The Adidas Group reported a sharp drop in profit margins on a 19.2 percent decline in sales for the first quarter, due to the coronavirus outbreak, but warned that the second quarter will be worse.

With more of its store base still closed at the time of of the release of its results, the management said it was expecting a drop of more than 40 percent in total revenues for the current quarter, leading to a loss in operating income in the triple-digit millions. The group is boosting investments in e-commerce, which rose by 35 percent in the quarter, accelerating to 55 percent growth in March after a temporary decline in February.

The group’s chief executive, Kasper Rorsted, said that this will speed up its four-year-old digital transformation. The company posted a net profit from continuing operations of only €20 million in the first quarter, down by 97 percent from the year-ago period, as sales declined by 19.2 percent to €4.75 billion, with hardly any currency effect on the turnover. A stronger dollar and a different regional mix – with a lower high-margin Chinese component than before – led to drop of 4.2 percentage points in the gross margin to 49.3 percent. Some promotional activity also played a role. Product takebacks worth €250 million taken in China to help manage inventories contributed to an overall squeeze of 13.5 percentage points in the operating margin, which fell to just 1.4 percent of sales.

Excluding Asia-Pacific, which was hardest hit by Covid-19 during the quarter, the group’s global sales were up by 8 percent in the quarter. Greater China, which normally represents 23 percent of its business, and generates high margins, saw sales off by 58 percent. Much more in SGI Europe, which covers the athletic footwear and apparel market. You can click here for the whole article and related charts.