Adidas Net Beats Estimates as Profitability Widens to Record

Adidas AG reported first-quarter profit that beat estimates and said its gross margin widened to a record, sending the shares to the highest level ever.

Net income climbed 6.5 percent to 308 million euros ($403 million), the Herzogenaurach, Germany-based sporting-goods maker said today, exceeding the 298.5 million-euro average estimate of 15 analysts in a survey. The shares surged as much as 7 percent to 85.05 euros, the highest since trading began in 1995.

“It’s a very strong start to the year and there could be some upside to their 2013 forecast,” said Sebastian Frericks, a Frankfurt-based analyst at Bankhaus Metzler. “The gross margin saved the day. Revenue wasn’t great, but this was expected.”

Gross margin widened to 50.1 percent from 47.7 percent on higher pricing and a bigger proportion of sales from the company’s own stores, where profitability is higher. Analysts predicted a gross margin of 48.6 percent. Adidas, which had record soccer sales last year helped by the European championships, is pushing other product categories because of the lack of a major soccer event in 2013.

“We delivered strong margin progress, which is our top priority for the year,” Chief Executive Officer Herbert Hainer said in the statement.

Adidas was up 5.9 percent at 84.20 euros as of 12:40 p.m. The shares have gained 35 percent in the past year, giving the shoemaker a market value of 17.6 billion euros.

Weaker Sales

First-quarter revenue fell 1.9 percent to 3.75 billion euros. That missed the 3.76 billion-euro average estimate of 15 analysts. Revenue in western Europe slid 6 percent on a currency-neutral basis, led by declines in Spain, Italy and the U.K. Sales gained 6 percent on a currency-neutral basis in greater China, while climbing 12 percent in Latin America.

Reebok sales tumbled 16 percent in the first quarter. The company introduced the Energy Boost shoe for runners in February and expects Reebok to return to growth this year as it expands the brand’s activities in the fitness market.

Energy Boost was the “most successful running launch ever,” Hainer told journalists on a conference call today.

Adidas’s wholesale revenue fell 5 percent in euro terms, while retail sales gained 4 percent on the same basis.

The company reiterated that it expects sales to increase at a “mid-single-digit” percentage pace excluding currency shifts in 2013, while the operating margin will improve to almost 9 percent from 8 percent in 2012. Adidas is targeting an operating margin of about 11 percent by 2015.

‘Key Story’

“Continued operating margin improvement is the key story for the financial year 2013,” Christopher Svezia, an analyst at Susquehanna Financial Group, wrote in a report on April 30. “There is upside to guidance on the margin, particularly if sales come in stronger than expected in the second half.”

Adidas expects the euro-dollar hedging rate to worsen this year, Chief Financial Officer Robin Stalker said on the conference call. Negative currency translation effects in Japan are “not likely” to improve, he said.

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