FRANKFURT (Thomson Financial) - Adidas AG. posted Tuesday second-quarter
results that beat consensus, showing the company is weathering slowing economic
growth in North America and is on track to reach its full-year targets, analysts
said.
At 3:44 p.m., shares of Adidas were up 2.38 euros or 6.20 percent at 40.75
euros, while the DAX index was at 6,501.62 points, up 151.58 points, or 2.39
percent.
Adidas said second-quarter net profit rose 11.7 percent to 116 million
euros, exceeding an average analyst estimate of 109.8 million euros, on the back
of strong sales growth in Europe and in Asia.
Sales rose year-on-year in all regions except North America due to continued
weakness in the U.S. market. Overall revenue rose 5.0 percent to 2.52 billion
euros, above consensus for 2.50 billion euros.
"The figures show that Adidas is fully on track to deliver on its guidance,"
said Sal. Oppenheim analyst Joerg Frey.
Adidas said it still sees full-year net profit rising at least 15 percent
from 2007, with a high single-digit percentage increase in overall sales.
But on the back of improved profitability at all its divisions and synergies
from the integration of Reebok, Adidas raised its full-year gross margin target
to above 48 percent from a range of 47.5 percent and 48.0 percent.
In the second quarter gross margin widened to 50.1 percent from 47.4 percent
and operating margin expanding to 8.2 percent from 7.8 percent.
Adidas now sees the full-year operating margin to approach 10.0 percent,
which compares with a previous prediction of at least 9.5 percent.
"In 2009 Adidas could be burdened by higher input prices and weaker top-line
growth," said MM Warburg analyst Thilo Kleibauer.
"Nevertheless, the visible margin improvement should help the group continue
its profit growth course even in a more difficult scenario."
Reebok remained in focus for analysts as the U.S.-based sporting goods unit
posted a 24 percent decline in sales in North America. Overall, though, the
Reebok brand posted sales growth for the first time in five quarters as a joint
venture in Brazil and Paraguay was consolidated for the first time.
Adidas bought Reebok in 2005 for 3.1 billion euros to boost its market share
in the United States and narrow the gap with rival Nike Inc. and has invested in
marketing to revive the brand's popularity and profitability.
Retail sales in the United States in June increased only slightly, by 0.1
percent, from the previous month as a sharp rise in gas station sales was offset
by the biggest decline in car sales in more than two years.
Nike, which generates about 35 percent of revenue in the United States, in
June said U.S. order backlog was flat from a year earlier and acknowledged a
difficult consumer environment in the region.
Adidas in the second quarter made less than a quarter of sales in North
America, which includes both the United States and Canada, helping business in
emerging markets offset a revenue slide in the region.
Nonetheless, order backlog -- a key indicator of future sales growth -- at
the Reebok brand shrank 13 percent on a currency-neutral basis on continued weak
orders in North America.
"Reebok's revenue will probably remain weak in the second half of 2008,"
said Merck Finck analyst Robert Greil.
Adidas previously said it sees sales at Reebok returning to growth in 2009,
with order backlogs already showing improvement in the second half of 2008.
But chief financial officer Robin Stalker argued that order backlog is no
longer a reliable indication of future sales as it does not include revenue at
joint ventures and from own retail operations.
In the first six months of this year, Reebok's own retail sales rose 19
percent, driven by new store openings in emerging markets. Own retail generated
18 percent of the brand's overall revenue, up from 15 percent a year earlier.
In addition, a resumption of sales through U.S. shoe retailer Foot Locker
Inc. will "create the basis for growth in 2009," Stalker said.
Adidas last year cut back its business with Foot Locker, its biggest
customer in the region, hurting North American sales.
maria.sheahan@thomsonreuters.com
mas/wj
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