Coronavirus was always expected to hit the foreign companies doing business in China, including sports apparel maker Adidas and Puma. How big the impact would be on these companies was not clear until now. Both Adidas and Puma have come out with a statement detailing the impact the coronavirus is having on their business due to store closures and fewer Chinese tourists traveling and shopping in other markets.
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Both Adidas and Puma make almost a third of their sales in Asia, which has also been a primary growth driver for the overall sporting goods industry in the last few years. China, along with being the consumer is also a major production hub for both of the sports apparel makers.
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Detailing the impact of coronavirus on its business, Adidas in a statement on Wednesday said that its business in the Greater China region has dropped by about 85 percent year-on-year since the Chinese New Year on Jan. 25. In 2018, China represented about 20 percent of Adidas sales, and a fifth of its shoes and apparel are produced in the country.
The German sportswear firm said that it sees a “pronounced traffic reduction within the remaining store fleet." Apart from China, Adidas says it is seeing a drop in traffic in other markets as well, specifically in Japan and South Korean. However, in these regions, the company has not yet seen any major business impact.
Talking of the overall impact, the company said that owing to the uncertainty surrounding coronavirus, “the magnitude of the overall impact on our business for the full-year 2020 cannot be quantified reliably at this point in time.”
Adidas has promised to reveal more details about the financial impact of the coronavirus on March 11, when it releases its full year results. The company has about 12,000 stores in China, including 500 own-operated stores with the rest being franchises.
Another German sportswear maker, Puma, also talked about the impact of coronavirus on its business. The company said the outbreak had “negatively impacted our business since the beginning of February.”
“This is especially true in China where more than half of both owned and operated and partner stores are temporarily closed due to restrictions of the local authorities,” the sports apparel maker said in a statement on Wednesday.
Also, the company said it is witnessing an impact in other markets as well, particularly in Asia (such as Singapore, Japan and Taiwan) due to a drop in Chinese tourists. The company, however, said it is assuming that things would return to normal in the short term.
Talking of the overall impact of coronavirus on its business, Puma also said that uncertainty over the virus makes it difficult to forecast the total impact. The company, however, does expect a negative impact on sales and EBIT (earnings before interest and taxes) for the first three months. And, if stores remain closed for longer, then the company says it may have to reconsider its 2020 guidance.
Puma, which has reported better-than-expected numbers for the last quarter, still hopes to hit its 2020 targets. The company informed that most of its factories started operating after the Chinese New Year.
Moreover, shipments have improved in the last four to five days after reopening of the ports. Also, the company said it would be able to meet the February and March orders, but with a three-week delay. For Puma, China accounts for 13 percent of sales and it also is the company’s most profitable market.
Under Armour, Nike previously warned the same
Warnings from Adidas and Puma come after Under Armour and Nike have already warned about the negative impact of the outbreak on their business. Under Armour estimates its first quarter sales to see a drop of between $50 and $60 million due to coronavirus.
Nike, earlier this month, informed that it had closed about half its stores temporarily. And, the stores that are open are witnessing less traffic. The company expects the outbreak to have a “material impact” on its operations in Greater China in the short term.
Cowen analysts echoed something similar in their recent research report. The analysts noted that the virus would have a “material” impact in the first quarter for the retailers with higher sales exposures to China. Further, the analyst said that the March quarter usually “benefits from higher sales volume from Chinese New Year, and sales exposure to China could be larger than other quarters.”