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Adidas Declines After Cutting Forecast on Russia, Golf

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Adidas Cuts 2013 Earnings Forecast as Euro Gains on Yen to Real
A worker repairs a broken window of an Adidas AG store near Taksim Square in Istanbul. “The further weakening of several currencies versus the euro throughout August and September such as the Russian rouble, Japanese yen, Brazilian real, Argentine peso, Turkish lira and Australian dollar have intensified the negative currency translation headwinds already highlighted,” Adidas said today. Photographer: Lam Yik Fei/Bloomberg

Sept. 20 (Bloomberg) -- Adidas AG, the world’s second-largest sporting-goods maker, fell the most in more than a year after cutting its 2013 profit forecast for reasons that include Russian distribution difficulties and a weak golf market.

The shares slid as much as 5.9 percent to 77.71 euros, the steepest intraday drop since June, 2012.

Adidas reduced the low end of its profit forecast by 7.9 percent late yesterday, also because of the strength of the euro, which has caused analysts to cut profit estimates in recent weeks. A switch to a new warehouse in Russia led to inventory shortages in the country, while the golf season has started slowly for the maker of TaylorMade clubs. Still, Adidas said it remains confident in its 2015 goals.

“The magnitude of the cut is disappointing and will weigh on management’s credibility on profit guidance,” Andreas Inderst, an analyst at Exane BNP Paribas, said in a note today. He maintained an outperform recommendation on the stock, saying he expects a “healthy recovery” in sales and profitability from the fourth quarter onwards.

Adidas was down 3 percent at 80.1 euros as of 4:23 p.m.

Net income this year will be 820 million euros ($1.1 billion) to 850 million euros, Herzogenaurach, Germany-based Adidas said in a statement. The company had previously forecast net income of 890 million euros to 920 million euros.

Euro Strength

About 45 percent of the forecast cut was related to currency movements, 35 percent to Russian distribution and 20 percent to the golf market, Inderst estimated.

Adidas, which makes almost 73 percent of its revenue outside western Europe, joins European companies such as Puma SE and Prada SpA that have also suffered from the strength of the euro. The currency has gained about 5 percent this year, the second-best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

Analysts at JPMorgan Chase & Co. and Berenberg Bank both cut their 2013 profit estimates for Adidas by about 3 percent earlier this week, citing the euro’s strength. Citigroup Inc. analysts said in a note that consensus estimates for net income may now fall by 9 percent to 10 percent.

Adidas said it won’t attain its goals in Russia because of the country’s currency weakness combined with an “unexpected short-term distribution constraint” as a result of the transition to a new distribution facility in Chekhov.

Inventory Shortage

Adidas opened the new warehouse earlier this year and closed its original distribution center early, resulting in a shortage of inventory, analysts at Barclays Plc said in a note.

Sixty-two million products a year will be sent out from the facility to Russia and Kazakhstan until 2017, according to Adidas spokesman Lars Mangels. The company couldn’t distribute the quantity of products it had planned to in the third quarter though the issue was a “one-off” and is “under control,” Mangels said. The shoemaker said it expects a resolution of the matter at the beginning of the fourth quarter.

Adidas also cited weakness in the global golf market yesterday, saying it will lead to a lower sales and profit contribution from the segment than originally forecast.

The golf season started late in many markets and the amount of rounds played globally dropped at a double-digit rate on average, Adidas said Aug. 8. The company has about 40 percent of the global market for golf, it said at the time.

Declining Participation

Golf participation in the U.S. has been declining since a 2003 peak, according to Mintel. While the recession is partly to blame, a declining number of rounds per year prior to the slowdown indicates a loss of interest in the sport itself, the researcher has said. A lack of money and time are most often cited as reasons for not playing the game, Mintel said.

“Golf is still a great entertaining corporate environment, but sports that are taking some of the attention away would be some of these mass-participation opportunities like cycling, triathlon, running,” Charlie Dundas, managing director at sports marketing researcher Repucom, said in a phone interview.

Adidas cut its forecast for operating margins to about 8.5 percent of sales from a previous forecast of 9 percent. It also further pared its revenue forecast for the year, saying sales will rise at a “low-single-digit” pace. The company said Aug. 8 it expected sales to rise at a “low- to mid-single-digit rate,” after previously forecasting “mid-single-digit” percentage growth, because of unfavorable currency movements.

While Adidas faces “increased headwinds,” Chief Executive Officer Herbert Hainer said yesterday, “momentum will clearly return to our business in the fourth quarter and beyond.”

The company has a goal for revenue to reach 17 billion euros by 2015 compared with 14.9 billion euros last year.

To contact the reporter on this story: Julie Cruz in Frankfurt at

To contact the editor responsible for this story: Paul Jarvis at

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