Adidas Beats Market Expectations For Q2 Despite Impairment, Shares Rise

Despite incurring an impairment charge on its Reebok brand, better than expected second quarter results was reported by German sportswear company Adidas. The company said that it is confident of achieving its full year targets while reporting strong net profit on Thursday.

There was a 20 per cent increase in the net profit for the company for the second quarter at 418 million euros ($485 million) compared to the market estimate of 387 million euros.

In 2016, the company had a change at the top with Kasper Rorsted becoming the CEO even as the company had by then issued a number of profit warnings. The new CEO had focused on increasing the profitability of the company even though it still trails its US rival Nike.

The revenues notched up by the company in se3cond quarter was 5.3 billion euros comparted to the market expectation of 5.2 billion euros. Reporting a 10 per cent increase year-on-year despite currency effects.

However, Adidas also announced accepting a medium triple-digit million euro impairment for its Reebok brand. this is because there was a disagreement between the company and the German Financial Reporting Enforcement Panel about the manner in which the company calculated historical book value.

There would be no impact on the full-year 2018 results because of this retrospective accounting move, Adidas said.

“We are very confident we are going to get Reebok into black territory by 2020, that’s been the primary target and it also means in certain regions we are willing to take a slower revenue growth or even a declining one. However … We are very confident we are doing the right thing for Reebok,” Rorsted told the media after the reporting.

Referring to a question asked by the media about the escalating trade war between the U.S. and whether the company was concerned with the trade environment, Rorsted said that the company would face “miniscule” impact of the turmoil because of the supply chain structure set established by Adidas.

“I think the bigger risk is that if the U.S. consumer’s disposable income gets hit, that is the much bigger issue,” he added.

There was a rise of 7 per cent in the shares of Adidas which have risen by over 14 per cent so far this year.

Increased spending during the soccer World Cup resulted in the marketing expenditure for the quarter going up to 13.5 per cent of sales compared to 12.3 per cent in the earlier quarter. During this summer’s soccer tournament, Adidas sold more than 8 million jerseys, Rorsted said. but he company missed out on an extra profit because those countries that are sponsored by Nike made it through in the final stages of the World Cup.

(Adapted form CNBC.com)

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