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Adidas Q2 Net Profit Slides 93 Percent

Economic downturn hurt the Adidas' performance but the results beat analysts' expectations.

Adidas store in Beijing

PARIS — Adidas AG, the world’s second-largest sportswear company, on Wednesday reported a 93 percent slide in second-quarter net profits but reaffirmed its 2009 outlook and said the worst is over.

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

In a bid to make its organization more efficient, the German company also said it has reshuffled senior management duties, with chief executive officer Herbert Hainer taking on responsibility for global sales.

Adidas said net profit for the quarter ended June 30 fell to 9 million euros, or $12.2 million at average exchange rates, from 116 million euros, or $181 million, a year earlier.

Sales slid 2.5 percent to 2.46 billion euros, or $3.34 billion, hurt by reduced consumer spending across all brands and by the comparison with the same period a year earlier, when Adidas benefited from the Euro 2008 soccer tournament. On a currency neutral basis, sales declined 8 percent in the quarter.

The group’s gross margin decreased 5.1 percentage points to 45 percent in the second quarter as a result of higher costs, the effect of currency devaluation, particularly the Russian ruble, as well as a “highly promotional retail environment,” Adidas said.

Despite the dramatic drop in profits, the results were ahead of expectations, as analysts had forecast a net loss of 2.2 million euros, or $3.2 million.

Turning to the second half of the year, Adidas expects earnings to be more positive, helped by lower costs and the run-up to the 2010 soccer World Cup. However, it cautioned earnings per share in the second half won’t reach the levels achieved in the second half of 2008.

For 2009, the company said it still expects a low- to midsingle-digit percentage drop in constant currency terms, as well as a decline in gross margin, operating margin and EPS.

“The impacts of the economic downturn and repercussions on consumer spending are well documented and certainly continued to influence our performance in the second quarter,” Hainer stated.

However, Hainer added business didn’t deteriorate further since the first quarter. “As a result, I believe we have seen the bottom of our financial performance this year,” he said.

Hainer will assume direct responsibility for global sales, while Erich Stamminger, a member of the group’s executive board, will oversee global brands, including Adidas and Reebok. Adidas acquired Reebok in 2006 in a move to better compete against Nike Inc., the world’s largest sportswear company, and is working to restructure and revamp the brand.

Reebok’s sales in the second half are expected to decline at a low- to midsingle-digit rate compared with the same period a year earlier on a currency neutral basis, according to Adidas, after the brand didn’t hit targets in emerging markets.

In a bid to save on costs, Adidas is cutting 1,000 of its 39,000 staff this year, closing regional offices and potentially some of its underperforming stores.