Adidas Posts 26.1% Earnings Gain in 4th Qtr.

Adidas AG said net profits increased 26.1 percent in 2006, but fourth-quarter earnings missed analysts' expectations as the German sportswear behemoth copes with the integration of Reebok.

PARIS — Adidas AG said net profits increased 26.1 percent in 2006, but fourth-quarter earnings missed analysts’ expectations as the German sportswear behemoth copes with the integration of Reebok.

Adidas AG, based in Herzogenaurach, Germany, said Wednesday that fourth-quarter net income was 13 million euros, or $17 million, compared with a 4 million euro, or $5 million, loss a year earlier. Still, the figure was below market expectations.

Fourth-quarter sales jumped 47.8 percent, to 2.25 billion euros, or $2.9 billion, from 1.52 billion, or $2 billion, a year earlier. Excluding Reebok, sales climbed 4.8 percent, to 1.59 billion euros, or $2.1 billion. Dollar figures are at the average exchange rate.

For the full year, driven by double-digit sales growth in all regions except Europe, profit rose 26.1 percent, to 483 million euros, or $609 million, on a sales increase of 52 percent, to 10.08 billion euros, or $ 13.6 billion, from 6.64 billion euros, or $8.3 billion, a year ago. Excluding Reebok, sales for the year increased 13.7 percent, to 7.55 billion euros, or $9.5 billion.

Herbert Hainer, Adidas AG chairman and chief executive officer, said in a statement that 2006 “was a truly exciting year for the Adidas Group, as we strengthened our brand portfolio by acquiring Reebok and exceeded the 10 billion euro sales mark for the first time in the group’s history. Our performance at the 2006 World Cup was a standout in leveraging our brand strength, and we clearly delivered strong operational and financial results.”

By segment, Adidas’ year-end sales increased 13.1 percent, to 6.63 billion euros, or $8.6 billion, and sales at TaylorMade-Adidas Golf jumped 20.8 percent, to 856 million euros, or $1.1 billion. The first-time consolidation of Reebok added 2.47 billion euros, or $3 billion, in sales to the group. The Greg Norman apparel business, which was acquired with Reebok, also had a positive impact on group sales.

By region, group sales were up 31.4 percent in Europe, 107.2 percent in North America, 32.6 percent in Asia and 56.4 percent in Latin America.

Looking ahead, Adidas said it would concentrate on turning around its Reebok brand, which has been faced with falling sales and a weak order backlog. Adidas purchased Reebok for 3.8 billion euros, or about $4.8 billion in an attempt to close in on Nike, the world’s leading sporting goods manufacturer.

This story first appeared in the March 8, 2007 issue of WWD.  Subscribe Today.

“Reebok did not deliver the earnings accretion in 2006 that we originally anticipated,” Robin Stalker, chief financial officer, said during a press conference. Stalker blamed purchase price allocation and the closing of factories in Indonesia. At the end of 2006, Reebok’s order backlog slipped 18 percent.

“Reinvigorating the brand is the highest priority in 2007,” said Hainer, noting that in 2007 the group would focus on providing better brand communication, such as the Run Easy campaign that will be launched in April, and innovative products, especially in the running, branded apparel and women’s apparel categories.

In July, Reebok signed Scarlett Johansson to design an athletic-inspired sportswear and footwear line called “Scarlett [Hearts] Rbk.” Hainer also said it would establish a more efficient distribution strategy for Reebok, especially in the U.S., and “reduce traditional channels not conducive to the brand’s new positioning.” That means a more exclusive selection of retailers such as Nordstrom, Dick’s Sporting Goods and trendy footwear boutiques.

“We have to build Reebok Europe and Asia to give some relief to the U.S., where we believed we are over distributed,” Hainer said.

Adidas said it expected gross margin to increase “strongly” in 2007, to between 45 percent and 47 percent, helped by better performance in all three brand segments, in particular Reebok.

Profit growth for 2007 is expected to increase at a double-digit rate and “approach” 15 percent on sales that are expected to rise by a mid-single-digit rate.

On its home turf, Adidas AG is working to counter Nike’s efforts to take over as the official supplier of uniforms for Germany’s national soccer team, which would make Nike the world’s biggest maker of gear for the sport. Adidas said it was confident it would extend its contract with the team. “No one knows [soccer] better than we do,” said Hainer. “[Soccer] is the heart and soul of Adidas.”