Adidas Plunges After Reducing Forecast on Russia, GolfAaron Ricadela
Adidas AG shares fell by a record after the world’s second-largest sporting-goods maker slashed its full-year profit forecast, bursting euphoria around the German company less than a month after its national team’s victory in the World Cup.
Adidas said profit this year will miss its forecast by at least 180 million euros ($241 million). The shoemaker and apparel maker scrapped a long-standing growth target for next year, citing a slump in demand for golf supplies in North America combined with turmoil in Russia. The shares tumbled as much as 16 percent in Frankfurt trading, the biggest intraday drop since the company’s 1995 initial public offering.
“You could argue they’ve been a victim of their own success,” said John Guy, an analyst at Berenberg Bank in London who recommends buying the shares. “Russia is one of their most profitable regions,” and now a dispute with Ukraine and economic sanctions against Russia are weighing on the outlook.
Adidas traded 13 percent lower at 60.94 euros as of 12:30 p.m. in Frankfurt. It’s the worst-performing member of Germany’s benchmark DAX index this year, down 35 percent.
Net income this year will be about 650 million euros, Herzogenaurach, Germany-based Adidas said in a statement, down from the earnings of 830 million euros to 930 million euros the company had previously anticipated. In addition, the company said its so-called Route 2015 targets for sales and profitability aren’t achievable by next year.
The company has now abandoned its goal of 17 billion euros in sales next year and an operating margin of 11 percent. Analysts surveyed by Bloomberg expect 2015 sales of 15.7 billion euros.
Adidas said it plans to close stores and delay openings in Russia, a market where 2013 sales exceeded 1 billion euros. Adidas had previously planned to end this year with more than 100 net new stores, spokeswoman Katja Schreiber said. The company had named Russia and the former Soviet countries one of its three “attack markets,” which were supposed to contribute about half of the company’s sales growth.
In golf, where Adidas has taken North American market share over the past decades, the sport is being gutted by fewer rounds played and steep discounting. Adidas will restructure its TaylorMade golf unit “to align the organization’s overhead to match lower expectations,” the company said. Young people haven’t cottoned to the game while existing players are leaving it or replacing equipment less frequently.
The challenges abroad are increasing pressure on Chief Executive Officer Herbert Hainer to perform as well in the U.S., Russia and other foreign markets as Adidas has in Germany, where it’s reaping the benefits of its home country’s World Cup soccer win. Adidas said this month it sold more than 8 million replica World Cup jerseys, including 2 million with Germany’s stripes and eagle.
Yet it’s spending heavily on basketball and other sports to catch market leader Nike Inc. in the U.S., and is being hurt by international disputes and currency effects in Russia. Adidas also said it plans to spend more on marketing in North America and western Europe to take advantage of momentum from the World Cup, where it sponsored the two finalists, Germany and Argentina.
“The profit warning was expected by us but came in sharper than feared,” Baader Bank analyst Volker Bosse said in a note to clients today.
In the second quarter, sales increased 2 percent to 3.47 billion euros, in line with with analysts’ average 3.48 billion-euro estimate. Net income was 144 billion euros, compared with the 150 million-euro estimate. Golf sales fell 18 percent in the quarter.
The company plans to report full second-quarter results on Aug. 7.