Jul 31, 2014
Adidas warns on profit due to Russia, weak golf business
Jul 31, 2014
BERLIN, Germany - German sportswear company Adidas said it would scale back plans to expand in Russia and overhaul its golf business, as problems in both areas forced it to cut its 2014 outlook and say targets it had set for 2015 were no longer achievable. Shares in Adidas, which sponsored this year's soccer World Cup winner Germany, fell 13.7 percent by 0841 GMT, hitting their lowest point in two years.
The world's second-biggest sportswear firm, which has been losing ground to rival Nike, said on Thursday it would no longer be able to meet targets it set for 2015 and would give further details on Aug. 7, when it reports full quarterly results.
Adidas said second-quarter sales rose 2 percent to 3.47 billion euros ($4.6 billion), a rise of 10 percent on a currency-neutral basis, while attributable net income was 144 million, slightly above analysts' average forecasts.
The firm said currency effects, higher marketing spending for the World Cup as well as a big fall in golf sales had offset otherwise strong underlying quarterly growth in most major categories and markets for its Adidas and Reebok brands. It said it now expected a mid-to-high single-digit sales increase for 2014, before currency effects, down from a previous target for a high single-digit rise. It also forecast net income of around 650 million euros, versus between 830 and 930 million.
Ingo Speich, a fund manager at Union Investment which is the tenth-biggest investor in Adidas with a 1.2 percent stake said: "The profit warning could almost have been predicted but the extent of it is catastrophic... unfavourable conditions are no excuse. Nike is stealing Adidas' thunder in important markets"
CUTS TO GOLF, RUSSIA BUSINESS
Adidas cut its expectations for its TaylorMade golf business after sales fell 18 percent in the second quarter as the division suffered from poor retail sentiment and slow sales of old stock.
It said it would take more steps to cut inventory in the second half and launch a restructuring programme to align costs with lower expectations for the golf industry, which has been losing popularity in its top market, the United States.
California-based TaylorMade, a brand Adidas bought in 1997 to help it compete with Nike, is the biggest maker of golf bags, clubs, clothing and shoes in the world, with sales of 1.3 billion in 2013 or almost 9 percent of the group total.
Adidas also said it was cutting investment in Russia, where it already runs more than 1,000 stores, due to a fall in the rouble since the start of the Ukraine crisis and increasing risks to consumer sentiment and spending.
"Current tensions in the region point to higher risks to the short-term profitability contribution from Russia/CIS," it said.
Adidas said it would significantly reduce its store opening plan for 2014 and 2015 and increase the number of store closures.
Russia accounted for almost 7 percent of group sales last year. Adidas had said as recently as last month that it had not seen any impact on its business there - beyond the translation effect of the weaker rouble.
Adidas also announced plans to step up spending on marketing in the next 18 months, particularly in North America and western Europe, building on the strong performance of its teams and players at the World Cup earlier this summer.
It is also introducing new organsational structures for its global brands and sales divisions under recently appointed Eric Liedtke and Roland Auschel to take effect on Aug. 1.
"Everything we announced today has one objective: to strengthen our brands, to drive consumer desire, and to set our group up for long-term success," Chief Executive Herbert Hainer said in a statement.
"We will return the group to a higher and more consistent level of earnings growth in the mid to long term."
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