Weak golf market and Russian tensions hit Adidas plans and share price

 

Shares of Adidas, the sportswear group that recently agreed a record kit deal with Manchester United, one of the world’s best-known football clubs, have been hit hard following a profit warning.

The shares dropped more than 15 per cent yesterday and were down a further 1.78 per cent by early evening today, after the company – which supplied kit to both 2014 World Cup finalists, Germany and Argentina – said it now expected 2014 net income attributable to shareholders to be about €650 million (£518 million/$873 million), against between €830 million (£662 million/$1.1 billion) and €930 million (£734 million/$1.2 billion) previously expected.

The revision partly reflected what it called “continued weakness” in the golf market, where it is present via TaylorMade-adidas Golf.

The company said it would begin a “restructuring programme” at TaylorMade-adidas to “align the organisation’s overhead to match lower expectations for the golf industry’s development”.

It said that “poor retail sentiment and the slow liquidation of old inventory in the golf category across the globe” would lead to “a significantly more challenging top-line and margin development” for TaylorMade-adidas in the second half than originally expected.

Adidas’ announcement also highlighted a post-World Cup marketing push and significant changes to the company’s store-opening and closure plans in Russia, the next World Cup host, whose relations with the West have deteriorated markedly as a result of the situation in Ukraine.

On Russia, Adidas said that “increasing risks to consumer sentiment and consumer spending from current tensions in the region” pointed to “higher risks to the short-term profitability contribution from Russia/CIS”.

The steps it was taking there were “aimed to reduce risk and protect profit as well as to drive a faster implementation of new inventory management principles for that market”.

Herbert Hainer, Adidas chief executive, said the company accepted that it had not “executed to our high standards at all times or provided enough flexibility to react in adverse market conditions.

“This,” Hainer said, “we now tackle head on.

“The strength of our winning performance at the 2014 FIFA World Cup shows exactly what we are capable of when we execute flawlessly.

“With momentum returning in key markets and brands, we are taking consequent and necessary decisions now to put the group on a firmer footing to build for the future.”

In the second quarter, the group said that sales increased by 10 per cent on a currency-neutral basis, even though sales at TaylorMade-adidas Golf declined 18 per cent.

In euro terms, however, sales were up just two per cent to €3.47 billion (£2.7 billion/$4.6 billion).

Operating profit in the quarter was €220 million (£175 million/$295 million), while net income attributable to shareholders was €144 million (£114 million/$193 million).

Golf returns to the Olympics in two years’ time, after a gap of more than a century, with some hoping the development will give the sport a boost by accelerating its spread beyond traditional markets.

This article first appeared in Inside the Games and has been reproduced with permission. The original article can be viewed by clicking here.

 

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