Daily Brief: Adidas Certainly Has A Lot Of Pep In Its Step For A Company Under Boycott

Daily Brief: Adidas Certainly Has A Lot Of Pep In Its Step For A Company Under Boycott

almost 2 years ago3 mins

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Adidas posted weaker-than-expected full-year results on Wednesday, but the sportswear giant is still feeling pumped about the year ahead.

What does this mean?

Like most companies, Adidas was up against pandemic-induced shortages and supply chain issues last year. But unlike most companies, it also had to deal with a boycott of its goods in China – a market that makes up over a fifth of its sales. That’s a dastardly combination, and it added up to about $1.7 billion in lost revenue over the course of 2021. That might be why its total sales only climbed 16% last year – short of the 18% it was hoping for. And now that Adidas has stopped selling in Russia, it reckons it’ll sacrifice some growth this year too. Not that the revelation seemed to knock its confidence: Adidas’s revenue outlook for 2022 was still much better than analysts were expecting.

Adidas stock
Source: Google Finance

Why should I care?

Zooming in: Adidas goes local.

Adidas’s Chinese sales grew just 3% last year, as customers turned to local brands like Anta Sports and Li Ning instead. That seems to be part of a wider trend: a handful of China’s top sneaker brands collectively grew their revenue by 17% last year, while foreign rivals saw theirs shrink by 24%. Still, at least Adidas can tap into some local know-how going forward: it just hired a new head of Chinese operations with a track record of boosting brands in the region.

Adidas by region
Source: Adidas

The bigger picture: Lululemon’s stepping it up.

Footwear has always made up a big part of Adidas’s sales, but it’s facing new competition on that front: Lululemon announced earlier this week that it’s launching its first sneaker – a running shoe for women – later this month. The athleisure brand is planning to expand into men’s sneakers next year, and analysts seem to agree that it could be a smart way to gain ground on the sportswear giants.

Keep reading for our next story...

Cathay Pacific Reported Another Full-Year Loss

Cathay image

Cathay Pacific reported a full-year loss on Wednesday, and the Hong Kong airline will need some seriously dedicated passengers if it plans to turn that around.

What does this mean?

All credit to Cathay: the carrier rolled out a successful cost-cutting program last year, and its frequent cargo flights proved a lucrative alternative to passenger services. That helped the company turn a profit in the second half of the year, even as it flew 85% fewer passengers than it did in 2020. But the company still made a $700 million loss, which came as a bitter pill to swallow after a $2.8 billion shortfall the year before.

Cathay loss
Source: The Wall Street Journal, Cathay Pacific

This one’s not off to a great start either: the Hong Kong government has introduced flight bans now that Covid cases are on the rise again, as well as mandatory post-flight quarantines. That means Cathay is now only flying about 2% of the passengers it flew before the pandemic, and it’s expecting to lose up to $200 million a month until those restrictions are lifted.

Cathay passengers
Source: The Wall Street Journal, Cathay Pacific

Why should I care?

Zooming in: Freight-eningly expensive.

Cathay made about 79% of its revenue from flying cargo last year, so it reckons more of those flights could be the way to balance out those losses. It might be onto something: European airlines have been avoiding Russian airspace since the country’s invasion of Ukraine, pushing up the cost of flying air freight between China and northern Europe by 34%.

The bigger picture: Flights over troubled waters.

As if the pandemic wasn’t enough, now airlines have been hit with spiking oil prices – no small thing considering fuel makes up as much as 35% of their operating costs. But Cathay thought ahead: it’s already locked in all of its fuel costs for this quarter and half of next quarter’s too. It’s also one of the few airlines still flying in Russian airspace, meaning it has shorter flight times and lower fuel bills than its more principled rivals.

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