Ahead of World Cup, Adidas Q1 Profit Sinks on Slowed Sales

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Dusseldorf, Germany—At 37 days and counting down to the World Cup, it can’t come fast enough for Adidas AG, the world’s second-biggest sporting-goods maker. In a first quarter earnings report released today, Adidas posted a 34% drop its net profit as its weak TaylorMade-Adidas Golf business dented sales.

For the quarter ended Feb. 28, Adidas reported net profit fell to 204 million euros (about $284 million) from 308 million euros (about $430 million) in the same quarter last year.

Net revenues were down 6% to 3.533 billion euros (about $4.92 billion).

The company blamed currency translation effects for “a significant negative impact” on sales. A stronger euro shrinks revenues in other currencies when they are converted to euros for the earnings statement. Excluding the currency translation, revenue would be “stable.”

Rockport Sale Possible

The first quarter was also impacted by a slide in sales at its TaylorMade golf brand, particularly in North America where bad winter weather and a change in strategy. As a result, Adidas’ North American sales were down some 20%, where its golf business accounts for half of sales.

At its retail division, sales increased 22% on a currency-neutral basis and comparable store sales rose 8%.

There also was strong momentum in European Emerging and Latin America markets, where currency-neutral revenues climbed 28% and 19%, respectively.
“Strong performances particularly in the emerging markets and in our own retail were masked by strategic changes to how we go to market at TaylorMade-Adidas Golf as well as adverse currency effects,” CEO Herbert Hainer said.

The company is expecting to benefit leading up to, during and even after the World Cup. (Adidas is the Official Partner of the 2014 FIFA World Cup in Brazil).

Looking ahead, the company confirmed its fiscal year guidance, expecting net income between 830 million to 930 million euros compared to last year’s adjusted 839 million euros. Sales are expected to increase in the high-single digit rate.

Hainer said sales of team jerseys and the Official Match Ball brazuca have been “significantly higher than in the same time period four years ago. We are therefore well on track to achieve record football sales of 2 billion euro.” (about $2.8 billion)

In other news, Adidas confirmed a Wall Street Journal report that it might sells its Rockport brand in a deal valued at $300 million.

Hainer said the company had received offers for the brand and that it had hired Guggenheim Partners to advise it on the matter.

“A future divestment of the brand would be strategically sensible as Rockport neither offers a performance nor a lifestyle edge to customers and hence isn’t regarded as core business,” Hauck & Aufhaeuser analyst Christian Schwenkenbecher said.