GERMANY: Adidas restructures as Q1 profit plummets 97%
Sporting goods giant Adidas is to axe its regional offices as part of a restructuring programme designed to lay the foundation for sustainable long-term growth.
The company announced a revamp designed to save more than EUR100m (US$134m) a year as it revealed a 97% slump in first quarter profit, impacted by lower sales in all business segments and difficult comparatives.
Adidas said group revenues fell 6% on a currency-neutral basis, and were down 2% in euro terms at EUR2.577bn, with only Latin America showing revenue growth.
It said the restructuring programme was designed to speed up the group's efforts to weather the economic downturn and emerge "even stronger than before".
The plans include the removal of the group's regional management tier, closing its regional headquarters in Europe and Asia - a move designed to increase speed to market and to ensure a "holistic" market approach.
Adidas also plans to support its growing own-retail business with the setting up of a dedicated Global Retail organisation under a newly appointed chief retail officer.
This group will also review under-performing stores in the coming months, the company said.
And the company's wholesale operations will also be consolidated under the leadership of a chief sales officer, it added.
Finally, all group functions such as operations, finance, HR, legal and IT will undergo changes in line with the new structure, and in order to increase efficiencies.
The changes come after a raft of earlier developments, including the implementation of a joint operating model between Adidas and Reebok in Europe and Latin America, following similar moves in Asia.
There have also been job cuts at Reebok, Rockport and TaylorMade-Adidas Golf, a simplification of new product development at Reebok and Adidas, and the swift integration of Ashworth into TaylorMade-Adidas Golf.
"Following many months of preparation, including the implementation of a joint operating model for Adidas and Reebok in virtually all regions around the world, we are now in a position to make a game-changing structural refinement to our business," said Herbert Hainer, Adidas Group CEO and chairman.
"All initiatives we have taken or which we are now implementing are built and executed under one guiding principle: to bring the Adidas Group's brands and products closer to the consumer.
"The current economic climate adds urgency to accelerate our plans."
Hainer added that the company's first quarter results had been affected by higher input prices, currency devaluation effects and restructuring costs, but said he was "confident" that the company would put this behind it during the rest of the year.
Adidas brand first quarter sales fell 6% in currency-neutral terms to EUR1.917bn, while Reebok declined 4% to EUR458m, and TaylorMade-Adidas Golf was down 6% to EUR194m.
European revenues fell 5% to EUR1.175bn, North America slumped 17% to EUR538m and Asia declined 6% to EUR628m.
However, sales in Latin America were up 31% to EUR218m.
Net income slumped 97% to EUR5m, primarily because of the group's lower operating profit.
Adidas said it expected group sales to decrease by low to mid-single digits during 2009, with further decreases in operating margin and earnings per share.
The company is predicting earnings per share around break-even in the first six months of 2009, followed by "significantly positive" EPS in the second half, boosted by the moderation of input cost increases and the build-up to the 2010 football World Cup.
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