Adidas Raises 2012 Profit Forecast

Company's second-quarter income grew 17.9 percent.

PARIS — As the London 2012 Olympic Games continue in full swing, Adidas AG, the event’s official sportswear partner, raised its profit forecast for the year.

This story first appeared in the August 3, 2012 issue of WWD.  Subscribe Today.

The Herzogenaurach, Germany-based company on Thursday reported a 17.9 percent increase in second-quarter net profits to 165 million euros, or $212 million. Driven by double-digit sales increases in retail and other businesses, group revenues in the three months ended June 30 rose 14.8 percent to 3.52 billion euros, or $4.52 billion.

Company net profits in the first half gained 30.1 percent to 455 million euros, or $590.5 million. Its sales in the period increased 16 percent to 7.34 billion euros, or $9.52 billion.

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Dollar figures are converted at average exchange rates for the periods to which they refer.

“We have delivered another winning financial performance in the first half of 2012. Our clear victory in the summer of football, our increased operating margin and our excellent inventory management show we have the right formula to preserve and sustain our positive earnings and cash-flow trajectory,” stated Herbert Hainer, Adidas Group chief executive officer.

Adidas, which is the world’s second-largest sporting goods manufacturer after Nike Inc., now expects its 2012 net profits will increase 15 percent to 17 percent, to reach between 770 million euros and 785 million euros, or $946.6 million and $965 million at current exchange. The company had formerly forecast an annual net profit gain of 12 percent to 17 percent.

Adidas, which in April raised its sales guidance for the year, reiterated it expects revenues to increase almost 10 percent on a currency-neutral basis.

In separate news from Shanghai, Chinese manufacturers are threatening to take legal action against Adidas-Salomon AG over the German sportswear brand’s decision to close its last wholly-owned factory on the Mainland as well as end contracts with five of its suppliers in the country.

Shanghai Manlang Textile Co. Ltd. says Adidas did not provide enough advanced notice prior to ending its business with the manufacturer. Sun Yingli, founder of Shanghai Manlang Textile, said Adidas “abruptly” terminated its contract with her factory in April. “According to the agreement, there would be no change in our cooperation before 2015,” she said, adding that if Adidas were to cancel its contract, the brand agreed to give six months notice so that suppliers could look for other clients.

Yingli said Adidas makes up nearly 30 percent of the factory’s business and the manufacturer has invested in machinery that is specialized for Adidas products. She said the factory had also signed labor agreements with workers until 2015. “Adidas requires a high degree of stability from their suppliers,” she said. “We have to make sure we are prepared.”

Adidas said it has “given fair and proper legal notice” to its partners and suppliers for the termination of contracts. “We have fulfilled all of our contractual obligations but will nevertheless support supplier partners with consultative advice in their communication and transition plans,” the company said in a statement.

Yingli said Shanghai Manlang Textile has been contacted by Adidas to negotiate compensation, but if both sides cannot reach an agreement, the supplier may take legal action.

Last week, Adidas said it would close its factory in Suzhou, a city outside of Shanghai, in an effort to give the company a “consistent sourcing structure, which will help us to leverage scale and reduce complexity,” the sportswear brand said. The Suzhou manufacturing center has 160 employees.

Adidas said it is not relocating the factory to another market, such as Vietnam and Cambodia, which are becoming increasingly competitive outsourcing hubs for brands as labor costs increase on the Mainland. “China has been and will remain a key sourcing market for the Adidas Group,” the company said. “Adidas partners with more than 300 supplier factories in China, and our commitment to China remains.”