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Adidas posts Q4 loss on Reebok acquisition

Adidas swung to a loss in Q4 because of costs related to its takeover of Reebok and expenses ahead of the World Cup.

india Updated: Mar 02, 2006 18:33 IST

Adidas-Salomon AG swung to a loss in the fourth quarter because of costs related to its takeover of shoe maker Reebok and expenses ahead of this summer's World Cup, the athletic apparel maker said on Thursday.

The Herzogenaurach-based company lost euro 4 million ($4.78 million), or 2 euro cents a share, in the quarter that ended December 31. That compared with a profit of euro20 million, or 45 euro cents a share, a year earlier.

Adidas said marketing expenses rose, but revenue also was up 27 per cent to euro 1.5 billion ($1.8 billion), as demand for sneakers and World Cup-themed products like jerseys increased overall orders. Shares in Adidas fell 3.1 per cent to euro 159.85 ($191.08) in Frankfurt trading.

Adidas acquired Reebok last year in a $3.8 billion (euro 3.1 billion) deal aimed at closing in on market leader Nike Inc. The deal was completed at the end of January.

The company said Reebok reported a $47.4 million (euro 39.7 million) net profit in the fourth quarter on revenue of $930 million (euro 779 million).

Chief Executive Herbert Hainer warned that the US shoemaker needed to update its offerings to remain a viable competitor to Puma AG and Nike.

"The product line needs to be upgraded and improved to better match emerging tastes and needs of today's sporting goods consumers, but that will take time," he said.

For the year, Adidas' net profit rose 30 per cent to euro 434 million ($518 million), or euro 7.73 ($9.23) a share. That compared with euro 333 million, or euro6.54 a share, in 2005.

Revenue rose more than 12 per cent to euro 6.6 billion ($7.9 billion) from euro 5.86 billion.

The 2005 figures were revised to reflect Adidas' May sale of its French unit Salomon to Finnish sporting goods company Amer Group for euro485 million.

Orders for Adidas rose 8 per cent on the year, with a 17 per cent rise in North America and 3 per cent in Europe. But the company's order backlog was down 22 per cent.

Despite the fourth-quarter decrease, Hainer said the company was poised to raise its earnings by more than 10 per cent this year, with revenue increasing in the "high single-digit" range. Hainer said Adidas would bear the fruit from its takeover of the Canton, Massachusetts-based company through 2006. Adidas said it anticipated that Reebok would help double its US business and add to its earnings in 2006.

"Many of our current efforts will now focus on turning around the Reebok brand," said Hainer, who stressed that his company had no plans to relegate Reebok to a lower market brand. Analysts, however, noted Reebok's 22 per cent decline in orders with dismay.

Merck Finck noted in a research note that Reebok's US orders were down 30 per cent and international figures were down 12 per cent. Hainer said Reebok's sales are expected to reach approximately euro 2.8 billion ($3.3 billion) in 2006.

Looking ahead to the end of 2006, Hainer said Adidas' total sales should rise in the single digits, with double-digit growth forecast for Asia and North America.

"In the World Cup year 2006, our group will approach the euro 10 billion ($11.9 billion) revenue mark for the first time ever, with all regions contributing to our revenue increase," he said. "As a result, we expect earnings will grow at double-digit rates for the sixth year in a row."

He also warned that the company's involvement in the World Cup, including the sponsorship of several teams, would weigh on expenses in the form of higher marketing costs but would ultimately lead to more than euro1 billion ($1.19 billion) in revenue.

First Published: Mar 02, 2006 18:33 IST