Group Created with Sketch.
Volume 10 No. 25


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).

BT "reported a rise in quarterly profits, boosted by cost-cutting at its global services division and continued growth in consumer broadband," according to Henry Mance of the FINANCIAL TIMES. Pre-tax profit at the telecom group rose 7% year-on-year in the three months to June to £638M ($1M), after adjustments for specific items. Revenues rose 0.5% to £4.4B ($7.4B) on a like-for-like basis, "slightly ahead of analysts’ expectations." However, Morgan Stanley analysts cautioned that "the sizeable pension deficit and the upcoming Premier League auction would continue the cloud the company’s outlook into 2015." BT’s consumer division "drove growth in the last quarter, increasing operating profits" by 7% year-on-year to £183M (FINANCIAL TIMES, 7/31). REUTERS' Kate Holton reported BT "transformed its business in recent years by cutting costs and launching new services, investing heavily on sports rights." That "has enabled it to grow earnings and profits" and to compete with pay-TV leader Sky. It added 104,000 new broadband customers in the three months to the end of June, "well ahead of the 50,000 added by Sky and it now has over 2.3 million customers on its fibre network" (REUTERS, 7/31).

GROWTH SLOWING: In London, Juliette Garside wrote growth in BT's pay-TV business "has slowed." Excluding inactive customers, "the rate of net new subscribers has slowed to 40,000, the lowest rate for five quarters." The end of the football season "is partly to blame, with viewers waiting until August to sign up for sport, but growth is well below the peak of 70,000 new signings in the quarter ending September last year, just after the launch of BT Sport." The sports channels "have an estimated 5 million viewers," because BT gives its channels away for free to broadband customers, and because Virgin Media homes "can tune in at no cost if they already pay for Sky Sports" (GUARDIAN, 7/31). Also in London, Nic Fildes wrote "BT’s gamble on launching sport channels appears to be paying off" after it won more broadband customers than arch-rival Sky for the fourth straight quarter. BT said that "it added 104,000 new customers in the first quarter compared witho 50,000 for Sky and 10,000 for TalkTalk." BT did not reveal how many people had subscribed to its sports channels, which was described as "disappointing" by some analysts who said that "guidance appeared to be for only a slight increase." The foray into sport "has also come at a cost," with operating expenses at its consumer division up 12% (LONDON TIMES, 7/31).