Adidas Net Beats Estimates as Profitability Widens to Record

Adidas Beijing Store | Source: Adidas

HERZOGENAURACH, Germany — Adidas AG, the world’s second-largest sporting-goods maker, reported first-quarter profit that beat analysts’ estimates and said its gross margin widened to a record on higher prices and more sales from its own stores.

Net income climbed 6.5 percent to 308 million euros ($403 million), the Herzogenaurach, Germany-based company said in a statement today. That beat the 298.5 million-euro average estimate of 15 analysts in a survey by Bloomberg.

“The gross margin saved the day,” said Sebastian Frericks, a Frankfurt-based analyst at Bankhaus Metzler, by phone. “It’s a very strong start to the year and there could be some upside to their 2013 forecast. Revenue wasn’t great but this was expected.”

The gross margin widened to 50.1 percent from 47.7 percent on higher pricing and a bigger proportion of sales from the company’s own stores, where profitability is higher. Analysts predicted a gross margin of 48.6 percent. Adidas, which had record soccer sales last year helped by the European championships, is pushing other categories because of the lack of a major soccer event in 2013.

Top Priority

“We delivered strong margin progress, which is our top priority for the year,” Chief Executive Officer Herbert Hainer said in the statement. “We delivered stable revenues, despite running against high prior-year comparisons due to the sell-in of event-related products for the London Olympics and the European Football Championships as well as facing a continuation of macroeconomic challenges in Europe.”

Adidas shares have gained 27 percent in the past year, giving the shoemaker a market value of 16.6 billion euros.

First-quarter revenue fell 1.9 percent to 3.75 billion euros. That missed the 3.76 billion-euro average estimate of 15 analysts in a Bloomberg survey. Revenue in western Europe declined 6 percent on a currency-neutral basis, led by sales declines in Spain, Italy and the U.K. Sales gained 6 percent on a currency-neutral basis in greater China, while climbing 12 percent in Latin America.

The company introduced the Energy Boost shoe for runners in February and expects Reebok to return to growth this year as it expands the brand’s activities in the fitness market. Reebok sales tumbled 16 percent in the first quarter.

Wholesale revenue fell 5 percent in euro terms while retail sales gained 4 percent on the same basis.

Adidas reiterated it expects sales to increase at a “mid- single-digit” percentage pace excluding currency shifts in 2013, while the operating margin will improve to almost 9 percent from 8 percent in 2012. Adidas aims for an operating margin of about 11 percent by 2015.

“Continued operating margin improvement is the key story for the financial year 2013,” Christopher Svezia, an analyst at Susquehanna Financial Group, wrote in a report on April 30. “There is upside to guidance on the margin, particularly if sales come in stronger than expected in the second half.”

By: Julie Cruz; Editors: Thomas Mulier, Tom Lavell