Adidas Sees 2014 Profit Below Estimates as Currencies Weigh
Adidas AG (ADS) forecast 2014 profit as much as 17 percent below analysts’ estimates as the weakness of currencies such as the Russian ruble and Argentine peso weighs on the world’s second-biggest sporting-goods maker.
Profit will be between 830 million euros ($1.14 billion) and 930 million euros this year, the Herzogenaurach, Germany-based company said today, falling short of the 1 billion-euro average estimate of 30 analysts compiled by Bloomberg. The crisis in Ukraine poses a further risk to the business, Chief Executive Officer Herbert Hainer said at a press conference.
With almost three-quarters of revenue coming from outside western Europe, Adidas is particularly vulnerable to exchange-rates swings. The euro has advanced 24 percent in the past year against the ruble and 64 percent against the Argentine peso. Adidas may struggle to meet its 2015 goal for an 11 percent operating margin, said Cantor Fitzgerald analyst Allegra Perry.
To achieve the increase in profitability needed to meet the margin target “is highly challenging,” Perry wrote in a note.
Adidas fell as much as 3.5 percent in Frankfurt trading and was down 0.8 percent at 82.73 euros as of 11:26 a.m.
Citigroup Inc. analysts said in a note they expect average profit estimates for 2014 to fall by about 10 percent.
Russia’s dispute with Ukraine adds to this year’s foreign-exchange risk and may make consumers in the region nervous, Hainer said at a press conference at Adidas headquarters.
“We are watching the situation very closely, as you can imagine, and are in constant contact with our management team there,” Hainer said. The company saw no negative effect on sales in the first two months of the year, he said.
Adidas gets more than 1 billion euros of sales from Russia, where business last year was hurt by a switchover to a new distribution hub that led to inventory shortages.
Currency movements may reduce 2014 sales growth by a mid-single-digit percentage, Chief Financial Officer Robin Stalker said, adding that Adidas may increase prices to compensate.
Adidas, the main competitor of Nike Inc., leads the market in soccer and is seeking 2 billion euros of sales from the sport this year. The company will supply the official match ball and uniforms to eight teams at the month-long World Cup.
The tournament is played every four years and provides a lift for sporting-goods makers as fans snap up cleats, jerseys and other apparel. The lead-up to the 2014 event hasn’t all been smooth sailing for Adidas, which last month recalled a range of T-shirts after Brazil’s tourism ministry complained they linked South America’s biggest country with sexual activity.
Adidas has been emphasizing jerseys and cleats branded with the likenesses of star players including FC Barcelona’s Lionel Messi and Real Madrid’s Gareth Bale. The company last year also introduced “Boost” cushioning technology for its running shoes that it plans to migrate to other categories of shoes.
Foreign-exchange fluctuations reduced sales growth by about 9 percentage points in last year’s fourth quarter, Adidas said today. Revenue rose 3.3 percent to 3.48 billion euros, compared with the average estimate of 3.41 billion euros.
Excluding currency effects, sales in emerging European markets grew 11 percent, North American sales were up 14 percent and revenue from China expanded 8 percent.
Net income for the quarter was 42 million euros excluding goodwill impairment losses, compared with the 37.1 million-euro average estimate. The company made a loss of 7 million euros in the same period of last year.
Adidas said yesterday that Hainer’s contract as CEO has been extended by two years until March 2017, and that it’s begun to plan for the transition to his successor. Hainer took the top executive job at Adidas in 2001 and is 59.
The CEO has said he is aiming for sales of 17 billion euros by 2015 and profit that advances faster than sales.
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