Adidas Plans Restructuring

NEW YORK — Adidas announced last week it would eliminate its regional headquarters and restructure its business model following a 97 percent drop in first-quarter profits.

Chairman and CEO Herbert Hainer said in the company’s first-quarter call last Tuesday that Adidas Group would close its European and Asian headquarters and review all its back-end functions for a projected annual savings of 100 million euros, or $133.1 million, starting in 2010. The Herzogenaurach, Germany-based company estimates that the one-time cost of the implementation would be roughly equivalent to the yearly savings.

Hainer also said Adidas has tapped a new chief retail officer, Michael Stanier, to oversee the global retail strategy. Stanier will join the company in June from Gap.

“We will place a high focus on increasing the efficiency of our retail operations, with a particular emphasis on improving our store productivity and aggressively eliminating unproductive stores,” Hainer said. “The retail business will be a separate part and will be organized worldwide [so] that wherever consumers [go] — whether they are in Kuala Lumpur, San Francisco or in Hamburg — they will see the same brand, the same message and the same values for our brands and companies.”

The wholesale business will be similarly placed under the management of a chief sales officer.

In the quarter, profits declined 97 percent to 5 million euros, or $6.5 million at average exchange rates. Sales declined 6 percent on a currency-neutral basis to 2.58 billion euros, or $3.37 billion, with declines across all its businesses.

In North America, sales tumbled 17 percent. In Asia, they slid 6 percent, while sales in Europe, which were boosted last year by the UEFA Euro soccer championships, fell 5 percent. In Latin America, new subsidiaries for Reebok helped boost business 31 percent.

Citing a high level of uncertainty, Adidas declined to forecast 2009 results. In terms of sales, it confirmed expectations for a low- to mid-single-digit decrease on a currency-neutral basis for the year.

“I know our results for the first quarter may not appear satisfactory,” Hainer said during a conference call Tuesday. “But I think you can see we are not resting on our laurels and just waiting for the crisis to end. We are attacking it head-on, working on many initiatives to strengthen our organization for long-term success.”

Analysts said the company’s restructuring efforts could pay off in the long term.

“Moving forward, the company will continue to face tough comparisons given the absence of key sporting events this year, the slowdown in most of its markets outside Latin America and inflated inventory levels,” Christopher Svezia, an analyst at Susquehanna Financial Group, wrote in a research note. “With that said, we are encouraged by management’s efforts to cut costs and scale back its full-year 2009 retail expansion plans. … So while the company’s full-year 2009 picture is incrementally worse following the first quarter’s results, we believe it is increasingly becoming a full-year 2010 story to European investors.”

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