German sportswear giants Adidas and Puma are facing significant drops in sales in China as a result of the coronavirus outbreak. Both companies have warned that the impact of the virus has now spread to other markets, causing shares to plummet further. Adidas expects its first-quarter sales to decline by up to €1 billion ($1.14 billion) in greater China, with operating profit projected to fall between €400 million and €500 million. Jefferies analyst James Grzinic states that the situation appears worse than initially anticipated. Meanwhile, Puma has abandoned its 2020 guidance, stating that it does not expect its business to return to normal anytime soon.

Asia constitutes almost a third of the sales for both Adidas and Puma, making it a crucial growth market for the industry. The region also serves as the main sourcing hub, with China being a significant producer for both companies. While Adidas has seen a slight improvement in business activity in greater China, it reported a decline in shopper traffic in Japan and South Korea. Puma also noted a significant fall in sales in other Asian markets, as Chinese tourists are unable to travel for shopping. Additionally, both companies have witnessed a decline in shopper traffic across Europe.

To mitigate the impact, Adidas has suspended shipments to wholesale partners in China and plans to clear excess inventory through its own channels throughout the year. The majority of Adidas’ factories in China are now operational again, and its global sourcing activities have not been significantly affected. Puma has also resumed operations in most of its Chinese factories, with only minor delays in its global supply chain.

Looking ahead, Adidas has forecasted a currency-neutral sales increase of 6-8% for the full year, with an operating margin growth between 10.5% and 11.8%. However, this outlook does not account for any impact from the coronavirus outbreak. In the last quarter of 2019, Adidas saw significant growth in greater China, North America, and Europe. Sales in greater China grew by 18% on a currency-neutral basis. Puma also witnessed positive growth in the fourth quarter of 2019.

Both Adidas and Puma anticipate a severe impact on their business due to the coronavirus outbreak. The full extent of the damage remains uncertain as the virus continues to spread globally, affecting markets and disrupting supply chains.

Useful Links:
1. [World Health Organization – Coronavirus Disease (COVID-19) Outbreak](https://www.who.int/emergencies/diseases/novel-coronavirus-2019)
2. [Financial Times – Coronavirus: Q&A on how the outbreak is hitting the global economy](https://www.ft.com/content/1dd92f8a-4ffc-11ea-95a0-43d18ec715f5)