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German sport-shoe maker Adidas AG forecast sales may rise at the fastest pace in five years as consumers spend more ahead of the Euro 2016 soccer tournament, setting up its incoming chief for a potentially better period than the company's recent past.
Adidas forecast 10 per cent to 12 per cent growth in both local-currency revenue and adjusted net income this year, pinning down its targets less than a month after raising its outlook. Gross margin will narrow as much as 1 percentage point due to higher purchasing costs in Asia, Adidas also said Thursday.
The buoyant sporting-goods market and ability to raise prices are helping Adidas surmount higher costs and provide incoming Chief Executive Officer Kasper Rorsted with a stronger foundation than the company has had in years. Sales of sneakers and clothing will be helped by the European soccer championships in June and July, Adidas said.
"The sporting-goods outlook remains very healthy, and Adidas is well positioned to take advantage," Piral Dadhania, an analyst at RBC Europe, wrote in a note to investors.
TaylorMade golf
CEO Herbert Hainer reiterated that Adidas will complete a review of its struggling golf business this month. Revenue of TaylorMade-Adidas Golf dropped 13 per cent excluding currency shifts in 2015, declining to euro 902 million.
"We are considerably stronger and better today than we were 12 months ago," Hainer said at a press conference at the company's Herzogenaurach, Germany headquarters. The 61-year-old executive is resigning one year earlier than originally planned.
The stock fell 0.9 per cent to euro 98.04 as of 9:47 am in Frankfurt. It has gained 9.1 per cent this year, making it the best performer in Germany's DAX Index. The company is raising its dividend 6.7 per cent to euro 1.60 a share, matching the Bloomberg forecast.
Rorsted, who starts in October after Hainer spent 15 years at the helm, will need to improve Adidas's standing in the US, where it's slipping further behind No. 1 sneaker brand Nike Inc, and increase growth in athletics shoes, which define its brand.
"The big hope is that he's going to close the marketing gap with Nike," said Berenberg analyst Zuzanna Pusz. Adidas's fashion-oriented Originals and Neo lines are expanding sales faster than performance footwear, and Adidas needs to accelerate sport shoe sales to stay competitive, she said.
The company is spending more on sales and marketing this year. It's also paying more to produce sneakers in Asia because of currency effects and labour costs, a problem that's affecting the whole industry. Adidas said higher pricing will help offset that.
"If there is anywhere Adidas could positively surprise in 2016, it's the gross margin," said John Guy, an analyst at MainFirst Bank who has a buy rating on the shares.
The company is also taking steps to deal with activist investors. Adidas said Wednesday it plans to give board seats to Nassef Sawiris, Egypt's richest man, and a representative of Groupe Bruxelles Lambert SA, the investment firm backed by Albert Frere. Frere and Sawiris were the two biggest shareholders in Lafarge before it merged with Holcim to create the world's biggest cement maker. Last month, Adidas raised its outlook for the year, forecasting double-digit revenue and operating profit growth.
