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German sportswear maker Adidas said it would accept a €3 billion ($3.3 billion) government-backed loan and halt dividends, to help shore up the retailer against the deadly coronavirus pandemic that has ground global economies to a halt.
Shares of Adidas ADS, -3.38% fell 1.2%, but were still faring better than a 2.2% drop for the German DAX DAX, -3.07%. Global equities took a fresh hit on Wednesday as corporate earnings season ramped up and amid concerns about how long it will take economies to get back up and running.
The company said the yet-to-be concluded syndicated loan consists of a loan commitment of €2.4 billion from the country’s state-owned development bank KfW and €600 million from partner banks. Adidas Chief Executive Kasper Rørsted said the company has been tightening up on costs and management compensation, stopped share buybacks and suspended dividends, the latter of which was a stipulation of the loan.
Rørsted said the company has seen a “significant revenue and profit decline” in China since end-January and elsewhere in Asia, and “a severe impact” on revenues and cash generation elsewhere in the world since mid-March. For the last four weeks, wholesale and physical retail that accounts for 60% of sales has “come to a complete standstill.”
While the company can’t provide a 2020 outlook due to the still developing pandemic, it will move up first-quarter results to April 27. “The current situation poses a serious challenge even for healthy companies,” said Rørsted.
Citi analyst Adam Cochrane said the scale of the additional debt facilities could cause concerns among investors with regards how the management sees profits evolving this year.
“In our view this gives the company the firepower to continue to invest as required in the business and increasing global economic concerns makes the additional liquidity a prudent decision. There may be further short term earnings risk but we retain our buy recommendation,” he said, in a note to clients.
