At Last! Adidas Is Going Downhill.

Adidas AG (ADSGn.DE) Adidas group released its interim results today and released a signal of the most challenging earnings in the second half of the year, dragging down the share price of the second largest sporting goods group in the world by 7.1% to 254 euros in the end of Thursday, the biggest drop in nearly three years.

Adidas AG said it needed to continue to cut prices in the short term to revive sales in Europe, and it is expected that the current economic environment will continue to push up procurement costs. In a media interview, chief executive Kasper R rsted pointed out that the exchange rate war was even more worrying than the trade war. China and the United States contributed more than 45% of the revenue to the group, which would make the Adidas AG settled in euros particularly vulnerable.

The mid term performance report is actually lacking in "silver trim". The European domestic market stopped the previous four seasons' downtrend in the two quarter. The income of 1 billion 421 million euros was flat in the same period last year. Chief financial officer Harm Ohlmeyer said at the analysts conference call that the local market had stabilized and expected that the rebound in the second half of the fiscal year would be enough to support Europe's annual sales growth.

The United States continues to be affected by the shortage of mid-range clothing, but sales growth in the two quarter of the North American fixed exchange rate can still rise from 5.8% in the first quarter to 5.8%, while the Nike Inc. (NYSE:NKE) Nike group's brand in the last quarter increased 10% in North America last year. Harm Ohlmeyer pointed out that the United States is still a "very active market", and the product supply problem can be completely resolved this year, which will not affect the 2020 performance.

The biggest market growth in the Asia Pacific region has slowed down, mainly because the growth rate in the Greater China region decreased by two percentage points to 14%, and the Korean entity passenger traffic continued to decline. 7.8% Harm Ohlmeyer stressed that the growth of the same store sales is the biggest driving force for China's performance improvement. In response to the analyst's questions, Kasper R rsted pointed out that a good balance was achieved between China's online and offline channels, the daily average passenger flow of the largest flagship stores in China reached 2-3 million, and the opportunities for the lower tier cities to expand the physical network were still huge, but the group would maintain the 12 thousand sales targets while reducing the opening speed; on the other hand, the growth of digital business was significantly ahead of the physical channel.

Adidas Adidas brand slowed its sales growth in the two quarter from 5.3% in the first quarter to 4%, while Reebok Reebok reversed its downward trend to achieve 3.1% growth.

Adidas AG's net sales of 5 billion 509 million euros in the quarter were slightly lower than the 5 billion 540 million euros expected by the market, up 4.7% from 5 billion 261 million euros in the same period last year, and 4% after the exchange rate effect, which was flat in the first quarter, and the number of business climbed 37%.

Gross profit margin improved by 120 basis points, reaching 53.5%. Operating profit increased by 8.6% to 643 million euros, or less than the 651 million euros expected by the market.

Management reiterated that the annual fixed exchange rate rose by 5%-8% and the growth rate of the second half was expected to increase. The gross profit margin continued to increase from 51.8% in 2018 to 52%, which means that gross profit margin in the second half of this year will be much lower than the medium-term level. The management explained that the air supply needed to be increased by the end of the year to speed up the supply of products in the US market. In addition, a large number of companies have transferred production lines recently. For Adidas AG, increasing production capacity is not only increasing, but also needs to pay a higher price. On the other hand, Adidas Adidas brand is relocated to the European network of Decathlon SA Decathlon this year, and the profit margin will be suppressed after the wholesale proportion rises.

Kasper R rsted pointed out that Adidas AG 1/5 capacity deployment in China, most of which supply the local market, helping the Greater China region to create 25% revenue for the group. He also stressed that tariffs would not affect the US selling price of his products when he accepted the CNBC visit.

Last week, China's Puma SE (PUMG.DE) Puma raised its annual sales and earnings outlook, showing investors' expectations for Adidas AG over the past week and its disappointment.

As of Wednesday's closing, Adidas AG (ADSGn.DE) surged 50% in 2019, and Credit Suisse Group AG Credit Suisse analysts pointed out today that the group narrowed the gap with Nike Inc. (NYSE:NKE) Nike group on market capitalization. However, sales and earnings were not up to standard, and the trend of the brand was also worrying.

In recent years, Puma SE Puma, a textbook revival, has maintained strong double-digit growth so far. Nike Nike brand continues to win Adidas AG in Europe and Asia.

The group has adjusted the new product launch mode of high-end brand Yeezy this year. Kasper R rsted pointed out that last year, restrictions on style delivery but increased supply were changed to increase new products and reduce supply this year. He stressed that although Yeezy is very popular in both primary and secondary markets, the group does not intend to fundamentally expand the product base. The Yeezy sports shoes on the market will only grow slightly as new products are sold.