Tue, May 01, 2012 - Page 10 News List

Adidas warns about irregularities in India


German sportswear maker Adidas yesterday reported a strong rise in first-quarter profits, but warned that full-year earnings would be hit by the discovery of irregularities in its Indian business.

Adidas reported a net profit of 289 million euros (US$383 million) in the period January to March, up 38 percent over the same period a year earlier.

Operating profit grew 30 percent to 409 million euros on a 17 percent rise in sales to 3.8 billion euros.

Shares in Adidas rose to a record in Frankfurt trading, as profits beat the 230.6 million euro average estimate of five analysts in a Bloomberg survey.

“Our investments in brands and channels are yielding an unprecedented period of growth for the group,” Adidas chief executive officer Herbert Hainer said in a statement.

“We are right where we want to be. We are maneuvering through the still challenging economic environment in a diligent way,” he added.

First-quarter sales in Asia increased 26 percent on a currency-neutral basis, compared with a 7 percent increase in western Europe, Adidas said in a separate statement.

In European emerging markets and North America, sales rose 15 percent and 11 percent, respectively. Revenue at Adidas’ TaylorMade brand jumped 32 percent.

“Growth rates in Greater China, Japan as well as at TaylorMade--adidas Golf were stronger than originally anticipated,” Adidas said.

However, looking ahead to the whole of this year, the company said “commercial irregularities” had been discovered at the Indian branch of its Reebok subsidiary which would likely affect its full-year results.

Adidas did not reveal what the problems were, but said that “due to the sensitivity of the on-going investigation, specific details will be disclosed as appropriate in due course.”

Nevertheless, “the currently estimated maximum negative impact could be up to a pre-tax amount of 125 million euros,” Adidas said.

Reebok has already installed a new management team in India and plans to accelerate restructuring plans to ensure the situation does not happen again, the firm said.

Despite this, and on the basis of the stronger-than-expected first quarter results, Adidas said it was upgrading its full-year forecasts, with sales set to rise by 10 percent and net profit to increase between 12 percent and 17 percent.

Adidas forecast that its operating margin would rise to almost 8 percent this year, even as the company faces one-time charges of as much as 70 million euros in the remaining quarters linked to potential restructuring costs in India.

“I am still nervous about India, but the profit numbers and the guidance are very strong,” said Mark Josefson, an analyst at Silvia Quandt Research GmbH in Frankfurt.

Adidas shares jumped as much as 6.6 percent in Frankfurt trading, the steepest intraday advance since Sept. 7 last year. The shares were up 5.5 percent at 63.12 euros as of 9:29am.

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