Adidas Plunges After Reducing Forecast on Russia, Golf

By Aaron Ricadela  

Photographer: Hunter Martin/Getty Images)

Adidas will restructure its TaylorMade golf unit “to align the organization’s overhead to match lower expectations.” The company also plans to close stores in Russia and delay other locations’ openings amid “current tensions in the region.”

Adidas AG (ADS) shares fell the most since 1997 after the world’s second-largest sporting-goods maker slashed its full-year profit forecast, bursting euphoria around the company less than a month after celebrating its national team’s victory in the World Cup.
Adidas said profit this year would miss its forecast by at least 180 million euros ($241 million). The shoemaker scrapped a longstanding growth target for next year, citing a slump in demand for golf supplies in North America combined with turmoil in Russia.
“You could argue they’ve been a victim of their own success,” said John Guy, an analyst at Berenberg Bank in London, who recommends buying the shares. Adidas controls more about half the North American golf-equipment market, which has recently been marked by fewer rounds played and discounting. “Russia is one of their most profitable regions,” yet unrest in Ukraine and economic sanctions against Russia are sapping demand.

The shares tumbled as much as 14 percent in Frankfurt trading, the biggest drop since 1997. Adidas traded at 60.58 euros as of 11:12 a.m in Frankfurt. A close at that price would be the steepest decline since the company’s 1995 initial public offering.

Lower Targets

Net income this year will be about 650 million euros, Herzogenaurach, Germany-based Adidas said in a statement, down from the earnings of 830 million euros to 930 million euros the company had previously anticipated. In addition, the company said its so-called Route 2015 targets for sales and profitability aren’t achievable by next year.
The company has now abandoned its target of 17 billion euros in sales next year and an operating margin of 11 percent. Analysts surveyed by Bloomberg expect 2015 sales of 15.7 billion euros.
In Russia, Adidas said it plans to close stores and delay other locations’ openings. Adidas, which has about 1,000 stores in that market and nearby countries, had initially planned to end this year with more than 100 net new stores, spokeswoman Katja Schreiber said.
The company had called Russia and the former Soviet countries one of its three “attack markets,” which were targeted to contribute about half of the company’s sales growth. Revenue from that country exceeded 1 billion euros last year.

Golf Restructuring

Adidas will restructure its TaylorMade golf unit “to align the organization’s overhead to match lower expectations,” the company said. Young people haven’t cottoned to the game while existing players are leaving it or replacing equipment less frequently.
Chief Executive Officer Herbert Hainer is reaping the benefits of Germany’s World Cup win -- it said this month it sold more than 8 million replica World Cup jerseys, including 2 million with Germany’s stripes and eagle. Yet it’s spending heavily on basketball and other sports to catch market leader Nike Inc. in the U.S., and is being hurt by turmoil and currency effects in Russia, said Berenberg’s Guy.
In the second quarter, sales increased 2 percent to 3.47 billion euros, in line with with analysts’ average 3.48 billion-euro estimate. Net income was 144 billion euros, compared with the 150 million-euro estimate. Golf sales fell 18 percent in the quarter.
Adidas also said it plans to spend more on marketing in North America and western Europe to take advantage of momentum from the World Cup, where it sponsored the two finalists, Germany and Argentina, and was the official match sponsor.
The company plans to report full second-quarter results on Aug. 7.