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Adidas Raises Guidance As Profit Beats Expectations

04/30/2012 | 03:41am US/Eastern
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- Sales in China and Asia jump 26% from a year earlier.

- CEO calls first quarter an "unprecedented" period of growth.

- Traders say stock may rise above all-time high of EUR61.29

 
   (adds more detail and CEO comment from the 7th graf, trader comments in 14th graf) 
 

German sportswear and equipment maker Adidas AG (>> adidas AG) Monday raised its guidance for the year, after above-consensus earnings in the first quarter, but cautioned that irregularities at its Reebok India Company may weigh slightly on earnings.

In a preliminary statement, Adidas said net profit jumped 38% in the first quarter to EUR289 million, primarily due to stronger than anticipated growth in China and Japan as well as TaylorMade-adidas Golf sales, and benefited from lower financial expenses and a lower tax rate. The figure is well above the EUR237 million average forecast in poll of analysts by Dow Jones.

Group operating profit in the first quarter was up 30% to EUR409 million, while revenue jumped 14% on a constant currency basis to EUR3.8 billion, above expectations of EUR3.64 billion.

Adidas, the world's No. 2 maker of sports apparel after Nike Inc. (NKE), raised guidance, saying net profit is likely to rise by 12%-17% in 2012, compared with previous forecasts of 10%-15%. Group sales are likely to rise nearly 10% on a constant currency basis, up from growth in the mid-to-high single-digit percentage range.

Still, Adidas's gross margin--a measure of what it makes on product sales--fell for the third consecutive quarter to 47.7% from 48.4% in the first quarter of 2011.

Higher input costs--cotton, rubber and the rising cost of labor in China--have also eaten into the margins of Adidas's competitors. Last week, Puma SE (>> Puma AG Rudolf Dassler Sport) said its gross margin fell to 51.2% from 52.4% in the first quarter due to input price pressure.

The group's operating margin improved to 10.7% from 9.6% in the year-earlier period.

"Our first quarter performance confirms the outstanding brand momentum and global power of the adidas Group", Adidas chief executive Herbert Hainer said, calling this an "unprecedented" period of growth for the company.

By region, currency-neutral sales in China and the rest of Asia jumped 26% on the year, but by just 7% in western Europe. North American sales were up 11%, while sales in Latin America climbed 14%.

For the rest of 2012, Adidas is banking on major sporting events like the London Olympics and the UEFA European Championship soccer tournament to drive sales. It also expects to benefit from a high exposure to fast-growing emerging markets, where rising incomes are pushing up demand for branded goods and clothing.

The company also said irregularities at its Reebok India Company will likely result in a pretax charge of up to EUR125 million, and may require the company to restate financial statements from last year.

"Management assures its stakeholders that it has, and will continue to, vigorously pursue a course of action to protect the Group's interests, which has already resulted in the appointment of a new local leadership team in India at the end of March," Adidas said in a statement.

Adidas said it will continue the restructuring of business activities in India with changes to commercial business practices, that may lead to an additional one-time charge of EUR70 million.

Traders called the first quarter data "outstanding" and said the stock may rise above an all-time high of EUR61.29. They shrugged off news of the likely charge for India, noting that the actual charge is likely to be a lot lower than the EUR125 million on a pretax basis.

Over the past 12 months, Adidas shares have gained about 18% in value, outperforming the Euro Stoxx Consumer Goods index, which has gained 0.1%. Its shares closed Friday at EUR59.82.

-By Harriet Torry and Monica Houston-Waesch, Dow Jones Newswires; 49-69-29725-504; nikki.houston@dowjones.com

Stocks mentioned in the article : adidas AG, Puma AG Rudolf Dassler Sport
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