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Written by: Staff

HERZOGENAURACH, Germany, Mar 2 (Reuters) Sporting good maker Adidas' surprise quarterly loss and a sharp drop in orders at recently acquired Reebok overshadowed an upbeat outlook for 2006, when Germany hosts the soccer World Cup.

Adidas shares fell 4 per cent on Thursday after the German firm, which has seen strong earnings growth in the past few years, posted a loss of 4 million euros in the fourth quarter due to costs for the Reebok takeover.

Analysts polled by Reuters had expected a profit of 3 million euros on average.

Adidas bought Reebok for $3.8 billion to take on market leader Nike but said that it now has to improve Reebok's products after orders of the U.S. firm fell by nearly a quarter at the end of 2005.

''Management will have to explain ... that Reebok will not become a major restructuring story,'' said Fabian Kania, an analyst at Heleba Trust, in a note.

But Adidas' Chief Executive Herbert Hainer pledged that Reebok would turn into a success, contrary to winter sports brand Salomon, which Adidas finally sold in 2005 after trying for years in vain to restructure the company.

''Many of our current efforts will now focus on turning around the Reebok brand,'' Hainer told a news conference at Adidas headquarters in Herzogenaurch near Nuremberg in southern Germany.

Despite the problems at Reebok, Adidas said group earnings would grow at a double-digit percentage rate and sales at a high double-digit rate in 2006 thanks to strong demand for soccer products.

Adidas, known for its three stripe trademark, is pinning great hopes on the soccer World Cup in its home market to raise brand awareness and is planning its biggest sales campaign.

The firm also said it would keep its 2005 dividend steady at 1.30 euros per shares despite an earnings jump of nearly 22 per cent in 2005, citing a higher debt due to the Reebok deal.

Adidas shares were down 4 per cent at 158.25 euros at 1400 GMT (1930 IST), underperforming the German blue-chip index, which was 0.5 per cent in the red, and wiped out gains for the year.

Adidas shares have risen some 5.3 per cent in the past three months on the back of strong demand for soccer products, making them more expensive than Nike shares.

Adidas trades at around 15.3 times projected calendar 2006 earnings, compared with a ratio of 15.0 for Nike in its fiscal year to May 2007, according to Reuters data.

REEBOK PROBLEMS Adidas wants to challenge Nike by combining its strength in classic sportswear such as soccer and running with Reebok's strong position in lifestyle fashion, an area in which rival Puma is successful, and in U.S. sports.

But some analysts are worried that integrating Reebok is too big a job for Adidas, just as it launches a multi-million marketing campaign for this summer's World Cup.

Adidas said Reebok sales would decline by a mid single-digit percentage rate over the February-December period. The acquisition was concluded at the end of January this year.

But Hainer said Adidas did not expect a loss in the first quarter as he expected no more significant costs from the Reebok takeover.

For 2005 as a whole, Adidas net income rose almost 22 per cent to 383 million euros, missing the Reuters poll's average forecast of 392 million but in line with the company's forecast of earnings growth of at least 20 per cent.

Adidas also said it would propose a share split at the annual general meeting in May to make its stock more attractive.


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