Sports clothing manufacturer Adidas is predicting better sales and more profits in 2013. Rapid growth in upcoming markets and the launch of new products are at the basis of this optimism, despite the financial hangover caused by Reebok.
Loss in fourth quarter, profits on the horizon
Despite creating a net loss of 227 million euro in the fourth quarter of 2012, mainly caused by Reebok, the German sporting giant expects the operational margin to rise to nine percent, compared to eight percent the year before.
Adidas, the number two in sporting goods worldwide, is predicting a net profit between 890 and 920 million euro in 2013. If so, the dividend will be raised from 1 to 1.35 euro per share. Very good news, according to DZ-analyst Herbert Sturm.
China, higher prices and sales in retail
Notwithstanding the negative results, the gross margin rose from 45.6 percent to 47.6 percent in the fourth quarter, due to higher prices and higher sales in retail. Sales rose by four percent to 3.37 billion euro, still below the average of 3.44 billion euro analysts had expected.
Adidas announced that the growth in 2012 was mainly due to double-digit earnings growth in China and record sales of 1.7 billion euro in the football sector. The golf department also performed admirably and has already reached the profit target of 2015, with sales reaching 1.3 billion euro and still rising.
Adidas explained the bad results by pointing to the review of growth predictions of Reebok, especially in America, and the discounts used because of the economic crisis in Europe.
Reebok has been the Achilles heel of Adidas since its purchase in 2006. Sales have been constantly dropping and economic irregularities at Reebok in India have also caused wholesale numbers to drop in 2012. Jurgen Kolb, analyst at CA Chauvreux, however recently wrote that the brand finally has a healthy basis again.
Adidas CEO Herbert Hainer said at a press conference that the company will continue to strive towards making Reebok a successful brand. New collections of sports shoes and clothing, including a collection inspired by the CrossFit Community and a cooperation with yoga instructor Tara Stiles, should help to reach that goal.
Hainer also said Adidas is not planning any new acquisitions until Reebok has been successfully launched. The company first and foremost wants to give shareholders value for their money.
At the opening of the exchange in Frankfurt it became clear that the announcement of the quarterly loss and the lowering of sales expectations for 2013 have no impact on the share of Adidas. That share rose by 4.8 percent, the biggest rise it has seen in the last ten months.
At the moment the share is worth eleven percent more than at the start of this year. With the expansion of its retail department, Adidas has the perfect tool for neutralising disappointing results of Reebok.