Jamie Spencer
Sportswear giant Adidas announced on Tuesday that U.S. President Donald Trump’s tariffs would result in cost hikes for all its U.S. products. The company noted that while it does not yet know how much prices will increase, the ongoing global trade dispute is preventing it from raising its full-year outlook despite a strong first-quarter profit surge.
Uncertainty Around Tariffs
“Higher tariffs will eventually cause higher costs for all our products for the U.S. market,” Adidas said in a statement. The company further explained that while it is “somewhat exposed” to the U.S. tariffs on Chinese products, which currently stand at an effective rate of 145%, the most significant impact is from the general increase in U.S. tariffs on imports from other countries. These tariffs are largely at 10% while trade negotiations are ongoing.
Adidas also pointed out that it is currently unable to produce most of its products within the U.S., with production taking place in countries like Vietnam and Cambodia, which are facing U.S. tariffs upwards of 40% in the absence of a trade deal. As a result, Adidas is unable to make any definitive decisions on future pricing until the outcome of the trade negotiations is clear.
Challenges Facing the Retail Sector
Adidas’ predicament is shared by many retail businesses serving the U.S., ranging from ultra-low-cost e-retailers like Temu to luxury brands like Hermès. The uncertainty surrounding tariffs is forcing companies to consider price hikes and worry about the potential impact on consumer demand.
Strong Earnings Despite Tariff Worries
Despite the uncertainty caused by U.S. tariffs, Adidas reported strong financial performance in the first quarter. Net income from continuing operations rose 155% to 436 million euros ($496.5 million), surpassing analyst forecasts. Net sales climbed 12.7% to 6.15 billion euros, and the operating margin improved by 3.8 percentage points to 9.9%. Adidas has successfully overcome the negative impact of its collaboration with controversial musician Ye, ending the partnership in 2022 due to antisemitic comments, and selling off its remaining Yeezy stock in March.
Future Outlook
While Adidas saw double-digit sales growth across all regions and channels in the first quarter, analysts are cautious about the potential effects of the ongoing trade war and tariffs on future performance. “Footwear continues to be a strong performer, with consumers opting for lifestyle clothing as well,” said Mamta Valechha, a consumer discretionary analyst at Quilter Cheviot. However, Adidas will need to navigate the uncertainty created by tariffs before seeing the full impact on its operations.
Despite these challenges, Adidas refrained from changing its full-year revenue and operating profit outlook, although the company acknowledged that the “range of possible outcomes has increased” due to the unpredictable tariff situation.
