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Adidas Cuts Forecasts as Quarterly Profit Misses Estimates (2)

August 08, 2013

Adidas Cuts Forecasts After Quarterly Profit Misses Estimates

Customers ride an escalator beneath an advertisement for Adidas AG inside the Afimall City shopping and entertainment complex at "Moscow City" business center in Moscow. Photographer: Andrey Rudakov/Bloomberg

Adidas AG (ADS) cut its 2013 revenue forecast because of “lackluster” sales of sporting goods in Europe and unfavorable currency impacts after reporting second-quarter profit that trailed analysts’ estimates.

Adidas said full-year goals will now be more challenging to meet. The German sporting-goods maker expects sales to rise by a “low- to mid-single-digit rate on a currency neutral basis” from a previous forecast of “mid-single digit” percentage growth, it said today in a statement. The shares fell as much as 3.8 percent in Frankfurt.

Second-quarter net income rose 4.2 percent to 172 million euros ($230 million), missing the 175.8 million-euro average estimate of 13 analysts surveyed by Bloomberg. Sales declined 3.8 percent to 3.38 billion euros, compared with the 3.43 billion-euro average estimate. Excluding currency swings, sales were unchanged.

Adidas’s 11 percent decline in western European sales is “a point of concern,” said Ingbert Faust, an analyst at Equinet Bank, who has an accumulate rating on the shares. While sales are likely to improve in the remainder of the year, rival “Nike’s strong market presence with the footwear products Free and Air seems to become increasingly a challenge for Adidas.”

Men’s Soccer

Adidas, based in Herzogenaurach, has been pushing product categories including running and fitness as it competes with Beaverton, Oregon-based Nike Inc. (NKE:US) in a year that lacks a major men’s soccer event. The world’s second-largest sporting goods maker follows cross-town rival Puma SE (PUM) in reporting worse-than-expected sales and profit as austerity measures weigh on consumer spending in Europe and currency fluctuations penalize growth.

Adidas expects “top-line momentum” to improve in the remaining quarters of 2013 with the fourth quarter set to be “stronger than normal,” it said.

Adidas shares fell 0.7 percent to 85.20 euros as of 10:43 a.m. local time, giving the company a market value of 17.8 billion euros.

Quarterly sales rose 6 percent in Greater China, 7 percent in other Asian markets and 21 percent in Latin America, excluding currency swings, Adidas said. Sales fell 2 percent in North America.

“While currency headwinds have added additional speed bumps to our path in 2013, from a strategic and operational perspective, we are absolutely on track,” Chief Executive Officer Herbert Hainer said in the statement.

Olympic Games

Adidas attributed western Europe’s decline to higher prior year rates following the UEFA Euro 2012 soccer tournament and the London 2012 Olympic Games as well as macroeconomic challenges in the region.

The gross margin, the percentage of sales left after production costs, widened to 50.1 percent from 48.2 percent a year earlier, boosted by pricing and higher margin product and regional sales mixes, Adidas said. Analysts had forecast 49.3 percent for the margin.

Adidas raised its gross margin forecast to 48.5 percent to 49 percent, from an earlier forecast of 48 percent to 48.5 percent. The measure will benefit from growth in emerging markets and in Adidas’s own shops as well as improvements at the Reebok brand, though these gains will be partly offset by less favorable hedging rates as well as increasing labor costs, Adidas said.

Revenue at Reebok grew 11 percent on a currency neutral basis. Hainer has vowed to revive the fitness brand after the unit’s sales declined in each of the three years after its acquisition in 2006 and dropped again last year. Reebok will return to growth this year, he has said.

The operating margin will widen “to a level approaching 9 percent” from 8 percent, the company said, repeating an earlier forecast.

To contact the reporters on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net; Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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