Adidas raises sales goals despite Indian probe

ADIDAS RAISED its profit goals for 2012 after a strong first quarter in spite of a warning of costs expected from problems at an Indian subsidiary.

An investigation had started into “commercial irregularities” at Reebok India, Adidas said yesterday. Group accounts for past years could face an impact of up to €125 million while Adidas will also restructure activities in India at a one-off cost of up to €70 million this year.

The German sports goods group said it planned to make “significant changes to its commercial business practices” in India and had brought in new local management last month.

“Due to the sensitivity of the ongoing investigation, specific details will be disclosed as appropriate in due course,” Adidas said.

Disclosure of the probe in India came as Adidas posted first-quarter results that surpassed analysts’ estimates, with sales in euro terms rising 17 per cent to €3.8 billion. Net income rose 38 per cent to €289 million, Adidas said, helped by lower borrowing requirements and a lower tax rate.

The quarter was Adidas’s fifth in a row of double-digit sales growth. Herbert Hainer, chief executive, said investments were “yielding an unprecedented period of growth for the group”.

Adidas said full-year sales should now rise by almost 10 per cent, stripping out currency effects, with an increase in net income of between 12 per cent and 15 per cent. Previously Adidas had been forecasting a rise in net income of between 10 per cent and 15 per cent. The new forecasts include the potential impact from the Indian restructuring.

“The situation in India, although unfortunate, will allow us to now accelerate plans to improve a specific underperforming part of our business,” Mr Hainer said. “Looking at the bigger picture, we are right where we want to be.”

Adidas’s biggest sales increase in percentage terms in the quarter was in its golf division, where sales rose 32 per cent.

The group’s gross margin fell in the quarter but the operating margin improved by 1.1 percentage points to 10.7 per cent.

Adidas shares rose more than 5 per cent in early trading to €62.70. – (Copyright The Financial Times Limited 2012)