Adidas, Zalando Bounce After Meeting Lowered Expectations

By Geoffrey Smith 

Investing.com -- Two of Europe's biggest clothing companies rose in early trading on Thursday as their quarterly reports avoided fresh disappointments after recent profit warnings. 

Adidas AG (ETR:ADSGN) stock rose 2.4% in Frankfurt after the sports apparel giant reported a 4% rise in sales in the second quarter, even after adjusting for the euro's slide during the period. Online fashion powerhouse Zalando (ETR:ZALG), meanwhile, rose 9.1% - the best performer in the benchmark DAX index - after it forecast an improvement in sales and profitability in the second half of the year after a stagnant first half. 

Both companies had lowered their guidance for the full year in the last couple of weeks, Adidas citing headwinds in China, the loss of sales in Russia, and lingering effects from the closure of its factories in Vietnam last year, which left it unable to meet resurgent demand in the key North American market.

Zalando, meanwhile, has struggled as consumers have returned to physical stores after gorging themselves online in the last two years. 

Adidas said on Thursday that a strong performance in North and South America, as well as Europe, Middle East, and Africa, had helped to offset problems in China, where sales were down 35% on the year. Sales in North America rose 21% and sales in EMEA, excluding Russia, were up 13%. 

Because Adidas will have to spend the rest of the year discounting to clear excess inventory in China, it lowered its gross margin forecast for the year to 49%, from 50.7% previously. In the second quarter, it had already fallen by 1.5 percentage points to 50.3%.  It now expects overall sales growth this year of just under 10%, having previously forecast a range around 12%.

"While so far the company did not experience a meaningful slowdown in the sell-through of its products or significant cancellations of wholesale orders in any market other than Greater China, the adjusted guidance also accounts for a potential slowdown of consumer spending in those markets during the second half of the year as a result of the more challenging macroeconomic conditions," Adidas said.

Zalando, whose sales are concentrated in Europe, reported that its gross merchandise value stagnated at 3.8 billion in the second quarter from a tough comparative quarter a year earlier. Revenue fell 4% due to changes in its business model, while earnings before interest and taxes fell by more than half to 77.4 million euros. 

However, the company said it expects to return to growth along with improved profitability in the second half of the year, upholding the guidance that it gave when it slashed its forecasts in June. Zalando sees full-year revenue rising as much as 3% to 10.7 billion euros and EBIT of between 180 million-260 million euros.