Adidas reported a drop-off in quarterly sales on Friday, after the German sportswear giant found itself a bit light on… well, everything.
What does this mean?
China was once touted as a hotbed of opportunity for Adidas, but it’s been causing one headache after another lately: first a year-long boycott of the company’s products, now a series of lockdowns that have kept its stores shut. Lockdowns in Vietnam have been just as problematic, mind you, with Adidas’s manufacturing hubs grinding to a halt and leaving it short on stock. That’s a disruption that the company reckons added up to about $420 million in lost sales last quarter.
All this chaos dragged down Adidas’s currency-neutral sales – which strip out the effect of currency swings – by 3% from the same time the year before. And while it’s expecting sales to grow again this quarter, the company doesn’t have such high hopes for profit: it cut its target for the year, and investors sent its stock down 5%.
Why should I care?
The bigger picture: Adidas wastes not, wants not.
Adidas is the world’s second-biggest sportswear company after Nike, but it’s not above taking its rival’s hand-me-downs. See, Nike has been moving away from third-party sellers, with Foot Locker recently acknowledging that sales of Nike products will make up around 20% less of its total sales than they did in 2020. Foot Locker, then, announced that it’d stock more of Adidas’s gear instead, with the aim of tripling the company’s product sales in its stores by 2025.
Zooming out: China’s nothing if not stubborn.
Adidas lowered its profit target partly because it thinks the China situation will continue for some time, and it has a point: the government doubled down on its zero-Covid policy late last week, despite the damage it’s doing to the country’s economy. Data out last week, for instance, showed that the country’s services sector suffered its second-biggest contraction since the start of the pandemic last month.
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The US Added More Jobs Than Expected
Data out on Friday showed that the US added more jobs than expected last month, but it’s a band-aid on a broken bone at this point…
What does this mean?
Even in a US economy that shrank for the first time in almost two years last quarter, the country’s businesses are valiantly keeping their chins up: they added 428,000 new jobs last month – 28,000 more than economists were expecting. Leisure and hospitality yet again led the gains with 78,000 extra jobs, taking its unemployment rate to its lowest since September 2019. That’s all the more impressive when you consider that the proportion of people either in or looking for work fell to 62.2% last month, meaning there was an even smaller pool of available workers to choose from.
Why should I care?
For you personally: Better ask for a raise pronto.
You might be pleased to hear that average hourly pay increased by 0.3% in April compared to the month before. But you might not be so pleased to hear that it was up 0.5% the month before, and that some economists are hoping this could be the start of a slowdown in wage growth. Still, that could work in your favor in the long run: a wage slowdown should help the Federal Reserve (the Fed) slow down the fastest rise in prices in 40 years.
The bigger picture: Is the ECB finally going to back down?
The Fed raised interest rates substantially last week for that specific purpose, but the European Central Bank (ECB) hasn’t been prepared to commit to a similar move. That could be about to change: some of the ECB’s most reluctant economists said last week that they’re now open to hikes after eurozone inflation hit a record high last month. The region’s first hike in more than a decade could happen sooner rather than later too, with calls for the ECB to step in as soon as July.
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