Adidas Puts Renewed Focus on North America

Herbert Hainer
Herbert Hainer
Jonathan Ferrey

PARIS — Adidas wants to get back its North American territory.

The Herzogenaurach, Germany-based sporting goods company, which is facing negative sales growth in the region and struggling to stabilize its ailing golf business, said it was “intensifying efforts to revive momentum and growth in the U.S.”

“We have made this market a key priority for all senior management in the company,” said Herbert Hainer, the group’s chief executive officer, speaking at a conference call on Thursday, following the announcement of Adidas’ third-quarter results.

“We have carried out a significant change in leadership in our North American organization this year, stacking high-caliber talent from various parts of our group and adding key external talent, particularly in design,” he added, referencing the appointments of Mark King as president of North America and Ben Sharpe as ceo of TaylorMade-Adidas Golf in June.

Adidas also has set up a new design studio in Brooklyn, N.Y., led by three design veterans recruited from Nike: Denis Dekovic, Marc Dolce and Mark Miner. Due to contract restraints, they will not take up their posts until the second half of 2015, Hainer specified on Thursday.

The executive underlined that, much like wooing local customers via new design, restructuring would not be done in one day for the golf category — its weakest performer in 2014, with sales declines of 29 percent in the first nine months.

“While the sport [itself] has structural challenges with declining participation levels, the biggest headwind to a faster recovery is the amount and slow liquidation of old inventories in the marketplace,” he allowed. The group, he added, remained “laser-focused on inventory management” and expediting the “cleanup,” which included the closure of its Adams Golf facility in Plano, Texas, and the reduction of the segment’s global workforce by 15 percent.

“The actions amounted to a charge of around 10 million euros [or $13.56 million] in the third quarter,” said Hainer, who was, nonetheless, confident the group would bring back its golf business to “profitable levels” in 2015.

Overall, Adidas’ reported third-quarter net income slipped 10.8 percent, to 284 million euros, or $376.8 million, taking hits from both negative currency effects and the group’s hobbled golf business, where sales plummeted 35.6 percent in the three months ended Sept. 30.

Adidas’ net sales advanced 6.2 percent, to 4.1 billion euros, or $5.4 billion, driven by a strong performance across all geographies except North America, where sales declined 1.4 percent.

By contrast, sales in Latin America continued to soar, rising 15.8 percent and boasting double-digit growth in most markets, especially in Argentina, Brazil and Mexico, which all benefited from post-World Cup momentum.

Both Adidas and Reebok, which advanced 12.4 percent and 6.6 percent, respectively, helped boost sales, as well. Here, the performance of soccer and running products was an especially positive influence, sporting double-digit growth.

Dollar figures are converted at average exchange rates for the periods in question.

Hainer neither confirmed nor denied media reports about an investor group, comprising Hong Kong-based Jynwel Capital and funds affiliated with the Abu Dhabi government, seeking to purchase Reebok for $2.2 billion. He noted, “Please do understand that we do not comment on any speculations or rumors.”

Speaking of Reebok, the executive said he expects the positive trends to continue as the brand, which has been a part of Adidas’ portfolio since 2006, further “broadens its partnership and product offering.”

In the nine-month period, Adidas said net income dropped 20.5 percent, to 635 million euros, or $861.1 million, while net sales edged up 0.9 percent, to 11.1 billion euros, or $15.1 billion, as retail and most regions — except North America, which was down 6.9 percent — helped offset currency fluctuations and double-digit declines at TaylorMade-Adidas Golf.

Overall for the period, negative exchange-rate effects wiped out around 550 million euros, or $745.85 million, from the group’s revenues, Hainer added, lamenting the depreciation of the ruble and weakening consumer sentiment in Russia.

“Russia is a highly prosperous market for us. We are still growing there, [up 18 percent in the first nine months and] outperforming most other brands, but the region faces challenges,” he said. As a consequence, the group will reduce net store openings to 30 units a year for 2014 and 2015, respectively, and inventories by a double-digit rate this year.

Nevertheless, the company upheld its full-year guidance, which it had lowered in July to a mid- to high single-digit increase in currency-neutral sales, after earlier predicting a high single-digit rise.

Hainer stated, “In any sport, to reach your goals, tactics and desire are critical to compete and win. We are here to do both….Net income will grow at a higher rate than group sales. At the same time, we will use 2015 to prepare the ground for our next strategic plan.…We will present our vision for the future in March 2015.”