Tensions in Ukraine and World Cup burden Adidas FY guidance

Friday, 01 August 2014
ANALYSIS_Thursday, investor sentiment in Germany -- a key exporter of goods to Russia – took a blow. Amongst the main affected was Adidas, which shares plummeted 15.37 percent to 59.41 euros, topping the DAX fallers chart on Thursday. Adidas blamed uncertainty in Russia and higher marketing spending during the World Cup for the lower guidance. However, these arguments didn´t suffice investors’ expectations.

In this regard, Ingo Speich, a fund manager at Union Investment, substantial investor in Adidas, said: "The profit warning could almost have been predicted but the extent of it is catastrophic...unfavourable conditions are no excuse."

The athletic apparel maker warned that the Ukraine crisis and consequential tensions with Russia, one of its key markets, would weigh on its business. In the same vein, Adidas slashed its annual net profit forecast in nearly a third, to about 650 million euros, far behind its previous guidance for between 830-930 million euros.

Adidas badly hit by tensions between Russia and Ukraine

"German stocks were the worst hit... which is hardly surprising given the amount of trade the country conducts with Russia," said analyst Craig Erlam at traders Alpari, reported Reuters.

"When you see profit warnings like these from such a large company, it really makes you realise exactly what these countries are losing every time a fresh batch of sanctions are imposed on Russia," added Erlam in a clear reference to Adidas lower profit warning.

runs 1,000 stores in Russia but, due to the on-going uncertainty reigning in the country and its neighbours, the company has announced its intention to close some of them and open fewer new stores than planned. "The recent trend change in the Russian rouble as well as increasing risks to consumer sentiment and consumer spending from current tensions in the region point to higher risks to the short-term profitability," it added.

"Everything we announced today has one objective: to strengthen our brands, to drive consumer desire, and to set our group up for long-term success," chief executive Herbert Hainer said in a statement after revealing Adidas new estimates for the full year.

Despite the blow, Hainer showed confidence in the future reassuring investors on how they “will return the group to a higher and more consistent level of earnings growth in the mid to long term."

Angela González Rodríguez

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