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Adidas Net Slumps 34% in Q1

The company is banking on the 2014 FIFA World Cup to boost its slumping sales, following what analysts described as “disappointing” first-quarter results.

PARIS — Adidas is banking on the 2014 FIFA World Cup to boost its slumping sales, following what analysts described as “disappointing” first-quarter results.

This story first appeared in the May 7, 2014 issue of WWD.  Subscribe Today.

“The second quarter will be a football quarter and therefore definitely an Adidas quarter,” Herbert Hainer, the group’s chief executive officer, told a conference call on Tuesday. “Later this month, we will unleash our largest football offensive ever ahead of the 2014 FIFA World Cup.”

The Herzogenaurach, Germany-based sporting goods firm had a “very good” Christmas season, following the start of its World Cup-related merchandise offensive in December, which it now forecasts will likely continue, as reported.

“I can already tell you today that our sales of federation jerseys and the official match ball Brazuca have been significantly higher than in the same time period four years ago,” said Hainer. “Our football sales were up 27 percent in the first quarter with some of our key markets such as North America, Western Europe and Latin America growing at a double-digit rate. We are clearly demonstrating our leadership position in this important category.”

Hainer assured that the company was “well on track to achieve record football sales of 2 billion euros,” or $2.77 billion at current exchange.

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Earlier on Tuesday, Adidas reported declines in first-quarter profits and revenues, blaming negative currency effects and strategic changes at TaylorMade-Adidas Golf.

Net income dropped 34 percent to 204 million euros, or $279.5 million, in the three months ending March 31, while operating profit slipped 31 percent to 303 million euros, or $415.2 million.

The group’s sales declined 6 percent to 3.53 billion euros, or $4.84 billion. On a currency-adjusted basis, sales were flat.

Dollar figures are converted from euros at average exchange rates for the period in question.

Hainer acknowledged a “challenging start to 2014,” but said it was “expected.”

He noted that the “strategic changes to how we go to market at Taylor Made-Adidas Golf as well as adverse currency effects” masked “strong performances particularly in the emerging markets and in our own retail.”

“Looking in depth through our results, there are many positive underlying trends,” he asserted.

Adidas performed poorly in North America, where first-quarter sales dropped 24 percent, versus an increase of 10 percent in European emerging markets. Although Hainer said he does not “see any major improvement in the golf business in 2014,” which accounted for more than half of the sales decline in the North American region, he revealed the firm was gearing up to introduce new products in the category, “which will help,” and that better weather conditions, which have been particularly adverse on the U.S. East Coast, the firm’s biggest golf market, are likely to improve in the upcoming quarters.

In North America, Adidas and Reebok also had a slow start to the year, declining 13 percent and 8 percent, respectively, the company reported.

Hainer allowed that its biggest mishap lay in the “quality of execution,” particularly in the wholesale channel, which it is striving to improve.

He said Roland Auschel, member of the group’s executive board and in charge of global sales, would succeed him at the board level “to take over responsibility for the market,” which needs special care and in which Adidas is outpaced by its biggest rival Nike.

“We have to get better in wholesale to showcase our innovation and products in a better way. We are working hard on that,” he said, adding that the firm’s own retail business has grown 10 percent in the first quarter, while wholesale slipped 5 percent in the same period.

Separately, Hainer acknowledged that his team “missed some fashion trends in the market over the past 12 months” in the Originals segment, but enthused: “As you might have heard we have some extremely exciting collaborations with Kanye West and Pharrell Williams in the pipeline, which will bring momentum back to the category.”

Reacting to press reports of a possible sale of its Rockport brand, Hainer said he could understand why the shoe brand “is interesting to outside players.” While the group would “further develop Rockport and increase its performance,” Hainer confirmed that it has hired investment bank Guggenheim Partners “to analyze the market and listen to people — and then we will take it from there,” he said. Despite continued unfavorable hedging terms, which Adidas expects will have a “significant negative impact,” the group nevertheless projects a sales increase at a high-single-digit rate for the year. The gross margin is expected to edge up to a level between 49.5 percent and 49.8 percent versus 49.3 percent in 2013.