Adidas beats estimates and feels positive about Reebok

Adidas has surpassed estimates with its first-quarter profit and reported gross margin widened to a record, sending the shares to the highest level ever. Net income jumped by 6.5 percent to 308 million euros far ahead the 298.5 million euros

consensus estimate of 15 analysts. On the wake of the news, shares surged 6.2 percent to 84.44 euros reaching the highest since trading began in 1995.

“We delivered strong margin progress, which is our top priority for the year,” Chief Executive Officer Herbert Hainer said in the statement released Friday. “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.”

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

Adidas AG backed as well its forecast for the full year, after it reported a higher first-quarter profit that beat estimates, as margins improved from last year. For the first quarter, net income for shareholders was 1.47 euros per share, compared to 1.38 euros per share a year ago. Analysts estimated the company to earn 1.40 euros per share, on revenue of 3.77 billion euros, for the quarter.

Margin improves

DZ Bank analyst Herbert Sturm described the results as excellent, published Reuters. "The most important news of today is, that the Adidas Group is able to deliver margin improvements in a difficult market environment," he wrote in a note.

Operating profit for the period was 442 million euros, substantially ahead the 409 million euros recorded in the same period a year ago. Gross margin rose to 50.1 percent from 47.7 percent, on back of favourable pricing, product and regional sales mix as well as a larger share of higher-margin retail sales.

Group revenues edged down 1.9 percent to 3.751 billion euros from 3.824 billion euros in the year-ago quarter, due to negative currency effects. Excluding currency shifts, group revenues were stable, helped by sales increases in retail and other businesses.

Sales slid 5 percent in the Wholesale business to 2.481 billion euros and were down 3 percent on a currency-neutral basis, hurt by double-digit sales declines at Reebok, which sales tumbled 16 percent in the first quarter.

Renewed hopes for Rebook

However, 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, advanced Adidas Friday.

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 is targeting 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.”

A double-digit decline in wholesale revenues at Reebok, plus currency effects, impacted first-quarter group sales, which at 3.75 billion euros fell slightly short of expectations in a Reuters poll of analysts.

Aimed to fight back Reebok problems, the German sportswear and lifestyle retailer took a 265 million euro write down on the brand at the end of last year. Noteworthy that Reebok lost a big American football contract with the NFL, was caught on fraudulent operations in India and lost an important hockey deal at the end of last year.

Adidas has promised a major drive in fitness in 2013 to revive sales at Reebok by focusing the brand on sports like yoga, dance and fitness training.