Adidas profits up 32 percent on cheaper supply costs

Adidas reported first-quarter profit jumped 32 percent Tuesday as its acquisition of Reebock International provided more leverage with suppliers.

The company's net profit in the January-March quarter rose to 169 million euros ($261.27 million) compared with 128 million euros a year ago.

Adidas, the world's second largest sporting goods maker, behind Nike Inc., cited the group's strong operating margin improvement and lower supply costs. Additionally, the group's tax rate decreased by 0.4 percentage points to 32 percent in the first quarter compared with 32.4 percent in the first quarter a year ago.

Sales rose 3.1 percent to 2.62 billion euros ($4.05 billion) in the period compared with 2.54 billion euros in the first quarter of 2007.

Adidas shares rose more than 5 percent to close at 42.82 euros ($66.23) in Frankfurt.

Adidas said sales at Adidas increased 14 percent on a currency neutral basis, while TaylorMade-Adidas Golf sales increased 17 percent. Meanwhile, Reebok sales declined 6 percent in the first quarter.

"We are off to a fast start to 2008," said Herbert Hainer, the company's chief executive in a statement. "Adidas and TaylorMade-Adidas Golf were our growth engines. As a group, we are stronger than ever before. Most importantly, group profitability has improved substantially."

Adidas, based in Germany, said its 2008 net profit was projected to grow by at least 15 percent in 2008 compared with 2007's 551 million euros ($851.8 million). The company said it should see group sales increasing at a high single digit rate on a currency neutral basis, driven by growth in all brands.

Adidas brand sales are expected to grow at a high single digit currency neutral rate for the year, while Reebok is expected to grow at a mid to high single digit rate, the company said.

TaylorMade-Adidas Golf sales are forecast to grow at a mid single digit rate. The company said its gross margin is expected to increase modestly to a range of 47.5 percent to 48 percent driven by improvements in all three brand segments. Operating margin for the Adidas group is projected to increase to at least 9.5 percent, the company said.

Uwe Weinreich, an analyst at UniCredit/HVB in Munich said the company's first quarter performance was "excellent," and "well above expectations." He said despite slowing momentum on some fronts, the company confirmed its outlook and expressed future optimism. "We confirm our Buy Rating and our target price of 48.75," euros Weinreich said.

Order backlogs for the Adidas brand at the end of the first quarter increased 13 percent compared with last year.

"In 2008 we will reach new heights on both the top and bottom line," Hainer said. "A summer of excitement is ahead of us."

"Our brands will be front and center at the two major sporting events, the UEFA Euro 2008 (European soccer championships), and the Olympic games," he said. "Despite a challenging market environment, we are optimistic we will achieve all our targets."

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