Adidas Gets 3 Billion Euro Loan, Can High Growth Myth Continue?

Adidas, an international sporting goods giant, announced on April 14 local time that it has obtained a 3 billion euro syndicated anti epidemic loan guaranteed by the German government, which will be used to meet the challenges posed by the new coronavirus epidemic.

The company said the amount of the loan was provided in the form of a standby revolving loan for a period of 15 months to July 2021. Among them, 2.4 billion euro comes from KfW, the German state-owned bank, and the rest 600 million euro comes from commercial banks that have business relations with Adidas, including HSBC, Citigroup, Deutsche Bank, Bank of America, etc.

Under the terms of the loan, Adidas must suspend dividend payments. The company's board of directors has stopped buying back shares and has decided to give up all short-term and long-term bonuses this year.

With the spread of the new crown epidemic in Europe and the United States, Adidas announced that from March 17 to 29, Adidas and Reebok all branches in Europe, North America and Canada would be temporarily closed. The company said its own and joint venture stores in most markets in Europe, North America, Latin America and Asia Pacific were temporarily closed in the past four weeks. This means that about 60% of Adidas's wholesale and retail business is completely suspended.

Adidas shares are down about 28% so far this year, the latest to $117.25/share, and fell to $90.9 on March 18, the first time since the end of 2017 to break through the $100 mark.

Greater China may lose 1 billion euro in sales revenue

In recent years, adidas has adopted the fashion strategy to create popular fashion products, which has been able to maintain a six-year continuous profit growth of double-digit. However, the epidemic has cast a shadow over the growth prospects of the sports apparel giant.

On March 11, Adidas released its 2019 financial report, which showed that the annual revenue reached 23.64 billion euro, an increase of 8% compared with that of fiscal year 2018, and the annual net profit increased by 12% to 1.918 billion euro. Among them, the sales revenue of the Asia Pacific market reached 8 billion euro, accounting for 33.8%, with a year-on-year growth rate of 12%, exceeding the growth rate of the group in Europe, the United States and other major markets. Adidas, the group's main brand, saw sales growth of 14% in the Asia Pacific market last year.

As the largest sporting goods company in Europe and the second largest in the world, Adidas currently has more than 1300 stores in the world and employs about 60000 people worldwide.

Adidas announced for the first time in its financial report the impact of the new crown pneumonia epidemic on the Chinese market. The company expects adidas' revenue in Greater China to fall by about 80% from the same period last year from the Chinese new year on January 25 to the end of February. In the first quarter of fiscal year 2020, sales in Greater China market are expected to decrease by 0.8 billion to 1 billion euro and operating profit by 400 million to 500 million euro.

Industry insiders believe that Adidas's financial situation is still very stable, and the main purpose of seeking loans this time is to prepare for a rainy day. However, considering the sharp drop in the company's offline store revenue, the company needs to prepare sufficient funds to cope with the long-term persistence of the epidemic. According to the financial report, as of the end of fiscal year 2019, the company held 2.2 billion Euro Cash and cash equivalents, and 292 million euro short-term financial assets can be realized.

The two major events failed

In recent years, the share of international sports brands in the domestic market is growing. According to frost Sullivan report, the market share of international sports brands in China's sports shoes and clothing retail market has increased from 46% to 54% from 2014 to 2018, and is expected to further increase to 59% in 2023.

It is reported that nearly one fifth of Adidas's shoes and clothing are produced in China. The company said that although the supply chain is facing the risk of disruption, most of its factories in China have resumed operation, and global purchasing activities have not been affected so far. However, Adidas admitted that it is still unable to accurately assess and quantify the impact of the epidemic on the company's overall performance in 2020, and the company will release its first quarter performance report on April 27.

By the end of 2018, Adidas had 2395 retail stores, more than 14000 single brand franchise stores and more than 150000 wholesale stores. Last April, Adidas announced plans to open another 1000 stores in China and double the number of cities it sells.

For a long time, large-scale sports events are the best opportunity to attract brand attention. European Cup and Tokyo Olympic Games of such magnitude, is the major sports clothing brands can not miss the marketing opportunity. It is understood that Adidas is one of the biggest sponsors of this year's European Cup, and is also the official sponsor of Germany, Spain and Belgium. At the same time, Adidas also sponsored many associations and athletes participating in the Tokyo Olympic Games. However, the two competitions were announced to be postponed, which undoubtedly brought a double blow to adidas' marketing.