After weak European trading and unfavorable currency fluctuations through the 2nd quarter, German-based Adidas announced a lowered sales forecast for the 2013 fiscal year. The world’s second largest sporting goods firm “said it now expected group sales to rise by a low to mid single-digit percentage in 2013, compared with previous guidance for a mid single-digit rate”, reported Reuters.
Adidas said that it would not alter its profitability or its earnings per share (EPS) forecasts for the year, however. The sales reduction was not received with much surprise from the industry or investors, after rivals Puma also reported weak sales from poor European sales and the struggling Japanese yen. The Street reported Monday that after the yen’s best weekly performance since June, it would be wise for traders to sell at this point as experts expect the government will need to stimulate the struggling Japanese economy after a disappointing second quarter, which yielded a stifled 2.6% growth rate. The limited growth will ultimately further dilute the value of the yen. This represents some troubling news for Adidas, hence the lowered forecast, as Japan is the firm’s 4th largest market.
The lowered forecast is certainly a disappointment in the eyes of many, but according to Metzler analyst Sebastian Frericks quoted in the Reuters article,
Market estimates for Adidas are high, and the market has been spoilt in the past because Adidas normally doesn’t just meet targets, but exceeds them.
Other industry analysts maintained that it will be important for Adidas to hold to its initial forecasts for an operating margin close to 9% and to grow EPS 12-16% by the end of 2013, which would yield $5.65 – $5.85 per share. Adidas reported 2nd quarter sales of $4.5 billion, down more than expected at -4%, and its $335 million operating profit fell short of the expected $350 million. HSBC analyst Antoine Belge was quoted saying,
The fact that the group is able to maintain its EPS guidance in spite of the macro issues in Europe, the unfavorable forex movements, and higher-than-expected selling, general and administrative costs, demonstrates that the rest of the business is doing much better than expected.
Looking ahead to the near future, Adidas CEO Herbert Hainer said that this year’s decreased forecast would not impact plans for an anticipated $22.6 billion year in 2015. Adidas is leveraging large sales from last year’s summer Olympics, but many anticipate a strong back half as demand for merchandise is expected to increase as we draw nearer to the 2014 World Cup in Rio de Janeiro. In addition, the Reebok division returned to growth in the 2nd quarter bolstering the 2013 campaign, but Frericks warned that the brand would need strong seasonal sales at the end of the summer before he would consider it out of the woods.
The third quarter is the most important for Reebok because of the back-to-school season in the United States, so I wouldn’t call it a turnaround yet.
Adidas has some work left to do for the remainder of 2013 to be sure, especially as top competitor Nike continues to lead, especially in the soccer sector.
Currency conversions from Google Finance 8/12/13
$1 = €0.75