Adidas Sees World Cup Stoking Growth After Past ‘Mistakes’Paul Jarvis
Adidas AG forecast increased revenue and profitability next year as the soccer World Cup in Brazil helps the second-biggest producer of sporting goods make up for “mistakes” over the past three years.
Sales in 2014 will grow at a “high-single-digit currency-neutral rate,” the Herzogenaurach, Germany-based company said today in a statement, about two months after reducing its 2013 profit forecast. Adidas also predicted improved profitability, while confirming the five-year objectives it set in 2010.
Chief Executive Officer Herbert Hainer is seeking to restore the company’s growth trajectory after saying in September that 2013 profit would be weighed down by the euro’s strength, disruption from a switchover to a new Russian distribution hub and a weak market for TaylorMade golf products. Adidas has shaken up management at Reebok to revamp the fitness brand it acquired in 2006 and which has weighed on growth.
Since setting its Route 2015 goals for sales and profitability, Adidas has “made a few mistakes,” the CEO said today at an investor conference at the company’s headquarters. These included the switch to a new warehouse in Russia, which led to inventory shortages in the country, he said.
“After three years, we are not where we thought we would be in terms of the numbers,” Hainer said.
Adidas said three years ago that it wanted to become the world’s leading sports company, which would put it ahead of Nike Inc. Right now, that’s still some way off. Sales at the German company fell 4.3 percent to 11 billion euros ($14.9 billion) in the first nine months of 2013 and were unchanged on a currency-neutral basis. Nike said in October it expects annual revenue to reach $36 billion by 2017, topping a previous forecast.
In terms of revenue, Adidas probably won’t overtake Nike “in the next few years,” Hainer said today on a conference call, adding that “this is not our primary target.”
Adidas today confirmed its goal for revenue to reach 17 billion euros in 2015. Sales last year were 14.9 billion euros.
The operating profit margin should widen by about 1 percentage point next year compared with 2013 and the company still targets a margin of 11 percent in 2015, Hainer said.
“The group’s goals for 2015 look challenging following the recent profit warning issued for 2013,” Allegra Perry, an analyst at Cantor Fitzgerald, said in a note yesterday.
Adidas was down 1.2 percent at 88.21 euros as of 5:11 p.m. in Frankfurt trading. The shares have gained 31 percent this year compared with a 53 percent increase for Nike.
Adidas today repeated a forecast that soccer sales will rise to a record of more than 2 billion euros next year.
The build-up to next year’s soccer World Cup in Brazil will boost revenue from the current quarter, Hainer said this month. The company is today unveiling the tournament match ball, the Brazuca, after earlier releasing new federation jerseys for teams including Germany, Spain and Argentina.
Adidas doesn’t anticipate any player criticism of the Brazuca, which is the “best ball we have ever made,” Hainer said. Some players at the last World Cup finals voiced discontent over the Adidas-designed ball, known as the Jabulani.
The World Cup is an event that is “typically revenue-generating, but which also carries significant marketing expenses,” Cantor Fitzgerald’s Perry said.
Adidas’s revenue rose 16 percent in 2010, the year of the last World Cup finals tournament.
Sales growth next year will also be driven by the wider rollout of Boost running shoes, Adidas said. The company expects to sell 15 million pairs of the sneakers next year.
Reebok sales will rise to 2 billion euros by 2015, the company said, from 1.67 billion euros in 2012.