Adidas Looks to Emerging Markets

NEW YORK — Adidas AG is forging ahead amid economic and political chaos in Europe.

The Herzogenaurach, Germany-based firm not only raised its full-year guidance after performing better than expected in the third quarter, it also acquired Redlands, Calif.-based Five Ten, an outdoor action-sports brand specializing in climbing shoes, for $25 million last Thursday.

With the acquisition, Adidas now expects sales in the outdoor segment to exceed 500 million euros, or $690.7 million at current exchange, by 2015.

“The business in the outdoor space has been pretty good for Adidas,” said Robert Samuels, analyst at WJB Capital Group. “They want to continue to grow there and maybe this deal is to get more of a technical consumer with higher priced product.”

Morningstar Inc. analyst Paul Swinand agreed, saying, “Adidas has outperformed Nike in outdoor, [a category that] has always been tough for traditional sports companies.”

Adidas’ core business will be driven by emerging markets going forward, said analysts. Year to date, currency-neutral sales grew the most in greater China, at 28 percent. The European emerging markets, driven by Russia, advanced 23 percent.

“Western Europe delivered surprisingly strong numbers given the backdrop [in the region],” said Susquehanna Financial analyst Christopher Svezia. “The wheels aren’t falling off [the wagon], so management is confident but cautious as they have good product in the pipeline.”

Adidas also expects business over the next few quarters to be boosted by the European championship soccer finals in Poland and Ukraine, and the London Olympics.

“We have a certain downside risk protection given the importance of both these events for retailers and consumers alike,” Herbert Hainer, Adidas Group CEO, said in a call to analysts last week. “The key competitive advantage of our group is a tremendous experience. … We have gained from our long tradition of partnering with such major sport events.”

“Given the backdrop of [the macroeconomic turmoil in] Europe, group sales [advancing] 13 percent currency-neutral [in the third quarter] is pretty darn good,” said Swinand.

Despite continued pressure from higher input costs and currency volatility, Adidas forecasts full-year group sales to increase year over year about 12 percent on a currency-neutral basis, and EPS to come in 16 percent higher than last year.

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