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Adidas says soccer, running to help it beat Nike in Europe
Adidas forecast a $2.7 billion boost to sales from next year’s soccer World Cup would help it over a tough 2013, and said it would fend off rival Nike in hotly-contested European markets with innovative running gear.
Adidas, the world’s No. 2 maker of sportswear and accessories, has struggled this year to maintain momentum after a big boost in 2012 from the Olympics and European soccer championship, and warned in September sales and profits would not rise as much as expected.
The company confirmed on Thursday that third quarter operating profit dropped 6 percent and sales fell 7 percent, hurt by distribution problems in Russia, a currency hit in North America and Japan, and poor sales of golfing products.
To make matters worse, Adidas lost market share to Nike on its European home turf.
It had 13.2 percent of the western European sporting goods market to Nike’s 12.4 percent in 2012, according to data from Euromonitor. Nike reported an 8 percent rise in sales in western Europe in its fiscal first quarter to the end of August, while Adidas posted a fall of 6 percent at constant currencies in its third quarter.
Adidas Chief Executive Herbert Hainer denied a recent report that Nike had overtaken Adidas in terms of soccer sales in Germany and vowed to defend the group’s prize business.
“We have a lot of ammunition to fight back,” he told journalists, noting that increased levels of World Cup stock - jerseys and match balls - are now being shipped out ahead of release in a couple of weeks.
Adidas will also launch more soccer shoes with the help of Barcelona star Lionel Messi who fronts its new range of brightly colored Samba boots.
The sportswear firm traditionally performs well in years with major sporting events. Its forecast for soccer sales of more than 2 billion euros ($2.7 billion) in 2014 would be a record and an increase of a third compared with 1.5 billion in the last World Cup year.
“All the bad news (is) on the table now,” DZ Bank analyst Herbert Sturm said, referring to the company’s earlier profit warning. “We expect a series of positive news flow in the next months to come.”
Running Away From Nike
Chief Financial Officer Robin Stalker explained a 6 percent jump in inventories by saying the group had already increased stock levels ahead of an expected upturn in demand.
“We anticipate sales in next three to six months to be higher than the same period last year,” he said.
Aside from soccer, Hainer said Adidas was well placed to take on Nike in the running market, where it has increased sales by 14 percent so far this year.
The group has launched two new running shoes this year - Boost and Springblade, the first with cushioning in the sole, the second with futuristic-looking blades on the sole. Hainer said the latter was doing well with consumers in the United States, Brazil and Russia.
“We will roll it out further in 2014,” he said.
In a bid to outdo Nike’s popular Fuelband fitness monitor, Adidas has also unveiled a new running watch that can track the wearer’s run, heartbeat, offer coaching tips and play music.
“Losing leadership in Western Europe - their home market - would be a very tough pill to swallow,” said Euromonitor analyst Magdalena Kondej. “But they recognize the threat and they continue focusing on innovation. That puts them in a good position once European markets recover.”
A bright spot was the Reebok brand, where sales rose 5 percent in the three months to end-September, the second quarter in a row of growth as a new focus on fitness pays off.
Hainer also said Adidas was making “good progress” on its 2015 targets for sales of 17 billion euros and an operating margin of 11 percent, goals that had come under scrutiny after the profit warning.
Third quarter sales were 3.88 billion euros and operating profit 463 million ($626 million), both slightly below the average estimates in a Reuters poll. Despite this, the group improved its gross profit margin - a key measure of profitability in the apparel industry - 1.9 percentage points to 49.3 percent on higher prices and sales in its own shops.
Adidas maintained a forecast for sales to rise by a low single digit percentage in 2013 and to achieve an operating margin of around 8.5 percent. (Reuters)
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