Adidas Profits Fall 97 Percent

Activewear giant plans to cut management in face of “economic and market challenges.”

PARIS — Hit by discounting, higher sourcing prices, currency effects and restructuring costs, the Adidas AG saw net profits fall 97 percent in the first quarter to 5 million euros, or $6.5 million at average exchange rates.

This story first appeared in the May 6, 2009 issue of WWD.  Subscribe Today.

“I know that our results for the first quarter may not appear satisfactory,” Adidas chairman and chief executive officer Herbert Hainer said during a conference call Tuesday. “But I also think you can see that we are not resting on our laurels and just waiting for the crisis to end. We are attacking it head-on, working on many initiatives to strengthen our organization for long-term success.”

Following 500 layoffs, a hiring freeze implemented since last year, plus the nonreplacement of employees, via which the group will shed a total of 1,000 jobs this year, Adidas announced further measures designed to save 100 million euros, or $133.1 million, annually, starting from 2010.

Plans include removing one level of management, the regional office, thus closing its regional headquarters in Europe and Asia in a bid to increase speed-to-market.

Adidas also said it would establish a global retail organization under a chief retail officer to review underperforming stores in the coming months.

“We are becoming one of the largest retailers in the world,” Hainer said. “We have looked in the last 12 months which retailers are really successful around the world. It’s no secret they are the verticals.…Wherever a consumer goes into a store — in Kuala Lumpur, San Francisco or Hamburg — they will see the same brands, the same message, the same values for our brands and companies. This is why we are doing it.”

The wholesale business will similarly be placed under the management of a chief sales officer.

Hainer said a new organization was needed given a contrasting picture across regions. In Russia, for example, 90 percent of the group’s business is generated through its own retail, whereas Adidas stores represent just a fraction of sales in Germany.

For the three months ended March 31, the firm’s sales declined 6 percent on a currency-neutral basis, or 2 percent in euros, to 2.58 billion, or $3.37 billion. Adidas sales declined 6 percent, Reebok 4 percent and TaylorMade-Adidas Golf 6 percent.

In North America, sales slid 17 percent to 538 million euros, or $703.7 million, impacted by a 25 percent drop at the Adidas brand. Faced with an aggressive discounting environment, Hainer said Adidas products were removed from a number of retailers, which may have led to a loss in market share. “In the U.S., our profitability is lower than all other regions around the world. Therefore we don’t want to get into price competition in the U.S., because this would further hurt our margin,” he explained.

Impacted by sales declines in China, where inventories remain high, together with recession-hit Japan, sales across Asia declined 6 percent to 628 million euros, or $821.4 million. However, the group maintains its sales target of 1 billion euros, or $1.33 billion, for China in 2010.

Sales in Europe, which were last year boosted by the UEFA Euro 2008 soccer championships, fell 5 percent to 1.18 billion, or $1.54 billion. In Latin America, new subsidiaries for Reebok helped boost business 31 percent to 218 million, or $285.1 million.

Shares in Adidas closed down 11.2 percent on the Frankfurt Bourse to 26.20 euros, or $34.88, on Tuesday.

Citing a high level of uncertainty, Adidas declined to forecast 2009 results. In terms of sales, the company confirmed it expects a low- to midsingle-digit decrease on a currency-neutral basis in 2009.