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FRANKFURT, Germany — Adidas AG, the world's No. 2 sports gear maker, cut its profitability forecast for 2014 by 2 percentage points after first-half revenue in North America dropped 14 percent on slumping demand for golf equipment.
The operating margin for this year will be in a range of 6.5 percent to 7 percent, rather than an 8.5 percent to 9 percent prediction earlier, Herzogenaurach, Germany-based company said today in a statement. Adidas took investors by surprise a week ago with an initial earnings report that showed second-quarter earnings missing analysts’ estimates, partly because of the falling value of the ruble amid Russia’s dispute with Ukraine.
Chief Executive Officer Herbert Hainer is testing investors’ patience with the lower forecasts and by letting marketing costs climb. The figures disappointed shareholders after Hainer in May predicted a “strong” second quarter.
“We don’t think investors will be keen to move straight back into this -- management communication and credibility appear to be on the line,” John Guy, an analyst at Berenberg Bank, wrote in in a report July 31. He has a sell recommendation on the stock. “It’s one thing to invest successfully in your brands, it’s another to buy growth.”
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Just three weeks ago, Adidas was celebrating the victory of its home country’s team in soccer’s World Cup. The company said its sponsorship of both teams that played in the final was sparking sales of more than 8 million replica World Cup jerseys as it aims for 2 billion euros in soccer-related revenue this year. The company’s Reebok casual exercise clothing and shoes have also been selling better.
The shoemaker is struggling with a downturn in the golf market, its dependence on conflict-stricken Russia and surrounding countries for more than 13 percent of sales, and the heavy spending needed to compete with market leader Nike Inc. in the U.S.
“We take full responsibility to rectify our shortfalls swiftly,” Hainer said in the statement. Adidas will “take corrective steps to bring more stability to our future earnings.”
Adidas has fallen 37 percent this year, the worst performance on Germany’s benchmark DAX Index. The shares have dropped 17 percent since the early second-quarter report on July 31.
Second-quarter sales increased 2 percent to 3.47 billion euros, about matching analysts’ average estimate. Net income totaled 144 million euros, compared with the 150 million-euro estimate. Golf-division sales fell 18 percent in the quarter. First-half operating profit narrowed to 7.5 percent of sales from 9.7 percent a year earlier, Adidas said today.
The shoemaker reduced its forecast for 2014 net income last week, predicting about 650 million euros, compared with the 830 million euros to 930 million euros it previously anticipated. Adidas scrapped a long-standing growth target for sales next year of 17 billion euros and an operating margin of 11 percent of revenue. Analysts surveyed by Bloomberg expect 2015 sales of 15.5 billion euros.
Adidas said it plans to close stores and delay openings in Russia, a market where 2013 sales exceeded 1 billion euros. Adidas had previously planned to end this year with more than 100 net new stores in the country, spokeswoman Katja Schreiber has said.
By Aaron Ricadela; editors: Celeste Perri, Tom Lavell, Angela Cullen
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