(Bloomberg)—Adidas AG’s sales are bouncing back faster than expected, with a surge in ecommerce 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 (No. 17 in the Digital Commerce 360 Europe 500) 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.
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, CEO 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.
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 resources 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. Ecommerce 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.
Ralph Lauren mulls overhaul after tough quarter
Ralph Lauren Corp., No. 76 in the 2020 Digital Commerce 360 Top 1000, plans to revamp its structure as it looks to avoid the fate of several retail rivals who’ve been unable to weather the unprecedented season for apparel.
The company, which on Tuesday reported an adjusted loss per share for the first quarter that was worse than the average analyst estimate, said it’s evaluating its “long-term operating structure to align with our evolving strategic priorities,” with a focus on six main areas, including how it organizes its teams, its corporate office real estate footprint, where it sells its products and its overall portfolio of brands.
The review is aimed at setting up strategies for the next several years as the business emerges from the health crisis, CEO Patrice Louvet said in an interview.
“We’re making sure that we’re set up to win, in this new context, in the next three to five years. There’s an opportunity to reset in this environment, as we look at new consumer behaviors and the retail landscape,” he said. “We expect to share the outcome of this work and decisions over the next few months.”
The in-progress overhaul underscores the significant steps retail brands must take as the coronavirus pandemic exacerbates an already-challenging consumer environment. Discretionary purchases, including clothing, have been hurt by widespread economic lockdowns, forcing more than two dozen retailers into bankruptcy this year alone.
In terms of store footprint, the review is looking at the worldwide network, Louvet said. Ralph Lauren expects to open as many as 90 stores in 2020, with the vast majority in Asia, less than a dozen in Europe and only few in the U.S.
“The review will lead to some choices on areas we want to exit and areas that we want to open,” he said.
The company in the first quarter already took measures to curb costs, including cuts to executive pay and employee furloughs. Negotiated rent abatements and lower expenses due Covid-19 closures also helped shore up cash.
It is also setting goals to expand the diversity of its workforce, including interviewing two underrepresented candidates for every leadership position, Louvet said on the company’s earnings call. The goal is to have people of color represent at least 20% of the company’s global leadership by 2023.
Louvet said he expects the past quarter to be the toughest throughout the crisis, but a lot of uncertainty lingers as retailers prepare for the crucial holiday season.
“We are approaching holiday cautiously,” Louvet said in the interview. “We don’t want to be in a situation where we need to discount.”
Ralph Lauren reported a loss of $1.82 a share in the quarter, worse than the $1.73 loss anticipated by analysts. Comparable-store sales plunged 57%, also trailing estimates.
North America revenue saw the biggest dropoff, plunging 77% to $165 million. Europe revenue decreased 67% and Asia fell 34%. Comparable sales also logged double-digit declines in every region, even as all three markets saw an uptick in digital sales.
While the results were “terrible,” they weren’t unique to Ralph Lauren, said Neil Saunders, managing director of GlobalData Retail. “However, as consumer preferences shift, the company needs to work harder to reinvent itself and to pivot into new channels and segments to secure growth.”
Sales down 74% at Under Armour
In other earnings news, athletic apparel manufacturer Under Armour Inc. reported that strong ecommerce sales helped offset a 13% decrease in direct-to-consumer sales for its second quarter ended June 30. Direct-to-consumer sales include sales from both ecommerce and its more than 750 stores. Under Armour does not breakout ecommerce sales. The decrease was because of closed stores during the coronavirus pandemic. Overall revenue was down 74% of the quarter to $707.6 million compared with $1.19 billion in Q2 2019.
It also reported a $182.9 million loss for the quarter, an increase from a $17.4 million net loss in the year-ago period. One of Under Armour’s focus areas is prioritizing direct-to-consumer sales, CEO Patrick Frisk said in an earnings call according to a Seeking Alpha transcript. In July, Under Armour launched a new North American website, which is much faster, more personalized and with better content, Fisk said. Under Armour is No. 89 in the Top 1000.
April Berthene contributed to this article.