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Adidas sales receive a boost from China, soccer World Cup

Accelerated sales in China and the 2018 FIFA World Cup soccer tournament propelled second-quarter growth at athletic and sports lifestyle group adidas AG, mitigating a lethargic performance in Western Europe and another stumble at the Reebok brand.

In the three months ended June 30, Adidas group sales in Greater China, comprising China, Hong Kong, Macau and Taiwan, jumped 27% year over year on a currency-neutral basis. The spike pushed up sales in the Asia-Pacific region by 18.8%, or 15.4% on a reported basis, to €1.73 billion from €1.50 billion.

Adidas CEO Kasper Rorsted, during a conference call with journalists, attributed the growth in China to economic and cultural changes. "Sport is now becoming part of daily life [in China]," Rorsted said.

The company's success was "pushing fashion-related trends" in China, Rorsted added, citing "continued acceptance of white tennis sneakers."

Rorsted said "the sports opportunity for us in China" was "very strong." However, Adidas CFO Harm Ohlmeyer added that trade tensions between the U.S. and China could have an indirect impact on the Herzogenaurach, Germany-based company due to a weaker Chinese yuan. Ohlmeyer did not quantify the potential impact.

Group net sales in the second quarter rose to €5.26 billion from €5.04 billion, an increase of 4.4% on a reported basis or 10% in currency-neutral terms.

In North America, group net sales climbed 6.8% on a reported basis, or 15.6% on a currency-neutral basis, to €1.08 billion from €1.01 billion. Rorsted said growth came from the training, running and football categories, aided by its partnership with retailer Dick's Sporting Goods Inc.

Rorsted said Adidas sold 1 million soccer jerseys in North America, even though the U.S. team did not qualify for the World Cup finals, which were staged in Russia.

Adidas sold 8 million soccer jerseys and 10 million soccer balls worldwide on the back of the tournament, Rorsted added. It sponsored the uniforms of 12 of the 32 national teams that participated in the competition, which is staged every four years.

Sales in Western Europe slipped 0.9% on a reported basis, or 0.1% on currency-neutral terms, to €1.42 billion from €1.43 billion. Rorsted cited challenges in distribution that he declined to explain for competitive reasons and difficulties in the launch of new products.

Reebok continued to struggle to gain traction as sales dropped 10% to €387 million from €431 million on weak performances in the training and running categories. Rorsted said the company was committed to its 2016 turnaround strategy for the brand, adding: "We should not look for growth through promotions."

The CEO reiterated a commitment for Reebok to be profitable by 2020. "We have no plans to sell Reebok," Rorsted said in response to a question.

CFO Ohlmeyer said the company retrospectively recognized a €475 million impairment of intangible assets related to the Reebok trademark following a review of its 2016 consolidated financial statements by the German Financial Reporting Enforcement Panel.

The company said in a statement that the impairment related to Reebok's financial performance between 2006 and 2016 had no impact on its cash position and did not affect its short- or long-term guidance.

Adidas confirmed its 2018 guidance, expecting sales to grow at nearly 10% on a currency-neutral basis and projecting net income from continuing operations to increase to a range between €1.62 billion and €1.68 billion.

It reported net income from continuing operations of €418 million, surging 20% year over year from €347 million and beating the S&P Global Market Intelligence consensus estimate of €384.2 million. Diluted EPS from continuing operations rose to €2.05 from €1.70.

In lunchtime trading in Frankfurt, its shares were up €15.05, or 7.9%, at €205.60.