Adidas Cuts Reebok Revenue Forecast; Brand Damps GrowthJulie Cruz
Adidas AG, the world’s second-biggest sporting-goods maker, lowered its 2015 forecast for sales at the Reebok brand, taking the shine off increased revenue goals in all other parts of the business.
Reebok’s sales in 2015 will be about 2 billion euros ($2.6 billion), the Herzogenaurach, Germany-based company said today, down from a forecast of 3 billion euros made in November 2010. Adidas cited the loss of a contract to supply National Football League apparel, revised reporting of ice hockey-related license sales and a focus on profitability.
Reebok has weighed on Adidas’s growth since it was acquired in 2006. Sales at the brand declined in each of the three years after the acquisition, while the discovery of “commercial irregularities” at Reebok in India caused the sporting-goods maker to cut its guidance for wholesale revenue this year. Nike Inc. replaced Reebok as the NFL’s apparel supplier this year.
“It seems that they are reducing the overall ambition of the brand,” Sebastian Frericks, an analyst at Bankhaus Metzler in Frankfurt, said of Reebok. While a cut in the forecast had been expected, it was bigger than anticipated, he said.
Adidas fell as much as 3 percent in Frankfurt trading and was down 1 percent at 64.91 euros as of 2 p.m.
Adidas Chief Executive Officer Herbert Hainer said last month he has “no doubt” Reebok will grow again in 2013 and he doesn’t have any plans to sell the brand. Hainer plans to reduce the brand’s store base and will introduce new products in the second half of the year and next year, he said.
“Hainer is really committed to the brand so I don’t see him giving up on his strategy and selling,” Frericks said. “It would also be difficult to sell. The big competitors would probably not be interested and a financial investor wouldn’t be interested either given the current profitability.”
Adidas named Chief Marketing Officer Matt O’Toole global head of Reebok last week as it seeks to restore growth at the U.S. fitness brand as soon as next year. O’Toole will report to Erich Stamminger, the Adidas board member responsible for global brands.
The retailer changed the structure of Reebok’s brand organization to focus on “building measurable and sustainable categories, rather than the approach of the last few years on product pillars,” Hainer said in a speech to investors in Carlsbad, California yesterday.
Revenue from the Adidas brand will be 12.8 billion euros by 2015, the company also said today, up 5 percent from a November 2010 projection of 12.2 billion euros.
The company’s other businesses, including TaylorMade-Adidas Golf, will reach their 2015 goals this year, Adidas also said. Sales at the units, which also include Rockport and Reebok-CCM Hockey, will be 2.2 billion euros by 2015, up from its original 2010 forecast of 1.8 billion euros, Adidas said, keeping its goal for total 2015 revenue of 17 billion euros.
The company said it expects to add about 1 percentage point a year to operating margin, which it forecasts will approach 8 percent this year and increase to about 11 percent by 2015.
The sales target “doesn’t look too aggressive anymore, but the margin target is still pretty aggressive, which is what matters,” said Joerg Frey, an analyst at M.M. Warburg in Hamburg.
Growth in sales of the Adidas brand will be led by record soccer revenue, growth in basketball and an “unprecedented” pipeline of running products, the company said.
Adidas sport-style sales are expected to increase to 3.9 billion euros by 2015, compared with a previous forecast of 3.7 billion euros, led by growth at the NEO brand, it said.