Adidas Builds Momentum

Adidas Builds Momentum
Herbert Hainer

NEW YORK — Reebok may have slowed, but Adidas AG believes it has a leg up on the competition in the current economic environment.

The Herzogenaurach, Germany-based sportswear firm is seeing mid-single-digit sales increases in Western Europe, which led to a hike in its profit forecast for the year.

In a conference call with analysts last week, with pictures of the London Olympics forming the backdrop of the slide presentation, Adidas CEO Herbert Hainer said, “Our business is very solid in western Europe. We are very deep rooted, be it in the U.K., in Germany, in Spain [or] in France. We are in a much better situation [than we were in 2008 and 2009].”

In the second quarter, Adidas brand revenue increased 14 percent currency-neutral, driven by soccer sales and the European Championships.

Other categories are also performing well. “In running, things are up 13 percent, driven by key franchises such as the AdiZero and the Clima. And in basketball, we had growth of 18 percent, with footwear growing at double the pace,” said Hainer.

Adidas CFO Robin Stalker noted that inventory grew 8 percent currency-neutral, while “most of our major competitors’ inventory growth rates have been higher, [at] upwards of 20 percent.”

Analysts agreed Adidas is well-positioned for the back half.

Mitch Kummetz, analyst at R.W. Baird & Co., said, “More significant to [European growth] is the company’s continued strength in China, evidenced by 13 percent constant-currency growth in the quarter and double-digit growth in orders. We do believe Adidas is better positioned than its competition.”

Susquehanna Financial analyst Christopher Svezia said top-line trends remain solid and broad based, although Reebok has weakened. “Reebok sales came in much worse than expected,” he said. “The product pipeline remains strong for Adidas in running, basketball, football and Originals, and the brand continues to take share in multiple regions.”

Hainer acknowledged Reebok was a weak spot during the quarter, as brand sales declined 26 percent.

“Unfortunately, this year we couldn’t build on the great momentum we created by bringing unexpected innovative products to the market such as EasyTone, Zig and Flex,” said Hainer. “Nevertheless … retailers have already seen our extended fitness proposition for Reebok, which will be visible in the marketplace beginning in 2013, and we will capitalize on many major fitness trends in addition to our already successful CrossFit initiative. Our strategy is quite clear. We will make Reebok the fitness empire.”

Adidas last Thursday reported a 17.9 percent hike in second-quarter net profits to 165 million euros, or $200.5 million at current exchange.

Group revenues rose 14.8 percent to 3.52 billion euros, or $4.28 billion. Adidas raised the low end of its guidance and now expects its 2012 income to increase by 15 percent to 17 percent, hitting between 770 million euros and 785 million euros, or $946.6 million to $965 million at current exchange.