Adidas cuts forecast; shares take fast tumble

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FRANKFURT, Germany — The stock value of Adidas, the world's second-largest sporting-goods maker, fell the most in more than a year after cutting its 2013 profit forecast for reasons that include Russian distribution difficulties and a weak golf market.

The shares slid as much as 5.9 percent to 77.71 euros Friday, the steepest intraday drop since June 2012.

Adidas, which has one of its world headquarters in Portland, reduced the low end of its profit forecast by 7.9 percent late Thursday, also because of the strength of the euro, which has caused analysts to cut profit estimates in recent weeks. A switch to a new warehouse in Russia led to inventory shortages in the country, while the golf season has started slowly for the maker of TaylorMade clubs. Still, Adidas said it remains confident in its 2015 goals.

"The magnitude of the cut is disappointing and will weigh on management's credibility on profit guidance," Andreas Inderst, an analyst at Exane BNP Paribas, said in a note Friday. He maintained an outperform recommendation on the stock, saying he expects a "healthy recovery" in sales and profitability from the fourth quarter onwards.

Adidas was down 3 percent at 80.1 euros as of 4:23 p.m. Friday in Frankfurt.

Net income this year will be $1.1 billion to 850 million euros, Herzogenaurach, Germany-based Adidas said in a statement. The company had previously forecast net income of 890 million euros to 920 million euros.

Inderst estimated 45 percent of the forecast cut was related to currency movements, 35 percent to Russian distribution and 20 percent to the golf market.

Adidas, which makes almost 73 percent of its revenue outside western Europe, joins European companies such as Puma and Prada that have also suffered from the strength of the euro. The currency has gained about 5 percent this year, the second-best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

Analysts at JPMorgan Chase and Berenberg Bank both cut their 2013 profit estimates for Adidas by about 3 percent earlier this week, citing the euro's strength. Citigroup analysts said in a note that consensus estimates for net income may now fall by 9 percent to 10 percent.

Adidas said it won't attain its goals in Russia because of the country's currency weakness and an "unexpected short-term distribution constraint" because of the transition to a new distribution facility in Chekhov.

Adidas opened the new warehouse earlier this year and closed its original distribution center early, resulting in a shortage of inventory, analysts at Barclays Plc said in a note.

Sixty-two million products a year will be sent from the facility to Russia and Kazakhstan until 2017, according to Adidas spokesman Lars Mangels. The company couldn't distribute the quantity of products it had planned to in the third quarter though the issue was a "one-off" and is "under control," Mangels said. The shoemaker expects a resolution of the matter at the start of the fourth quarter.

Adidas also cited weakness in the global golf market, saying it will lead to a lower sales and profit contribution from the segment than originally forecast.

The golf season started late in many markets and the amount of rounds played globally dropped at a double-digit rate on average, Adidas said Aug. 8. The company has about 40 percent of the global market for golf, it said at the time.

Golf participation in the U.S. has been declining since a 2003 peak, according to Mintel. While the recession is partly to blame, a declining number of rounds per year prior to the slowdown indicates a loss of interest in the sport itself, the researcher has said. A lack of money and time are most often cited as reasons for not playing, Mintel said.

"Golf is still a great entertaining corporate environment, but sports that are taking some of the attention away would be some of these mass-participation opportunities like cycling, triathlon, running," Charlie Dundas, managing director at sports marketing researcher Repucom, said in a phone interview.

Adidas cut its forecast for operating margins to about 8.5 percent of sales from a previous forecast of 9 percent. It also further pared its revenue forecast for the year, saying sales will rise at a "low-single-digit" pace.