WWD.com/business-news/financial/adidas-losses-narrows-as-sales-pick-up-7557700/
government-trade
government-trade

Adidas Losses Narrow as Sales Pick Up

The FIFA soccer World Cup is expected to spur ongoing gains in 2014.

The new Adidas in the Quarter is open for the NBA All Star game on Feb. 16.

BERLIN — Despite currency headwinds, Adidas outpaced expectations to deliver 12 percent currency-neutral sales growth and a vastly improved earnings performance in the fourth quarter of 2013.

What Adidas chief executive officer Herbert Hainer characterized as a “very good” Christmas season and a “fantastic start” to the brand’s FIFA World Cup business helped sales rebound after a flat performance in the first nine months of 2013.

All markets and brands generated currency-neutral sales gains in the quarter. However, on a euro basis, the group’s wholesale business, sales in Asia excluding China, and Reebok brand sales booked low-single-digit dips in the quarter.

At its year-end financial press conference in Herzogenaurach, Germany, today, Adidas reported fourth-quarter sales of 3.48 billion euros, or $4.74 billion. On a local currency basis, the gain stood at 3.3 percent.
Dollar figures are converted from euros at average exchange rates for the period in question.

The net loss in the quarter totaled 10 million euros, or $13.6 million, compared with a loss of 272 million euros, or $352.8 million, the year previously. Operating profit hit a fourth-quarter record of 45 million euros, or $61.3 million, compared with an operative loss of $310 million for the period in 2012.

The strong quarterly performance ensured Adidas met its revised sales and gross margin full-year targets. Currency-neutral group sales gained 3 percent to reach 14.49 billion euros, or $19.25 billion, in 2013, but slipped 3 percent in euro terms. Gross margin increased 1.5 percentage points to 49.3 percent, which exceeded expectations. Net income attributable to shareholders advanced 49 percent to reach 787 million euros, or $1.05 billion, but this was below the company’s guidance of 820 to 850 million euros.

Regionally and on a currency-adjusted basis, Latin America took center stage in 2013, posting 19 percent sales gains, followed by greater China with 7 percent, other Asian markets with 5 percent, European emerging markets with 4 percent and North America 2 percent. Only Western Europe lagged behind, with a 6 percent decline, but fourth-quarter sales in the region picked up by 3 percent.

Both Adidas and Reebok enjoyed a solid 2013, the group said, with innovations such as Adidas Boost pushing the Adidas running business ahead 17 percent. Adidas Neo also gained 14 percent year on year, and Reebok’s sales were up 2 percent. After a late start, TaylorMade-Adidas Golf closed the year up 3 percent, and Rockport also grew sales by 6 percent.

Currency-neutral wholesale revenues remained stable but were down 5 percent in euro terms. The group’s retail business gained 8 percent, with 2,740 stores in operation by the end of 2013. In 2013, 534 new stores were opened, 240 stores closed and 127 stores remodeled.

Retail now represents 24 percent of total group sales, and while comparable store sales were down 1 percent for the year, they edged up 3 percent in the fourth quarter. E-commerce sales surged 64 percent, with both Adidas and Reebok e-commerce platforms now available in all key markets around the globe.

Adidas said it expects positive sales and earnings developments in 2014, though the group added negative currency effects will continue to significantly impact group results. In 2013, chief financial officer Robert Stalker noted currencies “wiped out around 750 million euros from our top-line result.” He said the currency picture looks just as bleak for 2014, with currencies in key emerging markets like Russia and Argentina already sharply hit in the first months of this year.

He predicted the impact on operating profit in 2014 from combined foreign exchange issues could be in the region of 150 to 250 million euros, or $204 million to $340 million. As a response to these pressures, he did not rule out selective price increases, business model shifts or re-prioritized investments, but also said the company could choose to “absorb the negatives for a period of time, to protect and nurture our longer-term potential.”

Adidas is nonetheless looking forward to a year of high performance. Stimulated in particular by business related to the upcoming 2014 FIFA World Cup in Brazil, as well as further expansion of its retail business, the group is forecasting a high-single-digit increase in currency-neutral group sales for 2014.

Net income attributable to shareholders is expected to reach 830 million to 930 million euros, or $1.13 billion to $1.26 billion, with gross margin gaining 0.2 to 0.5 percentage points to reach 49.5 to 49.8 percent.

Hainer said all brands, all channels and all markets would be on a growth path. New store concepts will be introduced, such as HomeCourt for Adidas sport performance, which bowed in Beijing in January and will be rolled out to 25 stores globally over the course of the year, or the Neighborhood concept for Originals, which will make its debut in Berlin later this month.

As for the group’s Route 2015 strategic business plan, analysts suggest the group may have difficulty meeting all goals within the next two years. In his speech at the financial press conference, Hainer said that excluding currencies, he’s convinced “most, if not all operational targets” will be achieved.

 

RELATED CONTENT: WWD Earnings Tracker >>