profitability, the group said.

Looking ahead, the group stuck to its 2019 forecasts for sales growth between five and eight percent, adjusted for currency effects.

Its gross margin should increase to 52 percent and net profit come in between 1.88 and 1.95 billion euros.