By David Owen
August 1 – Shares of Adidas, the sportswear group that recently agreed a record £750 million 10-year kit deal with Manchester United, have been hit hard following a profit warning.
The shares dropped more than 15% last Thursday and were down a further 1.67% at mid-afternoon on Friday after the company – which supplied kit to both World Cup finalists, Germany and Argentina – said it now expected 2014 net income attributable to shareholders to be about €650 million, against between €830 million and €930 million previously expected.
While the revision partly reflected what it called “continued weakness” in the golf market, where it is present via TaylorMade-adidas Golf, the announcement also highlighted a post-World Cup marketing push and significant changes to the company’s store-opening and –closure plans in Russia, the next World Cup host, whose relations with the West have deteriorated markedly as a result of the situation in Ukraine.
On Russia, Adidas said that “increasing risks to consumer sentiment and consumer spending from current tensions in the region” pointed to “higher risks to the short-term profitability contribution from Russia/CIS”. The steps it was taking there were “aimed to reduce risk and protect profit as well as to drive a faster implementation of new inventory management principles for that market”.
Herbert Hainer, Adidas chief executive, said the company accepted that it had not “executed to our high standards at all times or provided enough flexibility to react in adverse market conditions.
“This,” Hainer said, “we now tackle head on. The strength of our winning performance at the 2014 FIFA World Cup shows exactly what we are capable of when we execute flawlessly. With momentum returning in key markets and brands, we are taking consequent and necessary decisions now to put the group on a firmer footing to build for the future.”
In the second quarter, the group said that sales increased by 10% on a currency-neutral basis, even though sales at TaylorMade-adidas Golf declined 18%. In euro terms, however, sales were up just 2% to €3.47 billion. Operating profit in the quarter was €220 million, while net income attributable to shareholders was €144 million.
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