Adidas stands by Reebok despite losses

Friday, 08 March 2013
Adidas AG, the second largest athletic apparel group worldwide, post losses of 273 million euros for the fourth quarter on Thursday, heavily weighted by its smaller or less profitable brands. It has written down the value of its weakening Reebok brand but it confident on sales and earnings would increase this year, it raised its dividend payments.

Despite having been pushed into the red due to the Reebok’s write-off, Adidas confidence in the coming months paid off in trading, as its stock rose after Thursday's announcement, trading 3.7 percent higher at 74.32 euros in morning trading in Europe.

The company revealed it took a goodwill impairment of 265 million euros at the end of last year. It said the loss was "mainly caused because of adjusted growth assumptions for the Reebok brand, especially in North America, Latin America and Brazil."

“We were surprised that it happened now,” Jurgen Kolb, an analyst at CA Cheuvreux, said of the impairment. “The good news is, the basis for Reebok is now clean,” he wrote in a report issued Thursday.

2012 closed as an ill-fated one for Reebok, as during the last twelve months, Reebok uncovered fraud at its Indian unit, endured a strike in the National Hockey League and saw a 10-year American football contract come to an end. The latter is estimated to have caused a loss of circa 200 million dollars.

The company said sales revenue in Western Europe fell 4 percent adjusted for exchange rate swings, as the year-earlier figure was boosted by sales ahead of the Euro 2012 soccer tournament and the 2012 London Olympics.

The net loss compared to a profit of 1 million euros for the same quarter in the previous year. On the upside, sales rose 4 percent to 3.37 billion euros. For the full year, net income fell 14 percent to 526 million euros and compared to previous year´s 613 million euros. Group sales increased 12 percent to 14.88 billion euros.

Adidas expects sales this year to increase in the “mid-single digit” percentage rate, and earnings per share to rise more strongly, to between 4.25 and 4.40 euros, compared with the 2.52 euros per share a year ago.

The company said management would propose a 2012 dividend payment of 1.35 euros per share at the annual shareholders' meeting May 8, an increase over the 1.00 euros per share paid for 2011.

Despite the problems, this dividend increase of 35 percent sent shares up 6.6 percent to an all-time high on the German stock exchange. The increase is “very good news,” Herbert Sturm, an analyst at DZ Bank AG, wrote in a note to clients Thursday.

In the view of Adidas plans for the year, “We stick to our view that earnings improvement could be higher in 2013,” Michael Kuhn, an analyst at Deutsche Bank AG, wrote after the group’s earnings report. The profit outlook was “a little light, but close to consensus expectations,” reported Bloomberg.

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