Adidas boosts sales outlook
German footwear and sports apparel brand adidas has reported a 25% increase in first quarter net profit and raised its sales guidance, but has also said it will continue to raise prices to offset higher raw material costs. The firm saw a potentially significant knock to its profits from the catastrophe in Japan.
“Japan is eating into our profit,” adidas chief executive Herbert Hainer said, warning that sales in the country could decline by 15 to 25% over the nine months from April to December, leading to a potential “significant double-digit million euro” profit. Japan contributes a high single-digit percentage of group sales.
Meanwhile, adidas will start to selectively increase prices as input costs start to hit, Mr Hainer said, as just one measure to fight the rising cost of raw materials. The company is also engineering its products to make them as “lean” as possible while maintaining quality, Mr Hainer said.
The company reported a net income of EUR209 million in the first quarter, up from EUR169 million a year earlier. Sales in the first three months of the year rose 18% to EUR3.27 billion, and adidas now expects full-year sales to increase at a high single-digit rate on a currency-neutral basis. Previously, the company had expected mid- to high single-digit sales growth.
Some analysts said the sales outlook is conservative, given the strong first quarter.
Adidas also hopes exposure to high-growth markets, retail expansion and continued brand momentum will help it to continue to grow in 2011 and offset higher raw materials costs and any losses from Japan, particularly in what it calls its three “attack markets” of North America, Greater China and Russia.
In the first quarter, adidas said fewer clearance sales and a larger share of higher-margin retail sales offset higher input costs.
Retail sales increased 22% on the year, mainly as a result of double-digit growth in comparable store sales. The company, whose sportswear brands include Reebok, Taylor Made and Rockport, aims to continue develop its retail strategy, including the development of concept stores and selective distribution.
The company’s gross margin remained almost unchanged on the year, down 0.1% to 45.8%, which surprised some market experts.
