PARIS — On track for a record year as it claws back market share from Nike and Under Armour, Adidas AG said its priorities in the coming months will include accelerating its turnaround strategy for North America, a market seen as crucial to the future success of the group.
“We are by no means done yet, we have a long way to go. Let me repeat what has been said before: winning in America is a marathon, not a sprint,” said Kasper Rorsted during the presentation of the group’s third-quarter results on Thursday, marking his first press conference since taking over from Herbert Hainer as the group’s chief executive officer on Oct. 1. “We have to be careful, we’ve had 18 months of a good ride but 10 years of struggle, so we need to build a sustainable platform for the future.”
Part of the strategy going forward, he confirmed, will include a reboot of the group’s underperforming Reebok brand as part of a wide-ranging reorganization that will include staff layoffs at the group’s Portland headquarters as well as the shuttering of half of the brand’s factory outlets and FitHub stores. The plan, Rorsted said, is to create a team fully dedicated to building the Reebok business in the U.S. and globally. Matt O’Toole, president of Reebok North America, has been tasked with heading up the turnaround. He will report to Eric Liedtke, executive board member global brands at Adidas AG.
As part of the restructuring, 650 Reebok employees currently based out of Adidas Group’s Boston headquarters will move to a new location in the city by mid-2017. Of the remaining 300 Adidas Group staff members based there, 150 will migrate to different locations — either at Adidas’ U.S. headquarters in Portland or in Europe where they would return to take up global functions — while 150 jobs will be eliminated, Rorsted said.
While Adidas has seen a 29 percent top-line increase in the U.S. market so far this year, Reebok, which represents around 10 percent of the group’s total sales, has failed to grow in its home market over the past three years, he said. “Reebok’s profitability is still significantly below the group average, it’s time to go back to the gym and redouble our efforts.”
An accompanying streamlining of Reebok’s store network will include reducing the number of Reebok factory outlets in America from around 120 to 60 and FitHub concept stores from 30 to 15 in order to focus on growing business with wholesale partners.
Rorsted also confirmed the group will offload its underperforming TaylorMade-Adidas Golf business soon, saying the group “expects to come to an agreement with a buyer by end of year.” While this will most likely impact its reported earnings in the fourth quarter, any charges incurred are not expected to affect underlying profitability, he said.
Other priorities outlined for the German activewear giant for the coming months include accelerating the group’s “digital transformation.”
“There’s a great opportunity to up our game in this area… already today adidas.com is by far our largest, fastest-growing and only global store, so the question is not how digital we want to become but how fast we can go to create a competitive advantage,” said Rorsted.
Citing great momentum across all major markets, Adidas AG on Thursday reported a 15 percent uptick in third-quarter net profits, to 387 million euros, or $432.1 million.
The Herzogenaurach, Germany-based sporting goods firm said group sales in the three-month period ended Sept. 30 reached 5.41 billion euros, or $6.04 billion, up 14 percent year-on-year, driven by strong momentum at Adidas, with revenues up 20 percent on a currency-neutral basis, fueled by double-digit sales increases in the sport performance segment, Adidas Originals and Adidas Neo. The brand marked double-digit growth in all regions, with the exception of the Russia/CIS zone, where revenues grew at a midsingle-digit rate, the company said.
Gross margin, a key indicator of profitability, declined 0.9 base points to 47.6 percent, impacted by severe headwinds from unfavorable foreign exchange effects.
In the nine months to Sept. 30, sales increased 15 percent to 14.6 billion euros, or $16.3 billion, while net profits spiked 39 percent to 1.02 billion euros, or $1.45 billion.
Dollar figures are converted at average exchange for the periods in question.
“I think that it goes without saying that we don’t expect to achieve a similar level of growth and profit growth on a level with the exceptional results of this year. Next year will be more in line with objectives set in our long-term business plan,” said Rorsted.
Adidas confirmed its forecast for 2016, saying group sales were expected to increase at a rate in the high teens on a currency-neutral basis, while net income is set to rise by 35 to 39 percent. Gross margin is set to come in between 48 and 48.3 percent versus 48.3 percent the prior year.