Adidas Cuts Forecasts as Quarterly Profit Misses Estimates

Adidas AG cut its 2013 forecasts because of “lackluster” sales in Europe and unfavorable currency impacts after reporting second-quarter profit that trailed analysts’ estimates.

Adidas said full-year goals will now be more challenging to meet. The Herzogenaurach, Germany-based sporting-goods maker expects full-year sales to rise by a “low- to mid-single-digit rate on a currency-neutral basis” from a previous forecast of “mid-single digit” percentage growth, it said today in a statement. The shares fell 2.9 percent to 83.30 euros at 9:17 a.m. in Frankfurt.

Second-quarter net income rose 4.2 percent to 172 million euros ($230 million), compared with the 175.8 million-euro average estimate of 13 analysts surveyed by Bloomberg. Sales declined 3.8 percent to 3.38 billion euros, compared with the 3.43 billion-euro average estimate. Excluding currency swings, sales were unchanged.

Adidas follows cross-town rival Puma SE in reporting worse-than-expected sales as austerity measures weigh on consumer spending in Europe and currency fluctuations penalize growth. Adidas expects “top-line momentum” to improve in the remaining quarters of 2013 with the fourth quarter set to be “stronger than normal,” it said.

Currency Swings

Quarterly sales rose 6 percent in Greater China, 7 percent in other Asian markets and 21 percent in Latin America, excluding currency swings, Adidas said. Sales fell 2 percent in North America and 11 percent in western Europe.

“While currency headwinds have added additional speed bumps to our path in 2013, from a strategic and operational perspective, we are absolutely on track,” Chief Executive Officer Herbert Hainer said in the statement.

Adidas attributed western Europe’s decline to higher prior year rates following the UEFA Euro 2012 soccer tournament and the London 2012 Olympic Games as well as macroeconomic challenges in the region.

The gross margin, the percentage of sales left after production costs, widened to 50.1 percent from 48.2 percent a year earlier, boosted by pricing and higher margin product and regional sales mixes, Adidas said. Analysts had forecast had 49.3 percent for the margin.

Margin Forecast

Adidas raised its gross margin forecast to 48.5 percent to 49 percent, from an earlier forecast of 48 percent to 48.5 percent. The measure will benefit from growth in emerging markets and in Adidas’s own shops as well as improvements at the Reebok brand, though these gains will be partly offset by less favorable hedging rates as well as increasing labor costs, Adidas said.

Revenue at Reebok grew 11 percent on a currency neutral basis. Hainer has vowed to revive the fitness brand after the unit’s sales declined in each of the three years after its acquisition in 2006 and dropped again last year. Reebok will return to growth this year, he has said.

Other operating expenses as a percentage of sales are expected to increase rather than decrease “modestly” as previously forecast, Adidas said. Sales and marketing working budget expenses as a percentage of sales are projected to be at a similar level to last year, the company said.

The operating margin will widen “to a level approaching 9 percent” from 8 percent, Adidas said, repeating an earlier forecast.

(Updates with share price in second paragraph.)
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