Adidas AG said net profit rose 10.7 percent in the second quarter, prompting it to raise full-year guidance for the third time and predict record sales in 2011, despite rising input costs and a strong euro.
The world’s second-largest sporting goods company now expects full-year sales to increase around 10 percent on a currency neutral basis, up from an earlier forecast of a single-digit rate increase.
“This will be driven by strong performances in markets like Greater China and North America, continuing robust sales in our own retail stores and a less pronounced decline in Japan compared to what we feared in May,” Adidas Group chief executive officer Herbert Hainer said on a conference call after the figures were published.
The company, based in Herzogenaurach, Germany, said net income rose to 140 million euros, or $201.4 million, in the three months to June 30 from 126 million euros, or $160.7 million, in the year-ago period. Currency conversions were made at average exchange rates for the periods to which they refer.
Sales were up 5 percent in the second quarter to 3.06 billion euros, or $4.41 billion, from 2.92 billion euros, or $3.72 billion, a year earlier. On a currency-neutral basis, sales increased 10 percent during the quarter.
“After the strong first-half performance, we are on our way to record sales and earnings in 2011,” Hainer stated. “This is all the more notable as various currencies have been weakening versus the euro, which negatively impacts our financial results in the short term.”
As part of its Route 2015 strategy, the company is aiming for sales of 17 billion euros, or $20.7 billion at current exchange, and an operating profit margin of 11 percent by 2015. This compares with sales of 12 billion euros, or $15.9 billion, and an operating profit margin of 7.5 percent last year.
In the second quarter, business boomed in the group’s retail network, with sales up 13.1 percent. Revenues in the wholesale channel inched up 2.3 percent.
Greater China continued to post the strongest growth, with sales climbing 30.8 percent during the three-month period. Eastern Europe and Russia also enjoyed brisk business, with sales in European emerging markets up 10.8 percent.
Hainer said he expected Greater China, formerly a weak spot for Adidas, to continue on the growth path, although comparatives will become tougher in the second half. “We will definitely grow double digits in China for the full year, there is no doubt,” he said.
Sales in North America were down 3.7 percent in the second quarter, as the weakness of the dollar against the euro ate into the group’s earnings reported in the single European currency. On a currency-neutral basis, sales in North America rose 5.4 percent.
A notable success in the U.S. market was the AdiZero Crazy Light basketball shoe, launched in April, which had a sell-through rate of 75 percent after 45 days. “This shows that when you’re bringing new innovative products to the market which are appealing to the consumer, then even in tougher times, you can be successful,” Hainer said.
In Japan, business is recovering faster than expected following the March 11 catastrophe, with sales down just 1 percent in currency-neutral terms in the second quarter, the ceo said. The company does not break out individual country statistics in reported terms.
Around half of the group’s 300 points of sale in Japan that were shuttered in the wake of the disaster have now reopened, he reported, and Adidas now expects sales in the country to drop by a high single-digit rate in currency-neutral terms in the second half, compared with its earlier forecast of a 15 to 25 percent decline between April and December.
The group expects the Reebok brand to contribute to its gross margin for the full year, but said this positive effect would be offset by rising raw material costs and capacity constraints across the board. It is counteracting these pressures with measures that include streamlining its supply chain and raising prices at strategic price points.
“Cotton prices have come down, which is helpful. On the other hand, rubber is still up, mainly because of the car industry,” Hainer said. “If polyester and rubber would come down, it definitely would be helpful.”
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