Adidas takes a shoeing as profits plunge

Adidas bosses will have to earn their stripes this year: they've just had to issue a profit warning.

by
Last Updated: 07 Mar 2013

It’s been a nightmare start to 2009 for Adidas, the big German sportswear group. As sales dried up on both sides of the Atlantic, Adidas saw its pre-tax profits plunge 97% in the first quarter of this year, to a measly €5m (down from €169m last year). That’s barely enough to keep David Beckham in football boots (those things he wears when he's not modelling pants). The lack of a big football tournament was always going to put the boot into the company’s sales in 2009 – but the global recession and rising costs are making things even tougher. We'll soon see whether 'Impossible is Nothing' for the Adidas top brass...

Adidas said sales were down in every division and almost every geographical area last quarter. This was partly because the Euro 2008 football championship boosted sales in the previous year, but it’s also because the global slowdown is hitting customers in the pocket. North America was worst affected, with sales falling 17% (if you disregard currency movements), but Asia sales also fell 6% and Europe was down 5%. Apparently the group’s home territory of Germany was particularly slow, as recession-hit punters decided that new pair of trainers wasn’t such a must-buy after all.

On the other hand, sales were up 31% in Latin America – which meant that group sales were actually down just 6%. Unfortunately for Adidas, its costs were also much higher than last year: raw materials were more expensive, currency devaluation (particularly that of the Russian rouble) ate into profits, and it was forced to set aside €80m for restructuring charges – including the cost of absorbing the Reebok brand into its global empire. This reduced its operating margin from a healthy 10.7% to a distinctly unhealthy 2.2%, almost pushing it into the red for the quarter.

Adidas CEO Herbert Hainer was putting a brave face on things today, claiming that the company will put most of these problems behind it before the year is out. He’s also stepping up a big restructuring programme, designed to streamline its command structure (for instance, it’s removing all middle management at regional level – it says this will increase speed-to-market, though let’s hope it doesn’t end up regretting the lack of local knowledge and oversight). Hainer says this will save €100m a year, although he was pretty coy about how many job losses it would entail (some have already gone).

Adidas has been on a pretty good run for a while now, with eight years of soaring sales and profits before this little setback. And Hainer will argue that this is a marathon, not a sprint: Adidas may have hit the wall in the downturn, but if he can succeed in making it leaner and fitter, it may yet emerge ahead of the pack.



In today's bulletin:

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Fiat to acquire GM Europe?
Adidas takes a shoeing as profits plunge
Editor's blog: Crazy paving highlights public sector waste
Nick Hood: Austria gears up for insolvency rush

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