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Analysts: Adidas Needs to Pick Up Pace

NEW YORK ­— Market watchers were mixed on Adidas AG after the firm stumbled in key markets during the third quarter.

“Western Europe is a problem,” said Christopher Svezia, an analyst at Susquehanna Financial Group. “They’re losing share to Nike. Nike has been killing it in Europe and Russia. ”

In the U.S., meanwhile, Adidas struggled with its usually strong TaylorMade golf business, where sales slid 16 percent.

“It was the perfect storm this year, with the bad weather and the [lack of new product innovation],” said Svezia. “Golf is all about market share, and Adidas is trying [to grow its share]. More market share means more revenue.”

The Reebok brand, which has been a drag on Adidas’ performance, was on the upswing during the quarter, as U.S. sales grew 5 percent. The label — now under the leadership of Adidas U.S. President Patrik Nilsson, following the departure of CEO Uli Becker — also has seen improved margins.

“The return to the focus on fitness is a work in progress,” said Mitch Kummetz, an analyst with Robert W. Baird & Co. “We’ve seen signs in the past couple of years that if Reebok has the right product, the brand isn’t so far gone that the consumer won’t buy it.”

Despite the challenging quarter, Adidas executives were upbeat about the rest of 2013, and even more so about the new year.

“The strong demand for our concepts and innovations, upcoming initiatives around the 2014 FIFA World Cup and positive customer feedback to our spring ’14 collection from all our brands [shows that] momentum is clearly returning to our business,” CEO Herbert Hainer said on a call with investors.

Looking to 2014, the company is betting big on the World Cup soccer championship, but analysts were mixed about the event’s potential.

“It’s tough to quantify [the impact],” said Kummetz. “Nike is becoming more relevant, but Adidas is the marquis. Soccer is [its] bread and butter.”

Speaking more broadly, Kummetz said he is concerned about the company’s overall revenue growth. “Especially in North America, the market share is way below what it should be,” the analyst said, though he predicted an improvement in the months ahead.

Net income during the third quarter ended Sept. 30 dropped 8 percent to 316 million euros, or $418.6 million at average exchange for the period. Overall sales declined 7 percent to 3.88 billion euros, or $5.14 billion. On a currency-neutral basis, revenues were flat.

Strong momentum in Latin America, where currency-neutral sales grew 12 percent, and China, which increased 9 percent, offset declines in Western Europe and North America, which were down 6 percent and 5 percent, respectively.

The company reaffirmed the guidance it provided in September. Adidas expects overall earnings per share growth of 4 percent to 7 percent for the full year.

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