Adidas issues profit warning on Russia risks
- Article by: GEIR MOULSON
- Associated Press
- July 31, 2014 - 4:05 AM
BERLIN — Sports equipment maker Adidas lowered its full-year profit target on Thursday, citing among other things increasing risk in the Russian market amid mounting political tensions over Ukraine.
Russia's economy and currency have weakened this year due to uncertainty over the potential damage from Western sanctions. The U.S. and European Union this week approved a new round of tougher penalties aimed at hurting Russia's economy, punishment for alleged Russian support for Ukrainian rebels.
"The recent trend change in the Russian ruble as well as increasing risks to consumer sentiment and consumer spending from current tensions in the region point to higher risks to the short-term profitability contribution from Russia" and other former Soviet republics, Adidas said in a statement.
Adidas — a sponsor of the World Cup, which is to be held in Russia in 2018 — said it has decided to "significantly reduce" its store opening plan in the region for this year and next, and to increase the number of store closures. It said it nevertheless "remains very encouraged by increasing brand momentum" for both the Adidas and Reebok brands.
Shares in the company plummeted 12.1 percent in Frankfurt trading to 61.63 euros.
Adidas AG, based in Herzogenaurach, Germany, said it now expects net profit of about 650 million euros ($870 million) this year, down from its previous forecast of between 830 and 930 million euros. It forecast that sales will grow at a "mid- to high-single digit" rate in currency-neutral terms, after previously saying they would grow at a high-single digit rate.
Tensions over Russia weren't the only trigger for the profit warning. Adidas also cited "poor retail sentiment and the slow liquidation of old inventory" worldwide in the golf business. It said it would launch a restructuring program at its TaylorMade golf unit, cutting costs "to match lower expectations for the golf industry's development."
Adidas also said that, following a strong performance at this year's World Cup and "improving momentum" at its main brands, it would step up marketing investments over the next 18 months, particularly in markets such as North America and Western Europe.
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