German sportswear maker Adidas expects first-quarter sales to drop by up to $1.14 billion in greater China due to the coronavirus and while business is picking up there, it is now being hit in Japan and South Korea.

China accounted for 20 percent of Adidas sales in 2018. It sells its products from about 12,000 stores in China, most franchises plus fewer than 500 of its own stores. Almost a fifth of its shoes and apparel are produced in the country.

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Adidas warned last month that its business in the greater China area had dropped by about 85 percent year on year in the period since Chinese New Year on Jan. 25.

On Wednesday, it said it had started to see a “slight improvement” in business activity in greater China, while shopper traffic was now deteriorating in Japan and South Korea, and the impact on other countries was uncertain.

In greater China, it canceled all shipments to wholesale partners in February and it said it plans to clear excess inventory through its own channels during the rest of the year.

It expects sales in greater China in the first quarter to fall by between $709 million and $886 million.

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While its supply chain has faced disruptions, Adidas said most of its factories in China were operating again and its global sourcing activities had not been hit so far.

Adidas forecast currency-neutral sales to increase by between 6 percent and 8 percent for the full year and for its operating margin to rise by between 10 percent and 11.8 percent, but said the outlook did not include any impact from the coronavirus outbreak.

Adidas said it remained “fully confident” about its future growth prospects due to its strong positioning in an attractive industry despite the temporary challenges posed by the coronavirus outbreak.

Fourth-quarter sales rose 10 percent.

Currency-neutral sales grew 18 percent in greater China, 10 percent in North America and 14 percent in Europe, the latter a big rebound from declines in the first half of 2019 after the firm took steps to reduce its reliance on its Originals fashion line.

New York Post

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