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European Market Spurs Adidas Earnings in Qtr.

Propelled by strong performance in Europe that offset weakness in North America, net profits at Adidas Salomon jumped 27 percent to $36.3 million.

PARIS — Propelled by strong brand performance in Europe that more than offset weakness in North America, net profits at Adidas Salomon AG raced ahead 27 percent in the second quarter to $36.3 million, or 80 cents a share.

This story first appeared in the August 7, 2003 issue of WWD.  Subscribe Today.

The quarterly performance compares with net income of $28.4 million a year ago, or 63 cents, reported in the year-ago period. Dollar figures have been converted to the euro at current exchange. In local currency terms, net income in the three months ended June 30 rose to 32 million euros, compared with 25 million euros the previous year. The gain was also attributed to gains in emerging markets such as Argentina, Turkey and Brazil, which had suffered from unstable economies the previous year.

Sales at the Herzogenaurach, Germany-based firm fell 7.6 percent to $1.58 billion in the second quarter compared with $1.71 billion the previous year. Stripping out the negative effects of currency, group sales increased 3 percent in the period.

Morgan Stanley analyst Mandy Deex said in a research note that sales in the quarter were lower than expected, but the income figures were a positive surprise.

In the first half, net income increased 22 percent to $94.4 million versus $77.3 million a year ago. Sales slipped 3 percent to $3.48 billion versus $3.57 billion the prior year but, at constant exchange, advanced 8 percent.

The North American market has been the company’s greatest challenge. In the first half, sales there fell 17 percent to $898.5 million compared with $1.08 billion in 2002. Footwear was off 11 percent and apparel orders decreased 12 percent.

In a conference call with analysts Wednesday, Herbert Hainer, Adidas chairman and chief executive officer, acknowledged the firm is confronting “a difficult consumer searching for bargains and promotional sales.” However, he said Adidas would not pursue the discounting strategy in America adopted by some of its competitors. “We are convinced that it will not be good in the long term,” he said.

Instead, Adidas hopes to win North American consumers by building its image and market profile. For example, the firm, as reported, just signed endorsement packages with American basketball players Kevin Garnett, Tracy McGrady and Tim Duncan.

Hainer did not address market speculation that Adidas may make acquisitions, but he acknowledged the group “may need additional measures” to drive sales in North America. He added that Adidas will also fine-tune distribution in the U.S. and introduce new retail concepts.

Hainer said he expects North American sales to be “slightly below market level” in the second half. However, the firm maintains its 2003 sales growth target of 5 percent on a currency-neutral basis, with net income growth targets remaining at 10 and 15 percent.