Adidas Sales, Profit Top Estimates as Turnaround Plan Begins

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Adidas Store
Customers browse trainers as footwear sits on display inside an Adidas AG Originals store in Berlin on March 4. Photographer: Krisztian Bocsi/Bloomberg

Adidas AG reported first-quarter sales and profit that exceeded estimates on strong sales of running shoes and streetwear as outgoing Chief Executive Officer Herbert Hainer lays the groundwork for a turnaround.

Sales surged 17 percent to 4.08 billion euros, Adidas said Tuesday, beating the 3.9 billion-euro average estimate. Operating profit rose 12 percent, sending the stock up as much as 3.3 percent in Frankfurt.

Hainer, under pressure last year to make way for a successor after a profit slump, unveiled a plan in late March to jumpstart growth through 2020 by focusing on sales in a handful of trend-setting cities from Los Angeles to Tokyo and paring Adidas’s product line to better compete with Nike Inc. The No. 2 sports-gear maker benefited in the quarter from 11 percent growth in its core Adidas-branded gear, especially running shoes and more casual street-wear sneakers.

“For the time being, it’s enough for investors,” said Cedric Rossi, an analyst at Bryan Garnier & Co., who has a neutral rating on the shares. “The pressure on the management is still there, but it’s not as dramatic as it was last September or October.”

The shares were up 2.3 percent at 77.34 euros as of 12:19 p.m. in Frankfurt, adding to a 31 percent gain through yesterday. CEO since 2001, Hainer has said he wants to serve out the last two years of his contract while the company searches for his successor.

‘Very Optimistic’

“It’s not about whether I stay here until the end of my contract or not, it’s about how we turn the company around,” Hainer said on a call with reporters. “We are very optimistic about our outlook for the rest of the year.”

The CEO’s plan involves cranking up marketing while cutting costs elsewhere. Adidas’ new “Sport 15” campaign is a return to more traditional highlight reels featuring soccer star Lionel Messi and others after experiments with less conventional sports last year. New soccer cleats will arrive in stores in July and August, Hainer said.

At the same time, the company is saving money by having a single sales team serve big European retailers such as Intersport and Zalando SE, a spokeswoman said.

Adidas’s sales and marketing budget increased by 26 percent in the first quarter to 554 million euros. The operating margin excluding a goodwill impairment charge widened slightly to 8.9 percent. Volker Bosse, an analyst at Baader Bank, called that an “encouraging sign.” The company predicts an operating margin of no more than 7 percent this year, which is half of what analysts forecast for Nike.

Golf Slump

Operating profit rose to 345 million euros, compared with the average 321 million-euro estimate, while net income of 221 million euros compared with analysts’ 219 million-euro estimate.

Sales increased 28 percent in North America, or 7 percent without the benefit of a stronger U.S. dollar. They rose 13 percent in western Europe and 44 percent in greater China, while falling 34 percent in Russia and the former Soviet states.

Golf sales continued to slump, falling 9 percent on a currency-neutral basis.

Adidas confirmed its full-year guidance for revenue to increase by mid-single digits excluding currency effects, and a gross margin of 47.5 percent to 48.5 percent.

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