Adidas Sees Imminent Soccer Boost as World Cup Build-Up BeginsJulie Cruz
Adidas AG, the world’s second-biggest sporting-goods maker, said the build-up to next year’s soccer World Cup in Brazil will boost revenue from the current quarter as it starts selling team jerseys and the official match ball.
Sales related to the event will help “a lot” in the fourth quarter, Chief Executive Officer Herbert Hainer said today on a conference call after Adidas reported estimate-beating third-quarter profitability.
Federation jerseys including Germany, world champion Spain and Argentina will be released next week and the match ball in December, Hainer said. A Samba range of brightly colored footwear to be worn this weekend by players including Barcelona’s Lionel Messi and Real Madrid’s Gareth Bale went on sale yesterday. The CEO has forecast that soccer sales will rise to a record 2 billion euros ($2.7 billion) next year.
Adidas gained as much as 3 percent in Frankfurt today after the company’s third-quarter report eased concern over earnings following September’s reduced profit forecast. The gross margin, the percentage of sales left after production costs, widened to 49.3 percent from 47.4 percent a year earlier, Herzogenaurach, Germany-based Adidas said. Analysts had forecast 48.1 percent.
The gross profit margin was “surprisingly good,” said Herbert Sturm, an analyst at DZ Bank AG in Frankfurt. “Third-quarter numbers showed no more negative surprises. We expect a series of positive newsflow in the next months.”
Adidas shares were up 3.4 percent at 86.23 euros at 12:58 p.m. They have risen 28 percent this year compared with a 49 percent increase for larger competitor Nike Inc.
In addition to the initial boost to soccer sales from World Cup merchandise, Hainer said he expects a “solid” fourth quarter for the company’s TaylorMade-Adidas golf business.
A weak golf market was one of the reasons given by Adidas for reducing its 2013 profit forecast in September, with the euro’s strength and disruptions related to a switchover to a new Russian distribution site also being cited at the time.
Adidas is “making good progress on returning shipping quantities back to normal levels” in Russia, the CEO said.
The company has been pushing running and fitness products this year because of the lack of a major soccer event that usually provides a boost to annual profit. It’s shaking up management at Reebok to revamp the fitness brand, which has weighed on growth since the German company acquired it in 2006. Reebok will grow for the year as a whole, Hainer said today.
Third-quarter net income fell about 8 percent to 316 million euros ($427 million), in line with the 316.9 million-euro average of 11 analyst estimates compiled by Bloomberg.
Golf revenue declined 16 percent in the quarter on a currency-neutral basis, while Reebok sales advanced 5 percent, Adidas said. Total revenue dropped 6 percent in western Europe because of “macroeconomic challenges” and 5 percent in North America because of declining demand for golf products.
The sporting-goods maker is “very confident” for western Europe next year, Hainer said on the call.
Adidas reiterated today that it expects net income of 820 million euros to 850 million euros this year, with the operating margin widening to 8.5 percent from 8 percent.
The company said last month it is on track to reach a target of 17 billion euros in annual revenue in 2015. Nike, based in Beaverton, Oregon, said in October it will have $30 billion in annual revenue by the end of its fiscal year 2015.
Third-quarter sales declined 7 percent to 3.88 billion euros, just below the 3.91 billion-euro average estimate of 18 analysts. On a currency-adjusted basis, revenue was stable, Adidas said.
The weakness of currencies including the Japanese yen, Brazilian real and Russian ruble against the euro wiped 500 million euros off revenue in the first nine months of 2013, Adidas said. The company’s euro hedging rate for 2013 is 1.32 compared with 1.35 to 1.36 in 2012, Chief Financial Officer Robin Stalker told journalists today. Adidas is hedging its purchasing and is not hedging revenue, Stalker said.