Saturday, June 15, 2024

Once-unstoppable consumers are finally tapping the brakes—and Adidas, Nike, and Puma are taking a beating from sinking sales

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Tougher times may be on the way if lackluster sales guidance from the world’s biggest shoe and apparel companies are any indication.

On Wednesday, Adidas’s share price retreated as much as 9%, before bouncing back Thursday, after it signaled that sales and profits for 2024 would be weaker than analysts expected. The company predicted “mid-single-digit” sales growth for the coming year, a far cry from the 9% growth analysts expected. It’s also looking to offload its leftover Yeezy shoe inventory after terminating its deal with rapper Ye, formerly known as Kanye West.

Adidas joined competitors Nike and Puma in cutting expectations for the coming year, causing concern among some that consumer spending could be pulling back, despite stronger-than-expected numbers in 2023. 

Adidas CEO Bjorn Gulden acknowledged in a statement that the company’s financial performance was “not good,” and on its Wednesday earnings call asked for patience as the company continues to make progress.

“Consumer sentiment around the world is, of course, not great. It’s not like people are lining up everywhere to buy product,” Gulden said.

When reached for comment, an Adidas spokesperson directed Fortune to a company press release. A spokesperson for Puma said the company could not comment because it is in its quiet period, and Nike did not immediately respond to a request for comment.

With high-profile layoffs at big tech companies in the news, pay raises cooling, and American workers nervous and staying in their jobs more, it’s possible that consumers will pull back on nonessential spending. The average consumer likely wants to make their money stretch, which could hurt shoe and apparel companies that have struggled to keep people shopping at higher price points, Citi analyst Monique Pollard told Reuters.

“It does suggest that consumers are a bit more focused on getting value for money,” she said. 

This trend can also be seen in streaming, another industry likely to see some pullback if consumer spending weakens. Last week, industry leader Netflix reported strong revenue and profit results for 2023, but its competitors have not seen similar success

As the price of streaming services continues to rise, consumers may increasingly decide to rely on one service and cut out all the others. “It’s logical to expect further consolidation” in the industry, Netflix said in an investor letter

Although a pullback in consumer spending would be a setback for the economy, it might just be a positive for Federal Reserve Chairman Jerome Powell.

Powell, attentive to the so-far slow cooling of inflation, indicated at a Wednesday press conference that the Federal Reserve would not be cutting rates soon, despite misplaced hope from investors.

A slowdown in spending may help change his mind—with consumers less willing to spend, producers and retailers would be incentivized to lower prices, which could finally bring inflation to the Fed 2% target.

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