Increased spending for sales and marketing, and continuing cost pressures lowered fourth-quarter net profits for Adidas AG, but strong performance for the Adidas and Reebok brands in the once-weak U.S. market have the company feeling bullish on 2011.
Sales in North America grew 14 percent for Adidas and 22 percent for Reebok in 2010, CEO Herbert Hainer noted in a call last week with analysts.
Matt Powell, an analyst with SportsOneSource, told Footwear News, “The business in the U.S. has turned around for both brands, and that’s a huge achievement. The Reebok turnaround has been nothing short of stunning. And they’ve got China going back in the right direction.”
But while brand momentum remains strong, Hainer said the cost increases broadly affecting the industry will continue to exert margin pressure in 2011.
“Price inflation in our industry is an economic reality that the entire supply chain will have to deal with,” he said. “To mitigate these negative developments, our global brands and global operations functions have worked hard on optimizing our product creation, manufacturing and distribution processes to bring our product to market more cost efficiently.”
Analyst Christopher Svezia of Susquehanna Financial noted that gains in shelf space are driving topline momentum, but costs will be the concern going forward.
“The margins are the question mark,” he said. “Clearly gross margins are the challenging aspect of everyone’s business.”
Adidas reported fourth-quarter net profits slid 64 percent, to 7 million euros, or $9.5 million at current exchange, versus 19 million euros, or $28.1 million, in the year-ago period. Sales in the quarter rose 19 percent, to 2.93 billion euros, or $3.99 billion.
Full-year net income more than doubled to 567 million euros, or $752.1 million, versus 245 million euros, or $341.7 million, in 2009.
Long term, the CEO also told analysts the company was on pace with its Route 2015 plan, announced in November, to grow revenues by almost 50 percent to 17 billion euros by 2015.