All in growth

Adidas Profit Up 38%

Adidas AG, the German manufacturer of sportswear and equipment, raised its forecast for the year after earnings in the 1 quarter exceeded the consensus forecast of analysts.

However, the company warned that violations at the Reebok India Company may put slight pressure on profits.

In a preliminary report, Adidas reported an increase in net profit of 38% to 289 million euros in the 1 quarter, mainly due to stronger than expected growth in China and Japan, as well as increased sales of the TaylorMade-adidas Golf division. Moreover, the company said it had benefited from lower costs and tax rates. The profit margin far exceeded the average forecast of analysts polled by the Dow Jones at 237 million euros.

The group's operating profit in the 1 quarter increased by 30% to 409 million euros, while revenue increased by 14% to 3,8 billion euros at constant exchange rates, which is higher than expected in the amount of 3,64 billion euros.

Adidas, the world's second-largest sportswear manufacturer after Nike Inc., raised its forecast by saying net profit is likely to rise by 12-17% in 2012 year over the previous forecast for growth by 10-15%. The group’s sales growth is projected at approximately 10% with constant exchange rates against growth in the 5-9% range.

However, Adidas gross margin declined for the third quarter in a row - to 47,7% from 48,4% in the 1 quarter of 2011.

The rising cost of production factors — cotton, rubber, and labor costs in China — also put pressure on Adidas rivals' margins. Last week, Puma SE (PUM.XE) reported a drop in gross margin to 51,2% from 52,4% in the 1 quarter due to price pressures from production factors.

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In terms of sales promotion, Adidas is betting on major sporting events in the 2012 year, such as the London Olympics and the European Football Championship. The company also expects to benefit from the strong influence of booming markets, where revenue growth drives demand for branded goods and clothing.

The company also said that violations at the Reebok India Company are likely to translate into additional pre-tax expenses of up to 125 million euros and may require a review of financial statements from last year.

“Management is reassuring stakeholders that it has actively followed and will continue to pursue the group's advocacy course, which has already led to the appointment of a new local management team in India at the end of March,” Adidas said.

The company also said it would continue to restructure its operations in India by changing business practices, which could lead to additional one-time costs of 70 million euros.

Over the past year, Adidas shares added about 18%, showing better dynamics than the Stoxx Consumer Goods index, which scored 0,1%, asiareport.ru reports.