Sporting goods company Adidas AG (ADDDF.PK) Wednesday reported a 29.7% decline in third-quarter profit, reflecting lower operating profit. Further, the company gave fiscal 2009 earnings outlook and reaffirmed sales guidance for the year.
The company's net income attributable to shareholders for the latest quarter plunged to 213 million euros from 302 million euros in the same quarter last year. Earnings per share declined 28.5% to 1.03 euros from 1.44 euros in the prior year quarter.
Net sales for the quarter decreased 6.3% to 2.89 billion euros from 3.08 billion euros in the previous year. On a currency-neutral basis, decline in sales were 7%. Adidas noted that the movements in currency had a positive impact on the group sales in euro terms.
Segment-wise, revenue for the adidas segment dropped 6% on a currency-neutral basis. The company noted that growth in the Sport Style division was not able to offset declines in major sports categories in the Sport Performance division. Currency-neutral revenues in the Reebok segment were down 12%, compared to the prior year quarter, hurt by declines in all divisions.
Also, the company recorded a 12% decrease in revenues for the TaylorMadeadidas Golf segment on a currency-neutral basis, negatively affected by challenging macroeconomic environment and the nonrecurrence of sales related to several new product launches in the year-ago period.
Gross margin fell 3.7 percentage points to 45.3% from 49.0% in the third quarter of 2008, hurt by higher clearance sales, higher input costs and currency devaluation effects, in particular related to the Russian rouble. Gross profit for the most recent quarter plunged 13.5% to 1.31 billion euros from 1.51 billion euros in the comparable quarter a year earlier. Other operating expenses increased to 1.01 billion euros from 1.08 billion euros on year.
As a result of the lower gross margin as well as higher other operating expenses as a percentage of sales, the company's operating margin dropped 3.7 percentage points to 11.6% from 15.3% in the prior year. Operating profit plummeted 29% to 336 million euros from last year's 473 million euros.
Commenting on the quarterly results, Herbert Hainer, adidas Group chief executive officer, said, "This year, our industry and our Group have faced unprecedented challenges. However, we have tackled the challenges head-on. We have successfully adapted to our difficult surroundings. And our drive for operational excellence has meant we have strongly improved our financial position generating almost € 740 million in net cash from operations over the last six months."
For the first nine months, net income attributable to shareholders of Adidas were down to 226 millino euros or 1.132 euros per share from 588 million euros or 2.78 euros per share in earlier year.
Net sales for the latest period declined 3.7% to 7.92 billion euros from 8.23 billion euros in the previous year.
Looking ahead to fiscal 2009, Adidas Group expects earnings to reach a level between 1.15 euros per share and 1.30 euros per share. The company said net income attributable to shareholders and earnings per share are projected to decline in 2009. Due to a more moderate increase of input costs and positive impetus ahead of the 2010 FIFA World Cup, the company's profitability will be significantly better in the second half compared to the first half of the year, Adidas added.
For 2009, Adidas Group sales are still expected to decline at a low- to mid single-digit rate on a currency-neutral basis. The company still projects a low- to mid-single-digit sales decline on a currency-neutral basis for the adidas brand in the year. Reebok segment sales are also still expected to decline at a low- to mid-single-digit rate compared to the prior year on a currency-neutral basis in 2009.
ADDDF.PK closed trade on October 28 at $48.90.
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