Adidas Bullish, But Analysts Uncertain

Adidas Bullish, But Analysts Uncertain
Herbert Hainer

NEW YORK — Analysts are mixed on the 2012 outlook for Adidas AG.

The Herzogenaurach, Germany-based athletic firm narrowly beat estimates in the fourth quarter, due to top-line momentum from strong product trends. But the company said in its guidance that sales growth is expected to slow in fiscal 2012.

Profit guidance also creeped down, said analysts.

“The issue is really gross margins as rising input costs and investments in growth continue. There’s not a lot of room to move that in 2012,” said Christopher Svezia, analyst at Susquehanna Financial. “While you may have a good top line, it will be tough to leverage the bottom line meaningfully. The company guided for 10 percent to 15 percent earnings-per-share growth in 2012, but I would note that consensus numbers have been coming down and had been over 18 percent earlier in the year.”

Paul Swinand, analyst at Morningstar Inc., agreed: “Despite management’s expression of confidence, some of the outperformance was due to ‘other’ items, and there was gross-margin compression due to higher input costs. We view the stock as slightly ahead of itself due to the excitement over new products, the Olympics and the European soccer championships.”

Adidas expects gross margin, which slipped 30 basis points in 2011 to 47.5 percent, to be flat in 2012.

In a conference call with analysts last week, Herbert Hainer, Adidas’ group CEO, said, “Our expectations are obviously high for the year. In football our target is clear: We want to set new record sales of more than 1.5 billion euros in the category. And we have all we need to achieve that goal, as the official sponsor, outfitter and licensee of the [Euro 2012 championship].”

He added that the London 2012 Olympics will serve “as a platform to reach market leadership in the U.K.”

While the firm acknowledged there is a “high degree of uncertainty regarding the global economic outlook and consumer spending,” it predicted sales growth will be driven by high exposure to fast-growing emerging markets, as well as further expansion of retail. It is planning for a net increase of 100 to 150 Adidas and Reebok stores in 2012.

Adidas’ fourth-quarter net income was 18 million euros, or $23.9 million at current exchange, compared with the 7 million euros, or $9.3 million, earned in the same period a year ago. EPS tripled to 9 euro cents a share. Revenue for the period grew 11 percent on a currency-neutral basis to 3.26 billion euros, or $4.32 billion, driven by strong performance in all business segments.

For the full year, Adidas’ EPS gained 18 percent to 3.20 euros, or $4.24. 2012 EPS is expected to come in between 3.52 euros and 3.68 euros. While sales rose 13 percent on a currency-neutral basis in 2011, they are expected to increase at a mid- to high-single-digit rate in 2012.

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