adidas weathers tough year and plans for recovery as profits fall

The whistle has blown on an undeniably interesting year for adidas Group and the final result? It wasn’t exactly a win for the German athletic sportswear giant in a 2014 that can only be described as bruising.

But in the circumstances, the results weren’t bad with the company fighting hard to catch up to major rival Nike and also facing increased competition from newer names such as Under Armour.

Its share price fell 38% last year as it lost market share in the US and Europe, despite sponsoring the soccer World Cup, and future plans include a major marketing push and more decision making and design control given to its US ops.

So what were the numbers? Sales last year rose 2% €14.5bn, down from the €14.8bn preliminary figure adidas had announced in January. Adjusted net income was also down on the preliminary €650m figure. Excluding a goodwill-impairment cost, it fell 22% year-on-year to €642m and was well down on the €830m-€930m it was still expecting last summer.

The company, which is looking for a new CEO to replace long-time chief Herbert Hainer, will unveil a new sales plan at the end of this month to take account of slowing sales in the US and the weakness it’s facing in Russia.

Yet Hainer was relatively upbeat about last year, saying it was a year “with ups and downs.” He added: “We tackled the challenges resolutely and achieved our adjusted top- and bottom-line targets. In the fourth quarter, we grew at double-digit rates in Western Europe, Greater China, European Emerging Markets and Latin America. This shows that the momentum at adidas and Reebok is fully intact.”

Why the confidence? Well, 2014 wasn’t completely a year of bad news and Q4 looked relatively strong.

Currency-neutral group sales increased 6% in Q4 – as they did for the full year – and the adidas brand was up 11%, again matching the full year. Sport Performance training and running categories as well as adidas Originals and adidas NEO drove the growth. Meanwhile Reebok reported its seventh consecutive quarter of growth in the quarter and saw a 5% rise for the year.

Group sales in Western Europe, European Emerging Markets, Greater China and Latin America each grew at double-digit rates and comparable retail store sales were up 9% currency-neutral.

And the bad news? Sales at TaylorMade-adidas Golf declined 28% in 2014 and gross profit for the adidas Group decreased 1% to €6.924bn versus €7.001bn in the prior year.

For this year, Hainer said net income excluding items will rise 7-10%, suggesting profit of around €697m, exactly in line with analysts’ estimates.

Group sales are expected to increase in the mid-single-digits (currency-neutral) and the firm expects rising consumer confidence to help, despite the weak economy and plunging consumer confidence in Russia.

adidas expects group sales to be aided by a “significantly improved top-line development at TaylorMade-Adidas Golf as well as ongoing robust momentum at both adidas and Reebok.”

This, as well as “the further expansion and improvement of controlled space initiatives, will more than offset” the fact that it doesn’t have a major event like last year’s World Cup to build sales on.

Currency translation is also expected to boost the group’s top-line development in reported terms, given the recent strengthening of major currencies such as the US dollar and the Chinese currency versus the euro.

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