Breakingviews – Adidas is failing Chinese fitness test

Boards with Adidas store logo are seen on a shopping center at the outlet village Belaya Dacha outside Moscow, Russia, April 23, 2016. REUTERS/Grigory Dukor/File Photo

LONDON, May 6 (Reuters Breakingviews) – Adidas (ADSGn.DE) is aching in China. The Yeezy trainer maker’s sales fell 3% to 5.3 billion euros in the three months ending March 31 compared to the same period last year, dragged down by a 35% fall in sales in Greater China.

The issues are multi-pronged. Covid-19 lockdowns have dented demand and disrupted supply chains in the world’s second biggest economy. Sales were also hit by a boycott on companies like Adidas for shunning cotton from Xinjiang over reports of human rights abuses against Uyghur Muslims, which Beijing denies. Adidas Chief Executive Kasper Rorsted has been coy about the impact of a customer backlash, but Puma (PUMG.DE) boss Bjorn Gulden admitted read more it would limit growth.

Difficulties in China help explain why Adidas suffers a valuation gap with its local rivals. Including debt, it’s valued at 10 times its 2022 EBITDA, according to Refinitiv forecasts, compared to around 15 times for Li Ning (2331.HK), a sportswear brand founded by the former Chinese Olympian. Closing the gap requires greater transparency on whether Covid-19 or the boycotts are the greater culprit. (By Dasha Afanasieva)

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Editing by Aimee Donnellan and Oliver Taslic

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