Adidas begins marathon turnaround in North America

The logo of Adidas is pictured in a store in Munich March 4, 2014. REUTERS/Michael Dalder

BERLIN (Reuters) - German sportswear company Adidas turned around its sales in North America in the first quarter, helped by a marketing campaign designed to win business from dominant rival Nike.

Adidas said group sales rose 17 percent to 4.08 billion euros (£3 billion), or 9 percent excluding the impact of currencies, beating an average analyst forecast for 3.91 billion and lifting its shares more than 1 percent.

Despite the hike in marketing spending, Adidas increased its operating margin by 10 basis points to 8.9 percent, still well behind the 13 percent achieved by Nike last year.

Long-serving Chief Executive Herbert Hainer, who faced calls to quit last year as Adidas lost more ground to Nike, said the sales improvement was broad-based, with particularly strong growth in the running and fashion businesses.

While western Europe and China grew fast, Hainer also highlighted a 7 percent currency-neutral rise in North American sales in the first three months of the year, which he said showed the initial success of splashy brand campaigns.

"It is just the beginning. America is not a sprint for us, it is more a marathon... We still have a lot of work ahead of us," Hainer told a conference call for journalists.

The figures should help reassure investors ahead of the Adidas annual general meeting on Thursday, when Hainer is likely to face calls for clarity on his leadership after the board launched a formal search for a successor.

Hainer, who has been CEO since 2001, said on Tuesday that turning the business around was more important than whether he stays on until the end of his contract in 2017.

Hainer launched a new five-year strategy last month to lift sales by almost half to above 22 billion euros, focussing on speeding up the supply chain and achieving success in the United States and the world's largest cities.


Adidas shares, which have already risen almost a third this year on signs of improved performance, pared early gains to trade up 1.2 percent by 1105 GMT, outperforming a slightly weaker German blue-chip index.

Adidas shares trade at 21 times forward earnings, still at a discount to Nike on almost 26 times.

"Good start into 2015 as previously hinted. Full year sales growth forecast looks somewhat conservative, we reckon, given the around 9 percent growth in Q1 against a strong Q1 2014," said Equinet analyst Ingbert Faust, who rates the stock "buy".

Adidas reiterated it expected 2015 sales to rise by a medium single-digit percentage rate on a currency-neutral basis, after a 6 percent increase in 2014, while net profit from continuing operations should climb 7-10 percent.

Hainer said he was "very optimistic" about the outlook, but noted that Adidas faced tougher comparisons for the second and third quarter due to last year's World Cup.

Adidas slipped to third place in the United States last year behind Nike and fast-growing Under Armour, while Nike advanced in the German firm's home territory of western Europe and in football, to take its global market share to 15.9 percent compared to 10.5 for Adidas, according to data firm Euromonitor.

Adidas has responded by increasing marketing spending by more than a quarter and putting a new emphasis on the United States, the world's top sportswear market, important not only for sales but also for setting global trends.

Hainer appointed a new head of the North American business, poached key Nike designers and moved several executives to the Adidas U.S. base in Portland, as well as spending more on sponsorship in baseball, basketball and American football.

Hainer has seen the group's U.S. market share gradually decline despite buying American brand Reebok in 2006, prompting some investors to suggest he should sell it off again.

But Hainer has rejected such calls, noting that Reebok, repositioned as a fitness brand, is now performing well, benefiting from the booming popularity of training.

Reebok saw sales rise a currency-neutral 9 percent in the first quarter - an eighth consecutive quarter of growth - even though they fell 3 percent in North America due to closures of factory outlet stores as the brand seeks to shift more upmarket.

Fashion brand Originals grew 29 percent, benefiting from the catwalk success of its relaunched "Superstar" sneakers supported by celebrities including pop star Pharrell Williams as well as its "Yeezy" shoe developed with Kanye West.

Meanwhile, the running business recorded a sales increase of 13 percent, helped by the introduction of a new range of shoes with springy, lightweight "Boost" soles - worn by the winners of 32 recent marathons, including those in Berlin and New York.

(Reporting by Emma Thomasson; Editing by Keith Weir and Anna Willard)

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