Hainer Hopes for Brighter Days Ahead at Adidas

BOSTON — Though his firm reported a 30 percent decline in third-quarter earnings last week, Adidas Group CEO Herbert Hainer is cautiously optimistic that “the worst is over.”

“I believe we have an exciting fourth quarter ahead of us. I am sure football fever will start to grip the consumer in advance of next year’s mega [World Cup soccer] event,” Hainer told analysts on a post-earnings conference call. “But don’t forget, we will increase marketing to ensure our initiatives get off to a fair start. Therefore, for the fourth quarter, we will not be able to beat last year’s record earnings, but we do at least expect to generate the profit.”

However, for the full year, Adidas Group’s outlook is not as bright. Citing soft consumer demand, highlighted by rising unemployment, the firm said it expects sales to decrease in 2009 at a low- to mid-single-digit rate, currency neutral. For both the Adidas and Reebok brands, sales are seen declining in the low to mid-single digits.

Annual earnings are seen falling as well, to a range of 1.15 euros to 1.30 euros a share, below analysts’ projections for 1.46 euros a share.

Hainer said it was premature to give 2010 guidance. “Consumers and retailers are still hovering between fear and optimism,” he said.

For Christopher Svezia, an analyst at Susquehanna Financial Group, challenges will likely continue for Adidas. “We expect a mixed top line as a potential World Cup bump and new product launches are balanced against continued difficulty and uncertainty for all brands across the company’s major markets,” he wrote in a report last week.

Last Wednesday, Adidas Group posted third-quarter net income of 213 million euros, or $304.4 million, down from a profit of 303 million euros, last year. On a diluted EPS basis, the firm earned 1.03 euros, versus 1.44 euros last year. Analysts had expected a profit of 1 euro a share.

Quarterly consolidated sales fell 7 percent on a currency-neutral basis to 2.89 billion euros, or $4.13 billion. In constant euro terms, net sales decreased 6 percent. Reebok sales fell a currency-neutral 12 percent to 591 million euros, or $844.7 million, with Adidas citing the tough economy. Meanwhile, Adidas brand sales decreased 6 percent to 2.11 billion euros, or $3.02 billion. All figures are converted at average exchange for the three-month period.

Adidas said performance running and its sport-style categories were the strongest in the quarter, with each increasing revenues at a high-single-digit rate. By region, sales in North America declined 13 percent, currency neutral, to 649 million euros, or $927.5 million. The best-performing region was Latin America, with an 11 percent rise in sales to 270 million euros on a currency-neutral basis, or $385.9 million.

Inventories fell 8 percent, but due to higher clearance sales, gross margins decreased to 45.3 percent of sales from 49 percent last year. Reebok inventories were down 15 percent. Hainer said Reebok returned to profitability in the quarter with an operating profit of 17 million euros, or $24.3 million, after “heavy losses in the first half.”

Hainer said Reebok has seen considerable challenges in 2009. “Nevertheless, bottom-line development in the third quarter clearly shows we are making progress,” he said. “Our clean-up effort in markets such as the U.S., China and Spain continue to weigh on our results. However, we’re seeing some good growth in markets like Germany, Italy and Japan.”

The CEO concluded, “We are starting to feel a real difference when talking to retailers about Reebok. “Feedback on our innovation pipeline for 2010 has been very encouraging.”

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