WWD.com/business-news/financial/adidas-3q-net-profit-grows-2-percent-1852067/
government-trade
government-trade

Adidas Third Quarter Net Up Slightly

German activewear giant said a lower tax rate boosted its bottom line.

The Reebok headquarters in Massachusetts.

PARIS — German activewear giant Adidas AG on Thursday said a decrease in taxes helped third-quarter net profits inch up 1.5 percent to 302 million euros, or $455 million at average exchange. Earnings per share rose 5.6 percent to 1.54 euros, or $2.32.

The second-largest activewear company after Nike reported that third-quarter revenues rose 4.8 percent, or 11 percent on a currency-neutral basis, to 3.08 billion euros, or $4.64 billion. Adidas sales grew 10 percent to 2.22 billion euros, or $3.34 billion. TaylorMade-Adidas Golf increased 3.5 percent to 197 million euros, or $296.8 million. Those increases offset a 9 percent slump in Reebok’s business to 1.59 billion euros, or $2.39 billion. On a currency-neutral basis, Adidas grew 15 percent, TaylorMade-Adidas Golf rose 12 percent and Reebok declined 1 percent.

Though the group maintained its 2008 forecasts of high-single-digit currency-neutral sales growth and net profit growth of 15 percent, Adidas withdrew its 2009 financial guidance, which included an operating margin target of 11 percent. That move sent the stock price down 9.6 percent to 26.64 euros, or $34.46, when the German exchange closed Thursday. Though optimistic that it can still grow sales and earnings in 2009, Adidas doesn’t expect to match 2008’s performance, the company said.

“It’s just a matter of time before the consumer panic and credit crunch we are watching escalate every day around the globe begins working its way into our industry and our business in a more profound way,” chief executive officer Herbert Hainer warned analysts during a conference call Thursday. Comparable sales are down for most retailers, he added, and the firm’s own retail sales are also slowing.

Reebok, which delivered disappointing sales and profits, is particularly vulnerable in the downturn. “Retailers are concentrating on brands that are a safe haven — mainly Adidas and Nike,” Hainer said, adding that retailers still have higher-than-desired levels of low-priced Reebok inventory. By March, the firm intends to have cleared out bargain-basement, unprofitable Reebok products, such as $29 sneakers, which once represented $200 million of the brand’s turnover, in order to focus on collections that lift the brand’s image.

Meanwhile, Adidas sales in China, where the Olympics drove a 50 percent increase, are expected to slow due to retailers’ high post-Games inventories. Buoyed by good business in Adidas stores, however, such as its Beijing flagship, which is attracting 200,000 visitors a month, the brand is opening several hundred new units in China. In Russia, meanwhile, Adidas now has 350 stores.

Adidas’ order backlogs, indicative of future growth, were up 4 percent in currency-neutral terms on Sept. 30. Reebok orders have declined 13 percent, but that figure excludes its own retail channels.

For the nine months, the group’s overall business grew by 4 percent, to 8.23 billion euros, or $12.53 billion, with North America the only region to suffer a sales drop. Net income grew 11 percent to 588 million euros, or $806.9 million, while EPS increased 14 percent to 2.96 euros, or $4.50.

While the group confirmed a high-single-digit sales growth target and raised TaylorMade-Adidas Golf’s forecast to high single digits, from a midsingle-digit increase, the group cut its outlook for Reebok, forecasting flat sales.