Adidas Jumps as Upbeat Outlook Outweighs Quarterly LossJulie Cruz
Adidas AG, the world’s second-largest sporting-goods maker, forecast higher sales and profit this year and raised its dividend by 35 percent as it targets fast-growing emerging markets and introduces new products.
Sales will increase at a “mid-single-digit” percentage pace in 2013, while operating margin will improve to almost 9 percent from 8 percent in 2012, the Herzogenaurach, Germany-based company said today as it reported a fourth-quarter loss because of reduced growth assumptions for the Reebok brand.
Adidas rose as much as 4.8 percent in Frankfurt trading, the most in more than 10 months, shrugging off the loss and a 2013 profit forecast that fell short of analysts’ estimates. The company, which cut its sales forecast for the year in November, is ramping up the expansion of its retail business to help offset diminishing expectations for Reebok.
“We stick to our view that earnings improvement could be higher in 2013,” Michael Kuhn, an analyst at Deutsche Bank AG, wrote after today’s earnings report. The profit outlook was “a little light, but close to consensus expectations.”
Adidas forecast 2013 net income of 890 million euros to 920 million euros, compared with the 946 million-euro average estimate of 26 analysts compiled by Bloomberg.
The shares were up 4.3 percent at 74.75 euros as of 12:15 p.m. in Frankfurt, the biggest gain in Germany’s benchmark DAX Index. They have risen 11 percent this year.
Adidas posted a fourth-quarter net loss of 272 million euros after charges for asset impairment of 265 million euros.
The charges were caused mainly by an adjustment of its growth assumptions for Reebok, particularly in North America, Latin America and Brazil, and an increase in discount rates due to Europe’s debt crisis, the company said.
“We were surprised that it happened now,” Jurgen Kolb, an analyst at CA Cheuvreux, said of the impairment. “The good news is, the basis for Reebok is now clean,” he wrote in a report.
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 in 2012.
Adidas remains committed to Reebok, Chief Executive Officer Herbert Hainer said today at a press conference, adding that “he doesn’t see why” it can’t be a “successful brand.”
He expects Reebok to return to growth this year as it introduces new footwear and apparel collections, including a collection taking inspiration from the CrossFit community and a partnership with yoga instructor Tara Stiles.
Adidas doesn’t plan acquisitions as it has to do its Reebok “homework” first, Hainer said. The company will focus on what it owns and on returning cash to shareholders, he said.
Gross margin in the fourth quarter widened to 47.6 percent from 45.6 percent amid price increases and higher retail sales.
Sales gained 4 percent to 3.37 billion euros, missing the 3.44 billion-euro average estimate of 19 analysts compiled by Bloomberg. On a currency-neutral basis, sales rose 1 percent.
Growth was boosted by double-digit revenue gains in Greater China and record sales of “well above” 1.7 billion euros in soccer, Adidas said. Golf also performed strongly last year, already reaching a 2015 revenue goal with sales of more than 1.3 billion euros. The golf business will grow “at a single-digit rate” this year, Hainer said.
Adidas proposed a dividend of 1.35 euros a share, up from 1 euro a year earlier. The increase is “very good news,” Herbert Sturm, an analyst at DZ Bank AG, wrote in a note.