Adidas profits take a hit from Russian currency fluctuation

 
Lynsey Barber
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Adidas had a game of two halves in 2014 (Source: Getty)

The figures

Adidas group revenue grew six per cent on a constant currency basis in the fourth quarter of 2014, largely driven by retail growth of 20 per cent, while wholesale was up a more tempered five per cent.

The German firm's TaylorMade Golf brand suffered a 28 per cent decline in sales.

North America, where upstart sports brand Under Armour is stealing market share, experienced a four per cent drop in sales, while on home turf Western Europe grew 13 per cent driven by Adidas and Reebok brands.

That took full-year revenue for 2014 to €14.5bn (£10.5bn), up six per cent on the previous year. However, the impact of currency fluctuations reduced that to two per cent growth.

The Russian rouble slide hit Adidas hard - it recorded a €78m impairment charge from its operations in the region.

Gross profits across the group dipped one per cent to €6.9bn.

Why it's interesting

In the battle of the big sportswear brands, Adidas has lost ground to its biggest rival Nike. Long-standing chief executive Herbert Hainer finally succumbed to shareholder pressure and the board now has a plan in place to appoint a successor.

Its home team may have triumphed at the World Cup emblazoned with the Adidas logo, but 2014 was not a great year for the German firm and stocks fell to a two-year low in August. It slashed earnings forecasts citing the effects of market troubles in Europe and the falling Russian Rouble.

The firm revealed in January it had sold off its Rockport brand which it picked up as part of its Reebok takeover in 2005, netting $250m (£167m) and leaving it to focus on its core sports brands.

It also inked a massive £750m sponsorship deal with Manchester United ensuring their logo will appear on the Premier League team's shirts for the next decade.

What Adidas said

Hainer said:

2014 was a year with ups and downs for the adidas Group. But we tackled the challenges resolutely and achieved our adjusted top- and bottom-line targets,” commented Herbert Hainer, adidas Group CEO. “In the fourth quarter, we grew at double-digit rates in Western Europe, Greater China, European Emerging Markets and Latin America. This shows that the momentum at adidas and Reebok is fully intact.

And on its outlook for 2015, the company had this to say:

Adidas group sales are expected to increase at a mid-single-digit rate on a currency-neutral basis in 2015. Despite a high degree of uncertainty regarding the economic outlook and consumer spending in Russia/CIS, the positive sales development will be supported by rising consumer confidence in most geographical areas. In particular, group sales development will be favourably impacted by a significantly improved top-line development at TaylorMade-Adidas Golf as well as ongoing robust momentum at both Adidas and Reebok. This, as well as the further expansion and improvement of controlled space initiatives, will more than offset the non-recurrence of sales related to the 2014 FIFA World Cup. Currency translation is expected to positively impact the group’s top-line development in reported terms, given the recent strengthening of major currencies such as the US dollar and the Chinese renminbi versus the euro.

In Short

As the final whistle blew on a year, Adidas bosses and shareholders were likely glad it was all over, with more ups and downs than a keepie uppie tournament. The US market struggles against competitors and Russia troubles are likely to continue in to 2015.

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