GERMANY: Adidas raises FY view despite India investigation
- First-quarter net income increased 38% to EUR289m
- Sales rose 14% to EUR3.8bn
- "Commercial irregularities" discovered at Reebok India Company
Adidas has raised its full-year profit forecast after a strong first quarter, despite warning of costs relating to irregularities in its Indian operations.
The sportswear brand revealed a 38% increase in net income to reach EUR289m (US$382m), which it attributed to lower financial expenses and a lower tax rate. Sales rose 14% over the quarter to EUR3.8bn.
While the company emphasised the gains were driven by increases across all regions and segments, growth in Greater China and Japan - as well as at TaylorMade-adidas Golf - were significantly above initial expectations.
However, "commercial irregularities" discovered in its Reebok India Company are likely to affect the group's consolidated financial statements.
It is forecasting that the maximum impact could be up to EUR125m, which may lead to it restating earlier financial statements. "Due to the sensitivity of the on-going investigation, specific details will be disclosed as appropriate in due course," the company said.
Adidas emphasised it is protecting its interests in India, part of which saw the appointment of a new local leadership team in India at the end of March.
Under the new leadership team, management is planning an accelerated restructuring of its business in India, including significant changes to commercial business practices. This could lead to up to EUR70m in one-time charges across the rest of the year.
During the quarter, operating margin increased 1.1 percentage points to 10.7% as operating profit grew 30% to EUR409m.
The company says full-year sales are now expected to grow up to 10% on a currency neutral basis, up on earlier forecasts in the mid-to-high single digit range. Net income is expected to increase by 12-17%, ahead of the 10-15% seen earlier, despite the expected charges in India.
"Driving meaningful improvements in our profitability is a central pillar of our Route 2015 strategy," said Adidas Group CEO Herbert Hainer.
"The situation in India, although unfortunate, will allow us to now accelerate plans to improve a specific underperforming part of our business.
"Looking at the bigger picture, we are right where we want to be. We are manoeuvring through the still-challenging economic environment in a diligent way, while at the same time ensuring we capture the opportunities that will deliver on our promise - to secure long-term quality growth and enduring success for our group."
Adidas has made dramatic cuts to the long-term revenue targets for its Reebok brand, which has been impacted by lost business in the US and fraud allegations in India....
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