German sports equipment and clothing maker adidas posted a huge drop in first quarter profit on Tuesday while announcing a global reorganisation billed as a "game-changing structural refinement." Adidas said its net profit had fallen by a whopping 97 percent to just five million euros ($6.7 million).
A company statement also said sales had lost a much more modest two percent to 2.58 billion euros in the first three months of the year, even though 2008 sales had benefitted from the European football (soccer) championships. "We feel the effects of the economic downturn in many of our key markets," the statement quoted adidas chairman and chief executive Herbert Hainer as saying.
He added that the group's results had been "materially affected by higher input prices, currency devaluation effects and restructuring costs."
Shares in the company plunged in early trading on the Frankfurt stock exchange. Adidas announced a major restructuring of its operations that would include the elimination of regional headquarters in Europe and Asia and was expected to generate more than 100 million euros in annual savings.
Hainer said: "We are now in a position to make a game-changing structural refinement to our business," and added: "The current economic climate adds urgency to accelerate our plans."
A joint operating model between adidas and Reebok would be implemented in Europe and Latin America following its successfull roll-out in Asia, the statement said.
Adidas also planned to simplify the product creation process for both its own and Reebok brands. The new organisational model would "set the foundation for sustainable long-term growth," it added.
Since 2000, the adidas group had grown from 95 companies to 190 worldwide, the company said, and gone from being mainly a wholesaler to a company with "a far more significant retail component." The wholesale part would now be consolidated under a chief sales officer, adidas said.
Job cuts were planned at the group's Reebok, Rockport and TaylorMade-adidas Golf divisions, the statement said, but no figures were provided.
Looking ahead, it added that adidas' operating margin was expected to decline, but that earnings per share were expected "to be around breakeven in the first six months of 2009" before getting well back into the black later this year. Hainer said that while adidas would face many of the same obstacles going forward, "I am convinced we will put most of these effects behind us in the current year."
Shares in the company plunged by 8.58 percent to 26.97 euros in early trading on the Frankfurt stock exchange, while the DAX index of German blue-chips was 0.62 percent lower overall.