May 5 (Bloomberg) -- Adidas AG, the world’s second-largest sporting-goods maker, plunged in Frankfurt trading after saying half a year’s profit will be wiped out as demand slumps worldwide and the company revamps the Reebok brand.

First-quarter net income fell 97 percent to 5 million euros ($6.69 million), Herzogenaurach, Germany-based Adidas said today. That missed the 94 million-euro median estimate of seven analysts surveyed by Bloomberg. First-half earnings per share will be “around break-even” before a second-half recovery.

Chief Executive Officer Herbert Hainer said he’ll cut more than 1,000 jobs and close regional offices as part of a plan to save 100 million euros. Asian demand fell as gains from last year’s Beijing Olympics weren’t sustained, and the company incurred 80 million euros of extra costs in the quarter, partly to integrate Reebok’s back office with the Adidas brand. The shares slid 11 percent, the most since Oct. 15.

“Asia’s sales decline was surprising,” said Alessandra Coppola, an equity analyst at Standard & Poor’s. “We are really looking at bad news in core areas. They were so unlucky to buy Reebok at the peak of the U.S. market. They had been more optimistic than the market on turning it around.”

Adidas bought Reebok in 2006 for $3.67 billion. It’s been cutting jobs, shortening production times, and merging the operations of the two athletic-shoe brands.

Unpaid Debts

Sales declined 6 percent, excluding exchange rates, at the Adidas brand, exceeding the 4 percent for Reebok. Sales also fell 6 percent on that basis for TaylorMade golf gear, sponsor of Spain’s Sergio Garcia.

Chief Financial Officer Robin Stalker said Adidas took a 35 million-euro provision to account for “ageing receivables,” its term for debts unlikely to be repaid soon. A company spokesman wouldn’t give more details.

Hainer, speaking on a conference call, said Adidas posted its first-ever sales drop in Asia after the company held too much inventory given the slowdown in China. In Russia, which Adidas had targeted as its future biggest European market, the company said profitability will be hurt by the ruble’s 21 percent drop against the euro this year.

“I know results for the first quarter may not appear satisfactory,” Hainer said on the call, saying he’s tackling Reebok’s difficulties “head on.” The CEO also said he’ll close some stores and “consolidate” the wholesale business.

The company has already cut around 500 jobs at Reebok and TaylorMade, with a further 500 to go via “fluctuations” as people who leave the company aren’t replaced, Hainer said.

Sales, Shares Fall

Adidas fell 3.3 euros to 26.2 euros in Frankfurt, wiping out the stock’s gains this year. Rivals Puma AG and Nike Inc. have added 16 percent and 8 percent in 2009, respectively.

First-quarter sales declined 2 percent to 2.57 billion euros, and fell 6 percent when the effects of currency moves are excluded. The company repeated its sales forecast, saying revenue in 2009 will fall at a “low-to-mid single-digit” pace, excluding foreign-exchange swings.

First-quarter earnings per share were 4 cents, compared with 79 cents a year earlier. Profit on that basis will become “significantly positive” again in the second half as input costs moderate and soccer’s 2010 World Cup generates sales.

Operating profit in the quarter was 58 million euros, down from 282 million euros a year earlier.

Narrowing Margins

Adidas said gross margins narrowed 4 percentage points to 45.2 percent in the first quarter, hurt by higher sourcing costs and the declining value of eastern European currencies.

Gross margins are forecast to contract this year as promotions, raw materials and wage costs increase, Adidas said, without being more specific.

Commerzbank analyst Christoph Dolleschal said the margin decline was “severe,” and the restructuring plans show the “situation appears tense.” He rates Adidas shares “reduce.”

By region, three-month sales fell 5 percent in Europe at constant exchange rates, Asian sales slid 6 percent and American revenue tumbled 17 percent. Latin America was the only region to post an increase, with a 31 percent gain.

Net debt increased by 810 million euros to 2.88 billion euros, partly due to currency effects, Adidas said. Inventories rose 28 percent this year as demand failed to meet expectations.

To contact the reporters on this story: Sarah Shannon in London at sshannon4@bloomberg.net; Holger Elfes in Dusseldorf at helfes@bloomberg.net.

Last Updated: May 5, 2009 12:18 EDT