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SBD Global/August 1, 2014/Finance

Adidas Shares Experience Record Plunge After Company Cuts Profit Forecast

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Adidas shares "fell by a record after the world’s second-largest sporting-goods maker slashed its full-year profit forecast, bursting euphoria around the German company less than a month after its national team’s victory in the World Cup," according to Aaron Ricadela of BLOOMBERG. Adidas said that profit this year "will miss its forecast" by at least €180M ($241M). The shoemaker and apparel maker "scrapped a long-standing growth target for next year, citing a slump in demand for golf supplies in North America combined with turmoil in Russia." The shares "tumbled as much as 16 percent in Frankfurt trading, the biggest intraday drop since the company’s 1995 initial public offering." Berenberg Bank analyst John Guy, who recommends buying the shares, said, "You could argue they’ve been a victim of their own success. Russia is one of their most profitable regions." Now a dispute with Ukraine and economic sanctions against Russia "are weighing on the outlook" (BLOOMBERG, 7/31). REUTERS' Emma Thomasson wrote the stock, "already hurt by the firm's market share losses to bigger U.S. rival Nike and its exposure to weak emerging market currencies," is now down almost 36% this year. Ingo Speich, a fund manager at Union Investment, which is the 10th-biggest investor in adidas with a 1.2% stake, said, "The profit warning could almost have been predicted but the extent of it is catastrophic." Adidas said that "it would fight back by increasing marketing in the next 18 months, particularly in North America and western Europe." Adidas CEO Herbert Hanier said, "We will assert ourselves much more aggressively in the marketplace" (REUTERS, 7/31). The BBC reported the company "will also overhaul California-based golf brand TaylorMade, which makes golf bags, clubs and clothing" for the U.S. market after an 18% drop in sales (BBC, 7/31). In London, Alice Ross wrote adidas said that "it had decided to reduce its planned expansion of stores in Russia, where the group has a large retail presence, and close more branches there." Russia has historically been one of the countries where adidas "has achieved a clear lead in its battle for market share with arch rival Nike." Adidas said, "The recent trend change in the Russian rouble as well as increasing risks to consumer sentiment and consumer spending from current tensions in the region point to higher risks to the short-term profitability contribution" (FINANCIAL TIMES, 7/31).

HAINER TAKES BLAME: In N.Y., Jack Ewing wrote Hainer "accepted some of the blame for the disappointing performance." Hainer: “We have not executed to our high standards at all times or provided enough flexibility to react in adverse market conditions. This we now tackle head on.” The profit warning "was another indication of the close economic ties between Germany and Russia." And it showed that "the crisis in Ukraine could have an effect beyond the energy and industrial companies that had been seen as most vulnerable to sanctions against Russia and reduced trade" (N.Y. TIMES, 7/31).
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