Adidas Profits Rise 12 Percent in Second Quarter

Europe, Asia and Latin America drive sales gains, while North America remains weak.

PARIS — With days to go until the Summer Olympics kickoff, Adidas AG said Tuesday that second-quarter earnings rose 12 percent, while sales advanced 5 percent.

This story first appeared in the August 6, 2008 issue of WWD.  Subscribe Today.

For the quarter ended June 30, the world’s second-largest sporting goods maker after Nike saw its earnings increase to 116 million euros, or $181.3 million at average exchange for the period, thanks to higher operating profits plus a lower tax rate.

Due to what the group termed an improving regional and product mix, further own-retail expansion and favorable currency movements, gross margin reached 50.1 percent, up 2.7 percentage points versus second-quarter 2007.

That showing came on sales that totaled 2.4 billion euros, or $3.75 billion. Excluding currency fluctuations, sales grew 14 percent.

For the first half, earnings grew 23 percent to 286 million euros, or $437.7 million, on sales that rose 4 percent to 5.14 billion euros, or $7.87 billion.

“Our performance in the first half of the year puts us firmly on track to achieve all of our financial targets for 2008,” stated Adidas chief executive officer and chairman Herbert Hainer. “We even expect to exceed some of our original goals, and at the upcoming Olympic Games, we are ready to showcase the power of our brands to audiences around the world.” (For more on Adidas and the Olympics, see pages 8 and 9.)

The group’s sales remain, however, a tale of two brands. In the first half, Adidas remained the company’s powerhouse with revenues rising 10 percent year-on-year, while Reebok fell 11 percent and business at TaylorMade-Adidas Golf remained flat. On a currency-neutral basis, Adidas recorded 16 percent growth, Reebok declined 2 percent and TaylorMade-Adidas Golf grew 11 percent.

Sales remained weak in North America, falling 19 percent in the half to 1.16 billion euros, or $1.78 billion, and the group doesn’t expect any immediate improvement. “When you look at the performance of our competitors and retailers, the [U.S.] market is tough at the moment,” chief financial officer Robin Stalk said during a conference call Tuesday. “We don’t see any improvement in the near term.”

He played down the significance of sluggish North American sales, which were offset by double-digit growth across all other regions.

Boosted by the Euro 2008 championships, when the two Adidas-sponsored teams, Spain and Germany, played in the final, the brand’s soccer sales enjoyed double-digit growth. This helped drive the group’s overall sales in Europe, its largest market, up 11 percent to 2.35 billion euros, or $3.6 billion. Adidas expects to further exploit Spain’s win to improve its positioning in that market.

In Latin America, the company’s business grew 23 percent to reach 381 million euros, or $583.1 million.

In Asia, sales spiked 17 percent to 1.21 billion euros, or $1.86 billion. Stalk remained bullish on that market, despite recent reports that the region could face a slowdown. By yearend, Adidas will have opened 1,000 stores in China.

Adidas also has no immediate plans to pull its production out of China due to rising labor costs, despite a recent media report suggesting otherwise. “China remains our most important country of production: They have the most know-how,” said Stalk, noting, however, that some of its suppliers have begun opening factories in countries such as India.

For the full year, the Adidas group expects a high-single-digit sales rise overall, in currency-neutral terms. The company raised its forecast for the Adidas brand’s sales to low-double-digit growth from high-single-digit previously.

The group upped its full-year gross margin forecast to 48 percent from 47.5 percent, and raised its guidance for operating margin, which it said is likely to approach 10 percent versus 9.5 percent previously.

The Adidas stock closed up 7.7 percent to 41.31 euros, or $64.37 at current exchange.