Adidas Q2 net profit slid 16% due to currency pressures, a volatile business environment in Russia, lackluster golf sales, and higher World Cup marketing costs, the company announced. Last week, Adidas shares plunged after it warned that its 2015 profit target for 2015 would not be met.
“Missing our goals is something we take very seriously as a management team and we definitely reflect critically. We clearly recognize that part of this underperformance is due to our executional mistakes.”
TaylorMade, the company’s gold brand posted 22% lower sales in Q2. Adidas says it will restructure its golf division, which is expected to reduce profit by €60 million during H2 2014. No mention was made of possible reductions to the workforce.
Adidas’ plans for Russia, one of its main markets, have also changed. It is closing down more branches in the country and trimming right down its expansion program. Rather than opening 150 stores as originally planned, it will only open eighty. In 2013, sales in Russia exceed €1 billion.
(Data source: Adidas)
Higher sales, lower profitability
Net sales for Q2 2014 reached €3.465 billion, a 2% increase compared to €3.383 billion in Q2 2013. However, operating profit declined by 12.7% to €220 million.
After adjusting for the effects of currency fluctuations, sales had increased by 10%.
Net income plunged by 16% to €144 million from €172 million during the same period last year.
World Cup related sales
From a brand viewpoint, both Reebok and Adidas gained considerable momentum during Q2 2014. The Adidas brand, in particular, benefited from sales related to the FIFA World Cup soccer tournament, the company said.
As a result, on a currency-neutral basis, Adidas and Reebok sales during the quarter rose 14% and 9% respectively “driven by sustained sales momentum in the fitness training, walking and studio categories as well as at Classics,” Adidas informed.
Rockport sales fell by 1% on a currency-neutral basis, while Reebok-CCM Hockey revenue rose by 1%.
In July, Adidas and Manchester United Football Club signed a £750 million ($1.3 billion) ten-year deal, the largest kit contract in the history of sport. The German sports group took over one week after Nike said it would not renew its kit contract with the English Premier League club.