A Close-Up Of Adidas’ Q2 Earnings

While Adidas Group seems to be making good on its turnaround plans for Reebok, once-beleaguered CEO Herbert Hainer has signaled that he’s ready to shed the company’s faltering golf division after it posted a significant slide yet again in Q2.

The company showed improving momentum in the second quarter, particularly in Western Europe and China, driven by strength in Reebok and Adidas. But those sales gains were clouded by the double-digit declines at TaylorMade Golf.

Hainer said the firm “needs to go much deeper to put the division back on track,” but Adidas has already tapped an investment bank to “analyze future options” for the golf business, particularly the Adams and Ashworth brands.

Matt Powell, a sports-industry analyst at NPD Group, said he sees an upside to a TaylorMade divestiture.

“The golf business is very challenged, and I don’t see a path for it getting significantly better,” Powell said. “With the issues that they have with the Adidas brand, I think its smart to not have any further distractions.”

In Q2, increases at Reebok were driven by growth in the running, training and walking categories, as well as in Classics, Adidas CFO Robin Stalker said. And sales at Adidas Originals grew 37 percent, bolstered by collaborations with music stars Kanye West and Pharrell Williams.

Powell said that while he sees continued recovery on the horizon for Adidas, he’s not convinced that celebrity partnerships will provide a significant boost to long-term revenues. “Collaborations are important from a brand-hype perspective, but they don’t bring much in terms of sales volume,” Powell said.

Regarding Reebok, which picked up UFC fighter Ronda Rousse for an endorsement deal last December, Powell is upbeat on the partnership but said it’ll take some time for Reebok to return to its heyday.

“Reebok has positioned itself well in the training market, but the difficulty is that once you’ve lost that much retail real estate, it’s really hard to get it back. So it will be a long road for them, but it is certainly doable,” said Powell.

More broadly, the North American and Russian markets continue to challenge the company. North American sales improved 22 percent but declined 0.5 percent on a currency-neutral basis, while Russia slumped by double digits on both a reported and a currency-neutral basis.

Looking ahead, Hainer said that soccer, recovery in North America and digital development remain his priorities. Last week, the firm snapped up Austria-based health-and-fitness app company Runtastic in a transaction valued at 220 million euros, or $239 million.

“All the sports brands are figuring out that they need to have a digital relationship with their customers, and this platform will allow Adidas to do that,” Powell said. “This is important, but it’s not a quick fix.”

Adidas already has its free miCoach training-and-running app as well as wearable technology, but it also hopes to tap into Runtastic’s 70 million registered users and 20-plus health-and-fitness apps. “This acquisition is a reinforcement of our commitment to inspire and enable athletes of all levels,” Hainer said.

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