New Adidas CEO acts to reshape Reebok, support growth

November 3, 2016 7:57 AM EDT

A logo of Adidas company is seen on a building in Minsk, Belarus September 29, 2016. REUTERS/Vasily Fedosenko


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By Emma Thomasson

BERLIN (Reuters) - The new boss of Adidas announced plans on Thursday to overhaul its struggling Reebok fitness brand and keep up the focus on reviving the main Adidas business in North America as he dampened expectations for 2017.

Adidas shares fell 5.9 percent as momentum eased in the third quarter and Chief Executive Kasper Rorsted said growth would slow next year. The shares had risen two thirds this year after the company raised its 2016 outlook four times to trade at a big premium to U.S. rival Nike (NYSE: NKE).

"For the first time in many quarters Adidas reported quarterly numbers that did not beat market expectations. This could cause some short term profit taking," said DZ Bank analyst Herbert Sturm, who rates the stock "hold".

Rorsted, who took over last month, told journalists he does not expect Adidas to reproduce the same revenue and profit growth next year after soaring demand for Superstar sneakers and Ultra Boost running shoes put it on course for a record 2016.

Adidas will take one-time costs to boost future growth, including spending on its biggest store yet on New York's Fifth Avenue that opens on Dec. 1 and the launch of a new shoe designed by Houston Rockets basketball player James Harden.

Reshaping Reebok will cost around 30 million euros ($33 million) and Adidas also warned that the likely sale of its golf business at a loss could hit fourth-quarter earnings.

Rorsted, who joined from consumer goods company Henkel , said his initial priorities were to continue the firm's turnaround in North America and to strengthen online capabilities. He will give more details on strategy with full-year results on March 8 and at an investor day on March 14.

GETTING REEBOK INTO SHAPE

His first major decision was to redefine how the group is organized in the key U.S. market, making Reebok independent of the core Adidas brand, moving 650 staff to a new location in Boston, cutting 150 jobs and accelerating store closures.

Rorsted, who revamped Henkel's underperforming U.S. business in recent years, noted that Reebok's growth and profitability were still well below the group's average: "It is now time to get back to the gym and redouble our efforts on Reebok."

Some investors have suggested that Rorsted should consider selling Reebok, which former boss Herbert Hainer bought in 2005 as Adidas tried to catch up with market leader Nike.

Rorsted declined to speculate on the future of Reebok -- which accounts for about 10 percent of group sales -- beyond the restructuring, but said every part of the company had to contribute to its success.

He said that the new structure - with North America President Mark King no longer responsible for Reebok - should help the main Adidas brand focus on extending its recent U.S. revival.

Third-quarter sales rose a currency-neutral 20 percent in North America, though that was down from the 26 percent growth seen in the second quarter. Both Nike and Under Armour Inc (NYSE: UA) have reported slowing sales in the region.

Adidas doubled its share of the U.S. athletic footwear market to 9 percent in the third quarter compared to a year ago, according to market research firm NPD, while Nike slipped slightly but was still far ahead on 52 percent.

Reaching 15 percent is a realistic next goal for Adidas, finance chief Robin Stalker told a call for analysts.

Net profit rose 15 percent to 387 million euros on sales up 14 percent to 5.4 billion euros.

Adidas reiterated a forecast it raised in July for 2016 currency-adjusted sales to grow at a rate in the high teens, while Rorsted said he expected underlying net income to be at the upper end of guidance for 975 million to 1 billion euros.

($1 = 0.8994 euros)

(Reporting by Emma Thomasson; Editing by Keith Weir)



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