Ace 16 Primeknit by Adidas

Adidas Group is selling its TaylorMade, Adams and Ashworth golf brands to focus on its core footwear and clothing categories, as it muscles up to take back its number-two position in the U.S. market from Under Armour.

The German activewear firm, fresh off a record first quarter, said it would hold on to its Adidas Golf footwear and apparel brand, which chief executive officer Herbert Hainer estimated accounts for 40 percent of revenues at the division.

In parallel, Adidas will launch negotiations with interested parties for the sale of the remainder of the loss-making division, consisting mainly of the TaylorMade brand, a market leader in golf equipment, as well as the Adams and Ashworth brands. Adidas has hired Guggenheim Partners LLC to explore options, as reported.

“TaylorMade is a very viable business. However, we decided that now is the time to focus even more on our core strength in the athletic footwear and apparel market,” Hainer said.

Making his pitch for the brand, the executive touted TaylorMade as “the clear number one driver brand in the industry and the most played brand on tour.”

Revenues at the golf division, which is in the throes of a turnaround plan, were down 1.4 percent on a currency-neutral basis in the first quarter, solely due to the Adams and Ashworth brand, which continued to record double-digit declines. TaylorMade posted a 6 percent increase versus the prior year.

Hainer said the brand expects to book additional one-time costs this year and was due to reap the full benefits of the restructuring in 2017.

“With its leadership position in the industry and the turnaround plan gaining traction, which is clearly reflected in the top- and bottom-line improvements recorded in Q1 as well as recent market share gains, I am convinced that TaylorMade offers attractive growth opportunities in the future,” Hainer said. “At the same time, the planned divestiture will allow us to reduce complexity and focus our efforts on those areas of our business that offer the highest return and where we can have the biggest impact in reaching our consumers and winning their loyalty for the Adidas and Reebok brands.”

As part of its five-year strategic plan unveiled last year, Adidas has also decided to close its 16 directly owned Adidas Neo stores in Germany, the Czech Republic and Poland in order to focus on key wholesale partners, Hainer said. The casual sportswear brand targets teenagers with a fast-fashion approach and past ambassadors such as Justin Bieber and Selena Gomez, logging sales of one billion euros, or $1.1 billion, in 2015. Hainer emphasized that the bulk of the Neo global store fleet, including 2,000 stores in China operated through franchise partners, will not be affected.

In response to a question, the executive said Adidas has no plans to sell its Reebok CCM Hockey business, as previously rumored.

The announcements came as Adidas published full results for the first quarter, in which revenues soared 22 percent to 4.8 billion euros, or $5.29 billion, the highest quarterly revenue in the group’s history, thanks to best-selling sneaker models including the Stan Smith, the Superstar and the Adidas Originals NMD. Preliminary results were published on April 27.

“This quarter’s accomplishments show that we flew off the starting blocks in 2016,” Hainer said.

“Our product and marketing initiatives are resonating extremely well with consumers across all regions and in performance and lifestyle categories alike. This gives us every confidence that 2016 will be a record year and will lay the foundation for the long-term success of the group,” added the outgoing ceo.

In January, the German activewear brand named Kasper Rorsted it new ceo. He is to join the company in August and succeed Hainer on Oct. 1 after a two-month transition period. Hainer had come under pressure from investors last year after a string of profit warnings.

In a development that caught analysts by surprise, Adidas is now gathering enough momentum that it can envisage recovering the number-two spot in the U.S. market behind Nike. “It’s only a matter of time,” Hainer predicted in a conference call with analysts and journalists.

Underscoring the cutthroat battle for market share, he said Adidas would continue its legal battle to prevent rival Puma from selling its popular NRGY shoe, despite a German court rejecting its bid last month. NRGY features a damping sole made of an innovative synthetic called expanded thermoplastic polyurethane, similar to the Adidas Boost. The two activewear companies each claims it developed the synthetic first, although neither had it patented.

“There is no doubt that our Boost technology is quite superior – quite superior – to any other technology, obviously, of the competitor,” Hainer said. “You can expect that we will defend all our rights until the last minute.”

As it gears up for major sporting events including the Euro 2016 soccer championships and the Olympic Games in Rio de Janeiro, Adidas reported that its first-quarter performance was driven by accelerating momentum at both its Adidas and Reebok brands.

Revenues at Adidas grew 25.5 percent on a currency-neutral basis, helped by double-digit rises in the training, football and running categories, as well as Adidas Originals and Adidas Neo. Sales at Reebok were up 6.5 percent.

By region, revenues in western Europe jumped 24.7 percent in currency-neutral terms. North America rose 21.6 percent, Greater China grew 30.2 percent, and Russia/CIS eked out a 1.8 percent gain. Revenues in Latin America grew 18.7 percent, Japan jumped 44.4 percent and MEAA posted a 17.2 percent gain.

Hainer noted growth in North America was driven by both its lifestyle offerings — which include collaborations with Kanye West and Pharrell Williams — and its performance business, with the running category benefiting from the growing popularity of the Ultra Boost franchise.

The group last month raised its guidance for 2016. It said net income from continuing operations should increase between 15 percent and 18 percent, up from previous guidance of 10 percent to 12 percent. Sales in currency-neutral terms are expected to grow 15 percent versus a prior forecast of 10 percent to 12 percent.

All dollar rates are calculated at average exchange rates for the period in question.

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