Adidas Group, the world’s second-largest sporting-goods maker, today reported a significant decline in first-quarter earnings. Net profit fell 34 percent to €204 million (US $283.2 million), while sales fell 6 percent to €3.53 billion. North America sales, meanwhile, have slipped 20 percent.
Three key factors in the company’s disappointing quarter: a 38 percent Q1 slump in its TaylorMade golf business, the strength of the euro, and continued weakness in emerging market currencies, particularly the Russian ruble. “A 35 percent earnings-per-share decline in a quarter which should have benefited at least a little bit from the upcoming World Cup is disappointing,” commented Deutsche Bank analyst Michael Kuhn to Bloomberg on the flagship adidas brand’s association as an official FIFA World Cup sponsor, even though Nike will be the dominant kit supplier this year.
Adidas has created a special soccer ball (dubbed Brazuca) for FIFA that it’s been testing, but this World Cup is seeing the company, and its flagship brand, tested on many fronts—most of all by its fiercest rival.[more]
Adidas, of course, is in head-on competition with Nike Inc. for sales of soccer cleats, uniforms, balls, and leisure wear, with the latter reporting more than $2 billion in soccer sales for its 2013 fiscal year that ended last May, while Adidas has set a sales goal of 2 billion Euros for 2014.
“It is a two-horse race” in soccer, Bloomberg quoted Adidas AG CEO Herbert Hainer. Nike “definitely put some challenge on us in Europe.” No surprise, then, that Adidas is shopping some of its underperforming brands, including seeking prospective buyers for its struggling Rockport casual-shoe division.
“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,” observed Hauck & Aufhaeuser analyst Christian Schwenkenbecher in the Wall Street Journal.
“We are listening to these offers,” Hainer told analysts, while remaining bullish on his company’s performance in emerging markets and the strength of it own retail network. “While we still have to be wary of currencies and their effects on our financials, the first quarter will be the low point of our performance,” Hainer added. “I expect a strong second quarter to point the way forward.”
Investor unrest is growing, led by Union Investment, owner of just over 1 percent of Adidas shares, that “plans to withhold support for the company’s executive and supervisory boards at Adidas’s May 8 annual meeting,” reports Bloomberg, and plans to “shake up” the company, “concerned about Nike’s increasing market share in Germany and Europe as a whole.”
But it’s not all doom and gloom for the company. Adidas AG has made solid progress on the sustainability front and is a global leader in corporate social and environmental responsibility. Last year Adidas won the RobecoSAM Sustainability Gold Class and Sector Leader awards, made the Dow Jones Sustainability Indexes for the 14th consecutive year, and garnered industry leader moniker and inclusion in the “Global 100 Most Sustainable Corporations in the World” for the tenth time.
The company’s 2013 Sustainability Progress Report, titled “Fair Play,” puts forth a commitment to 4Ps: People, Product, Planet and Partnership across its 3,500 locations and 50,000-plus employees worldwide.
Hainer clearly states the ethics underlying the multinational’s sustainability activities and its goal to instill a particular mindset for achieving progress: “For us, succeeding in business is about more than making money. It is about treating our employees, our suppliers and their workers fairly, being straight with our partners and supporting our local communities.”
“It is about respecting the environment and making the best products we can for our customers. We are not perfect and we do not always get it right. But as we go about our work, we aim to honor the spirit of ‘fair play’ in everything we do. Therefore, let me assure you that we continue to take serious responsibility for our actions. And we continue to integrate sustainability into our business strategy.”
Now its biggest challenge is moving the products it makes more fairly and sustainably.
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