Matters:
Company announcement: on March 9, 2022, Adidas disclosed the results of 2021 and the fourth quarter. In 2021, the annual income reached 21.23 billion euros, and the currency neutral income increased by 16%; The net profit attributable to the parent company was 2.12 billion euros, a year-on-year increase of 390%. In the fourth quarter, Reebok's revenue was 5.14 billion euros, a year-on-year decrease of 0.1%; The net profit attributable to the parent company was 200 million euros, an increase of 33.6% after excluding Reebok.
Guoxin Textile & clothing viewpoint: 1) performance in 2021: annual revenue increased by 16%, performance increased by 390%, and profit margin recovered under the influence of multiple adverse factors; 2) Performance in the fourth quarter of 2021: under the influence of the shortage of goods in the western market, the revenue was basically flat, and the performance increased by 34% year-on-year; 3) By Region in 2021: EMEA, North America and Latin America have strong growth momentum, China and Asia Pacific have sluggish growth, and Russia Ukraine business has been suspended; 4) The fourth quarter of 2021 is divided into regions: the western market is out of stock, but the demand is strong. In most regions, the revenue growth slows down and the operating profit margin is strong. The Eastern market is affected by multiple factors, and the revenue and operating profit margin are relatively depressed; 5) Future outlook: it is estimated that the annual revenue of 2022 will increase by 11% - 13% at the same time, and the number of units in the first quarter of 2022 is expected to decline due to the shortage of goods supply; 6) Investment suggestion: in 2022, local brands are expected to continue to increase their share and the supply of international brand products will gradually recover. We are optimistic about the core supplier of the sports industry chain and China's head sports brand group. In terms of business in Greater China, Adidas declined in 2021 due to the impact of Xinjiang cotton, consumption environment and epidemic situation. Greater China is expected to resume growth in 2022, but the growth rate is still slightly lower than that of local brands. We continue to be optimistic about the increase in the share of local sports brands in China, focusing on Li Ning, Anta sports and Tebu international, At the same time, it is suggested to pay attention to the growth after the arrival of low base and usher in improved international brand core retailers taobo and Baosheng international. In terms of global business, the performance of Adidas in 2021 shows the strong demand in the western market and the severe challenge of supply chain shortage. The supply problem has been gradually solved since the second quarter of 2022, and the expectation of annual sales growth is optimistic. We are optimistic about the core suppliers of international brands with strong certainty of future performance growth, focusing on Shenzhou International and Huali Industrial Group Company Limited(300979) . 7) Risk tip: the epidemic situation is repeated, the downstream demand is less than expected, the systematic risk of the market, and the international political and economic risk.
Comments:
Performance in 2021: the annual revenue increased by 16%, the performance increased by 390%, and the profit margin recovered under the influence of multiple adverse factors
The annual revenue was 21.23 billion euros, with a growth rate of 16% under the condition of currency neutrality; The net profit attributable to the parent company increased by 390% year-on-year. China's challenging market environment, covid-19 related restrictions and supply chain challenges have had an impact on revenue of more than 1.5 billion euros. Nevertheless, the company achieved revenue of 21.23 billion yuan in 2021, excluding Reebok, a year-on-year increase of 15.0% and a year-on-year increase of 16% in currency neutral caliber; By category, outdoor training and running, football and lifestyle have achieved strong double-digit growth, mainly due to the introduction of industry-leading midsole technology and women's special training products in the field of running. The net profit attributable to the parent company was 2.12 billion, a year-on-year increase of 390.0%.
Under the influence of multiple adverse factors, the gross profit margin still recovered and the expense rate returned to the normal level. The company's gross profit margin increased by 0.7p in 2021 p. To 50.7%, higher pricing, the increase in the proportion of full price sales and the increase in the proportion of D2c all made a positive contribution to the gross profit margin, but were offset by the cost of procurement and freight by about 1p p. , the adverse impact of currency still exists, and the impact of foreign exchange on the company will turn positive by 2022. In terms of expense rate, the operating and management expense rate was 41.9%, a year-on-year decrease of 4.6p p.； The rate of marketing and promotion expenses was 12.0%, a year-on-year decrease of 0.9p p. , which still includes the temporary shelving cost of more than 220 million euros caused by the company's proposed divestiture of Reebok.
Roe returned to a historically high level and the impact of the supply chain was still on, but the inventory turnover began to become healthy and the payment of accounts payable was normalized. The roe of the company in 2021 was 28.1%, with a year-on-year increase of 21.4p p. , returning to near 2019 levels. In terms of turnover, the company's inventory turnover days in 2021 were 145 days, a year-on-year decrease of 8 days, and the amount of currency neutral inventory decreased by 12%, mainly due to strong product sales, good inventory management and the impact of supply chain; The turnover days of accounts receivable were 35 days, a year-on-year decrease of 7 days; The turnover days of accounts payable were 81 days, a year-on-year decrease of 11 days, mainly due to the normalization of payments.
Performance in the fourth quarter of 2021: under the influence of the shortage of goods in the western market, the revenue was basically flat, and the performance increased by 34% year-on-year
Looking at the fourth quarter alone, revenue basically maintained the same period last year, with a year-on-year increase of 33.6%. In Q4 of 2021, the company achieved a revenue of 5.14 billion euros, excluding the stripped Reebok, a year-on-year decrease of 0.1%, basically maintaining the level of the same period last year, a decrease of 3.1p compared with the year-on-year growth rate in the third quarter of 2021 p。 In the fourth quarter, the company realized a net profit attributable to the parent company of 200 million euros, with a year-on-year increase of 33.6%, 42.4p lower than the year-on-year growth rate in the third quarter of 2021 p。 Gross profit margin increased by 0.4p p. To 49.0%, excluding the adverse impact of foreign exchange, it has returned to the level of 2019; The rate of operating and administrative expenses increased by 2.6p p. To 34.8%; The rate of marketing promotion expenses increased by 2.1p p. To 11.7%.
In the fourth quarter, a large number of inventories were in transit, the accounts receivable increased with the strong growth of sales, and the payment of accounts payable normalized. About 40% of the inventory is in transit at the end of 2021. In North America and EMEA, which are greatly affected by supply chain constraints, the proportion of in transit inventory is about 50%. At the end of Q4, the inventory turnover days were 139 days, which was basically the same month on month. There was a shortage of goods of about 400 million euros in the fourth quarter; The turnover days of accounts receivable increased by 3 days to 42 days, which remained unchanged month on month, and the amount of accounts receivable increased by 6%, mainly due to the strong sales growth in EMEA and Latin America. The turnover days of accounts payable increased from 6 days to 73 days, and the amount of accounts payable decreased by 6% year-on-year, mainly due to the normalization of payments.
By Region in 2021: EMEA, North America and Latin America have strong growth momentum, China and Asia Pacific have sluggish growth, and Russia Ukraine business has been suspended
The western market accounted for nearly 70% and was not significantly disturbed in 2021. The growth in EMEA, North America and Latin America was very strong, and the currency neutral income in this part of the market increased by 23% year-on-year; The growth of China and the Asia Pacific region is relatively slow due to epidemic blockade, geopolitics and other reasons; Discounts in most regions have improved, which has a positive effect on the gross profit margin, while higher procurement costs and exchange rates have an adverse impact on the gross profit margin in most regions. By Region:
EMEA: revenue of 7.76 billion euros (accounting for 37%), a year-on-year increase of 23%, and currency neutral revenue increased by 24%, mainly driven by the strong double-digit growth of training, running and football. Gross profit margin in the region increased by 0.8p p. To 50.8%, including the positive effect of reduced retail discounts, the adverse effect of exchange rates and the adverse effect of higher procurement costs. Operating profit margin increased by 5.5p p. To 21.4%.
North America: revenue of 5.11 billion euros (accounting for 24%), a year-on-year increase of 13%, and currency neutral revenue increased by 17%, mainly driven by double-digit growth in training, running, football and outdoor categories. Gross profit margin in the region increased by 3.4p P to 46.2%, including the positive effect of discount improvement, higher procurement costs and adverse effects caused by unfavorable channel combination. Operating profit margin increased by 7.6p p. To 11.2%.
Latin America: revenue of € 1.45 billion (accounting for 7%), a year-on-year increase of 40%, and currency neutral revenue increased by 47%, mainly due to the strong double-digit growth in training, running, football and outdoor categories. The region's gross profit margin increased by 3.9p p. To 48.2%, including the positive effects of discount improvement and exchange rate, adverse channel combination and higher procurement costs.
Greater China: revenue of 4.6 billion euros (accounting for 22%), with a year-on-year increase of 6%, currency neutral income increased by 3%, and lifestyle categories increased by double digits. The region's gross profit margin decreased by 0.5p p. The adverse impact of the combination of purchasing channels and exchange rates was mainly offset by the favorable impact of 8.51%. The operating profit margin decreased by 0.2p p. To 26.0%.
Asia Pacific region: revenue was 2.18 billion euros (accounting for 10%), with a year-on-year increase of 5%, currency neutral revenue increased by 8%, and sports performance categories (training and running) increased by double digits. The region's gross profit margin decreased by 0.7p p. To 51.3%, mainly due to the impact of exchange rate, higher procurement cost and more unfavorable channel combination. Operating profit margin increased by 2.6p p. To 20.9%.
Russia Ukraine region: all offices and shops in Ukraine have been closed; Russia suspended retail and e-commerce business and stopped shipping goods to Russia. In 2021, the market revenue was about 500 million yuan, accounting for about 2% of the total revenue, of which 75% was obtained through the company's D2c business, including 500 self owned stores and our own digital platform, but the lease was flexible and variable, and the cost was quite high. In addition, the company raised the price of products by 20% to compensate for the depreciation of ruble.
The fourth quarter of 2021 is divided into regions: the western market is out of stock, but the demand is strong. In most regions, the revenue growth slows down and the operating profit margin is strong. The Eastern market is affected by multiple factors, and the performance of revenue and operating profit margin is relatively low
In the fourth quarter alone, revenue growth slowed in all regions except EMEA. The western market was mainly affected by shortage, while the Eastern market was mainly affected by epidemic, regional blockade, geopolitics and other factors. In terms of operating profit margin, Western markets performed strongly and achieved year-on-year growth; The performance of the Eastern market is relatively weak. For details:
EMEA: revenue of 1.83 billion euros (accounting for 36%), with a year-on-year increase of 18%; Currency neutral income increased by 15% year-on-year, up 6p p.; The operating profit margin was strong at 18.2%.
North America: revenue of 1.3 billion euros (accounting for 25%), a year-on-year decrease of 1%; Currency neutral income decreased by 4% year-on-year, down 12p from the year-on-year growth rate of 9% in the third quarter p.； The operating profit margin was higher, at 17.7%, with a year-on-year increase of 1.1p p.。
Latin America: revenue of 400 million euros (accounting for 8%), with a year-on-year increase of 9%; Currency neutral income increased by 9% year-on-year, slower than the growth rate in the third quarter 47p p.； The operating profit margin was 15.4%, a significant increase of 7.0p p.。
Greater China: revenue of 1.04 billion euros (accounting for 20%), a year-on-year decrease of 19%; Currency neutral income decreased by 24% year-on-year, 10p more than the decline in the third quarter p.； The operating profit margin was 12.5%.
Asia Pacific region: revenue of 540 million euros (accounting for 11%), a year-on-year decrease of 8%; Currency neutral income fell 6% year-on-year, 2p. 5% lower than the decline in the third quarter p.； The operating profit margin was 15.5%, a year-on-year decrease of 0.6p p.。
Future outlook: it is expected that the revenue of 2022 will increase by 11% - 13% at the same time. Under the drag of the shortage of goods supply, it is expected that the revenue will decline in the first quarter of 2022
1. Financial guidelines for 2022:
Revenue: it is estimated that the currency neutral revenue in 2022 will increase by 11% - 13% year-on-year. This growth assumption reflects the risk of the company's Russian business of up to 250 million euros or about 1 percentage point due to the Ukrainian war, and reflects the company's suspension of retail revenue business in Russia. By region, EMEA is expected to grow in double digits; North America is expected to grow in the middle to high double digits; Latin America is expected to grow in the middle to high double digits; Number of units expected to grow in Greater China; The Asia Pacific region is expected to grow in double digits.
Gross profit margin: it is expected that the gross profit margin will reach 51.5% to 52%. With the promotion of D2c business, especially the improvement of e-commerce and channel combination, as well as the positive impact of foreign exchange, the gross profit margin will increase significantly this year; However, higher supply chain costs will have a negative impact on gross profit margin.
Operating profit margin: it is expected to increase significantly to the level of 10.5% to 11%, including the positive impact of 7% one-time shelving expenses related to Reebok.
Net profit from continuing operations: expected to increase to € 1.8-1.9 billion.
Average working capital: expected to be reduced to below 20%.
Capital expenditure: expected to increase to € 900 million in June.
2. Other guidelines:
Impact of supply chain on quarterly revenue in 2022: Although the demand of EMEA, North America and Latin America is strong, there will be a supply shortage of 600 million euros in these markets in the first quarter of 2022. It is expected that the revenue in the first quarter of 2022 will decline by medium single digits (the shortage of goods will lead to a 10% decline in revenue). In the second quarter of 2022, It is expected that any major supply shortage will no longer affect the company's business in these markets. Therefore, it is expected that the revenue growth rate in the second to fourth quarters of 2022 will be in the middle and high double digits.
Product price increase: the higher supply chain cost has and will continue to drag down the company's gross profit margin. In order to compensate for the higher cost, the company is implementing a substantial price increase. In the first half of 2022, the price increase will be limited to D2c exclusive products. In the second half of 2022, the price will increase by a percentage of medium and high single digits. Freight: the company expects that the freight will not be alleviated in 2022 and said that it will wait for the freight to be alleviated in 2023.
Chinese market: the company believes that China's current market power will be conducive to Chinese local brands. Chinese companies should first stabilize. After the growth of 3% in 2021 and slightly higher growth (medium units) in 2022, they will restore relatively stable growth in the medium and long term.
Investment suggestion: in 2022, local brands are expected to continue to increase their share and the supply of international brand products will gradually recover. We are optimistic about the core suppliers of the sports industry chain and China's head sports brand group
In terms of business in Greater China, Adidas declined in 2021 due to the impact of Xinjiang cotton, consumption environment and epidemic situation. Greater China is expected to resume growth in 2022, but the growth rate is still slightly lower than that of local brands. We continue to be optimistic about the increase in the share of local sports brands in China, focusing on Li Ning, Anta sports and Tebu international, At the same time, it is suggested to pay attention to the growth after the arrival of low base and usher in improved international brand core retailers taobo and Baosheng international.
In terms of global business, the performance of Adidas in 2021 shows the strong demand in the western market and the severe challenge of supply chain shortage. The supply problem has been gradually solved since the second quarter of 2022, and the expectation of annual sales growth is optimistic. We are optimistic about the core suppliers of international brands with strong certainty of future performance growth, focusing on Shenzhou International and Huali Industrial Group Company Limited(300979) .
Risk tips
The epidemic situation is repeated, the downstream demand is less than expected, the systemic risk of the market and the international political and economic risk.
