Adidas sees role for Reebok despite writedown

Thu Mar 7, 2013 6:50pm IST

Staff arrange shoes at the new and world's largest Adidas Brand Center store in Beijing July 3, 2008. REUTERS/Claro Cortes IV/Files

Staff arrange shoes at the new and world's largest Adidas Brand Center store in Beijing July 3, 2008.

Credit: Reuters/Claro Cortes IV/Files

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HERZOGENAURACH, Germany (Reuters) - Adidas (ADSGn.DE) is to stick with its troubled Reebok business even though the German sportswear group had to make a 265 million euro writedown on the brand at the end of last year.

Adidas, which bought Reebok in 2005 for $3.8 billion to try to close the gap with market leader Nike (NKE.N), last year had to cut its 2015 sales target for the brand by a third after two quarters of declining sales.

But the group believes Reebok has a future alongside the Adidas own-name brand and the TaylorMade golf unit.

"We are sticking with Reebok," Chief Executive Herbert Hainer told reporters on Thursday.

The company also said margin improvements would drive up profits this year as it sold more in emerging markets and drove down costs as a proportion of turnover.

Adidas shares rose 5 percent, hitting an all-time high as markets took a shine to the stronger margins and a 35 percent dividend hike.

Shares in local rival Puma (PUMG.DE), majority owned by France's PPR, added 1 percent, while German blue chip stocks traded at their highest level in five years.

Last year was a bumper year for sports, with the Olympics in London and the European soccer championships taking place the same summer in Poland and Ukraine.

REEBOK REBOUND?

The company was cautious about when Reebok would be restored to health after suffering fraud at its Indian unit, the loss of an American football (NFL) contract, and a lockout at the National Hockey League (NHL) in north America.

"I'll tell you another time," CEO Hainer said.

The goodwill writedown was linked primarily to a weak performance in the United States and Latin America and pushed Adidas to a surprise fourth quarter loss. Operating profit for the year as a whole slipped 3 percent to 920 million euros.

Reebok has also struggled to recover from an ill-fated push into muscle-toning shoes. It is trying to focus on the fitness sector, providing clothes and shoes for a range of activities from aerobics to yoga and dance.

The CEO said he had dropped plans to sell the group's ice hockey business after offers fell short of expectations. Sales have been hit by the NHL contract dispute that wiped out part of the season.

For 2013, Adidas said it expects sales to increase at a mid-single-digit rate in 2013 from 2012's record level of 14.9 billion euros, though with a slower start to the year.

Adidas is the market leader in the soccer sector and will start to build marketing activities from the middle of the year ahead of the 2014 World Cup in Brazil.

Earnings per share will outpace the rise in sales and are forecast by the company to increase by between 12 and 16 percent to between 4.25 and 4.40 euros.

Adidas will benefit from growth in higher-margin emerging markets like China and curbs on operating costs.

(Additional reporting by Victoria Bryan in Berlin and Keith Weir in London. Editing by Jane Merriman)

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