Adidas (ADDDF) blamed a sharp drop in first-quarter profit on poor sales in China on Friday.
The German sportswear conglomerate reported a net profit of €310 million ($327 million) in the first three months of 2022, a 38 percent decrease from the same period the previous year.
The company attributed the drop to a “challenging market environment” in China, where sales fell 35%, as well as supply chain disruptions.
With no end in sight to Chinese President Xi Jinping’s zero-Covid strategy, Adidas’ business in China — which accounted for roughly 20% of the company’s sales last year — looks bleak.
Recently implemented Covid lockdowns have forced a large number of stores to close. Adidas also reported “significant traffic declines” in parts of the country not directly affected by the restrictions.
“Revenues in Greater China are now expected to decline significantly in 2022,” Adidas said in a statement.
Following an increase in coronavirus cases, Chinese authorities imposed a draconian lockdown in Shanghai, China’s financial hub, in late March. Despite the fact that authorities began to ease some restrictions last month, more than 8 million residents are still prohibited from leaving their residential compounds.
Restrictions in the capital Beijing have also been tightened recently, which is likely to hurt Western brands even more at a time when China’s economy is already contracting. The International Monetary Fund predicted last month that China’s GDP would grow by 4.4 percent this year, well below the government’s target of around 5.5 percent.