NEW YORK — Weakness in Russia. An uneven Reebok brand. Golf woes.
These are a few of the major challenges at Adidas Group, which reported slipping net income in its third-quarter results last week.
There were several bright spots: Income in China was up 13 percent, and sales increased in both Latin America and Europe. But the bottom line suffered, in part due to currency fluctuations. Notably in Russia, the ruble continued to fall.
The golf business also sputtered during the quarter, while Reebok continues to face major obstacles.
“While we have come up against certain external factors in the last 18 months, we know we have to raise our game especially in difficult conditions,” said Herbert Hainer, chairman and CEO of Adidas, in a conference call. “Over the last month, we have acted quickly and deliberately, implementing serious initiatives to drive consistent growth and more profitability.”
Julian Easthope, an analyst at Barclays, said that while there are pockets of strength at Adidas, the firm clearly has areas to work on.
Watch on FN
“Russia is more difficult with the ruble collapse. But there is a plan for Taylor Made [golf], and the rest of the business seems to perform reasonably well on the top line,” Easthope said.
Although he was upbeat about the future of the firm, other stateside analysts were concerned about the North American market and the company’s brand mix.
“There are issues at play with golf here. Retailers are consolidating square footage, and it’s [a smaller market],” said Christopher Svezia, an analyst with Susquehanna Financial. He said even though Adidas and other companies were clearing inventory and repositioning, it might not be enough. “In six to nine months, we could be back in the same place because the consumer isn’t as receptive to product,” he added.
Other analysts said the 36 percent decline in golf sales was largely an Adidas-specific problem. “The untold story here is that they screwed it up,” said Paul Swinand of Morningstar. “Golf is down all over, yes, but it’s also a strategic issue. Adidas stuffed the channel with the wrong product and haven’t marketed it all that well. There isn’t a ton of synergy with the golf line and Adidas’ innovation. Boost [technology] in golf shoes [isn’t that valuable to the player].”
Another ongoing worry is Reebok. Sales were up 7 percent (on a currency-neutral basis) for the quarter but are still down for the year. The firm also announced plans to close more than a fifth of U.S. Reebok outlet stores. “Adidas has continued to shrink Reebok compared to the rest of the athletic market,” Swinand said. “If they want to give an alternative brand for training, fit and sports, they need to focus on it.”
Svezia also noted that, when asked to comment about a possible sale of Reebok, Hainer simply resorted to no comment instead of reaffirming a commitment to the brand, which was an unusual shift for him.
Adidas’ innovations in the U.S. also seemed to be lagging compared to athletic competitors, analysts said. Boost technology, introduced just after Springblade, has failed to gain traction so far, they said. “In North America, the consumer hasn’t been as receptive [to Boost],” said Svezia. “I don’t know whether the technology wasn’t attractive or customers were going elsewhere with the [Nike] Flyknit, but it didn’t get as strong a response.”
Nevertheless, Adidas said it was still on track to deliver 8 million pairs of Boost styles in 2014 and 15 million pairs in 2015.