adidas AG (XETR: ADS.DE) announced its 2022 Q1 financial results on May 6, 2022. According to the announcement, net sales, operating profit and net income were down 0.6%, 38.0% and 11.5%, respectively (YoY, 3 months). Its gross margin recorded 49.9%, down 1.9 pp year over year. In addition, diluted EPS from continuing and discontinued operations were down 10.7% (YoY, 3 months).
As of the end of 2022 Q1, operating cash flow was loss of 437 million EUR. However, FCF was gain of 639 million EUR. The most major cause of the negative operating cash flow seems to be significant increase in adidas working capital. The FCF margin at the end of 2022 Q1 was 12.1%.
Reviewing the sales by region, Latin America showed the largest growth of up 41.2% (YoY, 3 months). It was followed by North America of up 21.2% (YoY, 3 months). On the other hand, due to the influence of the COVID-19 pandemic, the Greater China recorded down 28.4% followed by down 16.0% in Asia Pacific (YoY, 3 months).
The decline in adidas net sales is expected to be temporary because it is due to the regional spread of COVID-19 infection. Thus, the company’s sales are expected to rebound in 2022 Q2. As indicated above, the decrease in company’s operating cash flow is due to the increase in working capital, which was planned for such a rebound in sales. Accordingly, the company’s financial condition is expected to stabilize in a medium term.
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