Adidas shares jump as North America growth outpaces Nike

The World Cup boosted Adidas sales while North Amercia performed especially well. (Reuters)
Updated 09 August 2018
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Adidas shares jump as North America growth outpaces Nike

  • Shares surge on earnings
  • Greater China sales growth accelerates to 27 percent

BERLIN: German sportswear firm Adidas reported higher than expected second-quarter results on Thursday, as its sales growth continued to outpace rival Nike in North America even as it stagnated in western Europe.

Shares in the company famous for its three-stripe brand jumped 10 percent to a four-month high, before paring gains.

The results are the latest endorsement of a strategy implemented by CEO Kasper Rorsted since taking over in 2016, focused on improving profitability as well as expanding in North America and China and pushing sales via ecommerce.

Adidas has a strong pipeline of new products that will support sales this year and beyond, Rorsted told journalists, noting strong demand for its 1980s retro “Continental” leather sneakers that were relaunched in June.

“Full-year guidance reconfirmed ... which should reassure investors ... particularly given Adidas will have good visibility on the important third-quarter wholesale order book,” said Piral Dadhania, analyst at Royal Bank of Canada.

Sales rose 10 percent to €5.26 billion ($6 billion) after currency effects, beating the 8 percent expected by analysts.

Some analysts had expected higher marketing spending in the quarter due to the soccer World Cup would dent the bottom line, but Adidas counteracted that with higher prices and sales through more profitable channels such as ecommerce.

Adidas saw sales growth in North America slow slightly to 16 percent, but that was still well ahead of the 3 percent growth Nike reported for its March to May fiscal fourth quarter, the firm’s first increase in the region for a year.

In greater China, Adidas sales growth accelerated to 27 percent, slightly ahead of Nike’s 25 percent.

As Adidas had previously cautioned, sales were flat in western Europe, where Nike has been growing faster, but they jumped 14 percent in Russia, which hosted the World Cup.
Adidas has made management changes in western Europe after the company failed to focus enough on the launch of new products, Rorsted said, adding sales were likely to stay flat in the region in the second half of the year.

Nike teams dominated the final rounds of the World Cup, but Rorsted said the tournament was still a success as Adidas sold more than 8 million shirts and more than 10 million balls, and saw a boost to downloads of its app, advertised in stadiums.

Adidas said it was taking an impairment of 475 million euros related to the Reebok trademark in 2016 after the German Financial Reporting Enforcement Panel disagreed with how it calculated historical book value.

But it said the restatement had no impact on its cash position and reiterated its guidance for 2018 and beyond, adding Reebok’s prospects were unchanged. Rorsted noted that sales in North America rose 6 percent despite many store closures.

Adidas bought the Reebok brand in 2005, but it has performed poorly since. Rorsted has given Reebok until 2020 to return to profitability and said it should be helped by a new partnership with British designer Victoria Beckham.


Lufthansa announces overhaul of budget carrier Eurowings

Updated 24 June 2019
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Lufthansa announces overhaul of budget carrier Eurowings

  • Lufthansa cited falling revenues at Eurowings as a major reason for its warning on full-year profits on June 16
  • Eurowings’ long-haul business would be managed by Lufthansa in the future

BERLIN: Lufthansa on Monday announced a turnaround plan for Eurowings in which the budget carrier will focus on short-haul flights and seek a 15 percent cut in costs by 2022 in the hope of returning to profit.
The German airline cited falling revenues at Eurowings as a major reason for its warning on full-year profits on June 16. Eurowings’ revenue was also forecast to fall sharply in the second quarter.
Lufthansa said its Eurowings fleet would be standardized on the Airbus A320 family and it would seek to boost productivity at Eurowings by limiting itself in Germany to one air operator’s certificate.
Brussels Airlines — the Belgian national flag carrier which Lufthansa took control of in 2016 — would not be integrated into Eurowings, Lufthansa said. A turnaround plan for Brussels Airlines will be announced in the third quarter.
Lufthansa also said it would start pegging its dividend payout ratio to net profit in the future to give the group more flexibility. It would pay out a regular dividend of 20 percent-40 percent of net profit, adjusted for one-off gains and losses.
Lufthansa said Eurowings’ long-haul business would be managed by Lufthansa in the future.
Carsten Spohr, Chief Executive Officer of Lufthansa, said Monday’s announcements sent “a clear signal that this company cares about its shareholders and tries to create value for them.”
Lufthansa said its Network Airlines — made up of Lufthansa, Swiss and Austrian Airlines — would aim to use innovations in sales and distribution to make a contribution to increasing unit revenues by 3 percent by 2022.
Network Airlines will aim to reduce unit costs continuously by 1 to 2 percent annually, the airline said.