Adidas Earnings Bounce

Adidas AG’s second-quarter earnings soared, thanks to the World Cup, but the back half of the year could be more challenging.

“Moving forward, we do expect some moderation in sales momentum as event-driven sales prove one-time in nature,” said Susquehanna Financial Group analyst Christopher Svezia. Product costs are also expected to become a bigger obstacle, as raw materials, freight and labor costs will limit gross-margin gains, he added.

“At the end of the day, the second half implies a more muted performance relative to the first half. Plus you’re going up against ridiculously tough comparisons into next year,” Svezia said.

Still, there are some sizable growth opportunities for the firm in China, as well as in its revived Reebok business.
The brand’s total revenues were up 16 percent on a currency-neutral basis in the quarter, the company said, with North America driving the performance with a 30 percent sales improvement.

In a conference call last week, Adidas Chairman and CEO Herbert Hainer said the growth in the U.S. should continue in the second half.

“EasyTone and Zig [are] helping us to get better shelf space, and this will also help [the brand’s other categories], where we’re bringing in better products quarter by quarter,” he added.

Adidas reported last Wednesday its net income for the quarter ended June 30 rose to 126 million euros, or $165.6 million, from 9 million euros, or $11.8 million, in the same period a year ago. Earnings per share were 60 cents, up from 4 cents.

Net sales for the period were 2.9 billion euros, or $3.8 billion, a 19 percent increase from last year’s 2.5 billion euros, or $3.3 billion.

The interest in the World Cup is set to lift Adidas’ soccer-related sales to more than 1.5 billion euros, or $2 billion, for the full year, surpassing the previous best of 1.3 billion euros, or $1.7 billion, in 2008.

Adidas also reported double-digit sales growth in running and outdoor for the quarter.

Second-quarter gross margin increased to 49 percent, from 45 percent in 2009, with a third of the increase attributable to lower sourcing costs.

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