Adidas sets its hopes for recovery on World Cup

Wednesday, 07 May 2014
ANALYSIS_ Adidas AG registered a 34 percent drop in net income for the first quarter, gaining 204 million euros and falling short of the 218.8 million-euro average estimated by analysts polled by Bloomberg. Likewise, sales declined 6 percent to 3.53 billion euros, compared with the 3.61 billion-euro average estimate, reported ‘Businessweek’. Now, all sights – hopes in the case of Adidas – are set on the football World Cup that will be held in Brazil this summer.

“A 35 percent earnings-per-share decline in a quarter which should have benefited at least a little bit from the upcoming World Cup is disappointing,” Michael Kuhn, an analyst at Deutsche Bank AG, said in a note to investors.

Adidas hopes World Cup offsets investors' unrest

The sportswear company blamed the decline on the weakness of emerging market currencies, particularly the Russian ruble, a double-digit sales decrease at TaylorMade-Adidas Golf, and weakness in North America.

In this vein, "Strong performances particularly in the emerging markets and in our own retail were masked by strategic changes to how we go to market at TaylorMade-Adidas Golf as well as adverse currency effects," Chief Executive Officer Herbert Hainer said.

In an attempt to explain their shrinking margins and declining profits for the quarter, Adidas Chief Executive Officer Herbert Hainer said on a call with analysts that “We helped the retailers a little bit with markdown and promotional activities to sell the current inventory through.”

"Strong performances particularly in the emerging markets and in our own retail were masked by strategic changes to how we go to market at TaylorMade-Adidas Golf as well as adverse currency effects," Hainer added.

The stock remained flat in Germany after the company released its quarterly figures, although it is worthy a note that the shares have been down 17 percent in the year to date.

Bad news as well the shareholders front, as Union Investment, which holds a 1 percent of Adidas, has advanced its plans to withhold support for the company’s executive and supervisory boards at Adidas’s May 8 annual meeting. In a communication earlier this week, Union Investment explained that it wants to “shake up” the company, and is concerned about Nike’s increasing market share in Germany and Europe as a whole.

On Tuesday´s call with press, Hainer reassured the market, saying that we will try to “get the trust of Union Investment back”. Besides, he was “surprised” at the criticism given Adidas’s strong stock performance, dividend payments and profitability in past years.

Adidas also said it hired Guggenheim Partners LLC to explore a possible sale of its Rockport casual-shoe division.

Angela González Rodríguez

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