Adidas considers giving up golf, reports strong Q2 results
today Aug 6, 2015
German sportswear company Adidas has appointed investment bank Guggenheim Partners to help with the possible sale of its golf brands, which are struggling as the sport loses popularity, particularly in its biggest market, the United States.
Adidas made the announcement on Thursday as deteriorating golf sales overshadowed otherwise strong second-quarter results, boosted by double-digit sales growth in both western Europe and China, which it expects to continue for the rest of the year.
Chief Executive Herbert Hainer told reporters on a conference call that Adidas was initially looking into the possible sale of its smaller golf brands Adams and Ashworth, although it was considering all options for the main TaylorMade label for which it also announced a turnaround plan.
Adidas bought the TaylorMade brand in 1997 along with Salomon, developing it into the world's biggest golf supplier. It acquired the Ashworth brand in 2008 for $72.8 million and the Adams brand for $70 million four years later.
But the popularity of the sport is waning - the number of golf courses in the United States, which accounts for about half the global golf market, has been declining for the past eight years.
As a result TaylorMade has reported sharp drops in sales in the last 18 months to account for about 6 percent of Adidas turnover in 2014, forcing the group to warn on profits several times.
In the second quarter the firm's golf sales fell by a currency-adjusted 26 percent, accelerating a 9 percent decline in the previous three months, as it said the launch of two new golf clubs - the R15 and the AeroBurner drivers - have not sold well.
"Concentrating on the core business should be well received by the market," said Bankhaus Lampe analyst Peter Steiner, adding that he could imagine there would be quite a few prospective buyers including from Asia and financial investors.
Other companies in the golf equipment business include Nike , Kering's Puma and Callaway Golf.
The company formerly known as Fortune Brands sold its golf business, which included the Titleist brand, in 2011 for $1.2 billion to a group led by Fila Korea and Korean private equity fund Mirae Asset Private Equity.
Adidas shares, which are up 31 percent this year helped by a stock buyback and improving sales, were up 0.9 percent at 0916 GMT, outperforming a flat German blue-chip index.
Adidas group sales rose in the last quarter by 15 percent to 3.91 billion euros ($4.27 billion) or 5 percent excluding the impact of currencies, beating an average of analysts' forecasts of 3.8 billion euros.
Hainer said he expected that robust momentum to continue in the second half, citing a strong order book and "unprecedented" demand for Manchester United kit launched on Saturday after it displaced Nike as new suppliers to the English side.
He said the weak performance of the golf business would not put the group's 2015 targets at risk. Adidas is aiming for sales to rise by a medium single-digit percentage rate on a currency-neutral basis, while net profit from continuing operations should climb by 7-10 percent.
Adidas has already overhauled top management at the golf business and launched a restructuring programme last year.
Hainer said the number of golf rounds played had reversed their downwards trend recently, suggesting that the overall environment has improved somewhat, but a radical overhaul of the business was still needed, including a review of marketing and production and more cost cutting.
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