Adidas AG, the world's second-largest sports goods maker, is confident on consumer demand heading into the Christmas season and ahead of next year's soccer World Cup, after posting an in-line third quarter.
I strongly believe the worst is over, Chief Executive Herbert Hainer said on a conference call on Wednesday.
Hainer expects football fever to start gripping consumers in the fourth quarter as Adidas begins to launch jerseys, the special tournament ball and other equipment, which should lead to at least a small quarterly profit, the CEO said.
Adidas, U.S. bellwether Nike and Puma have been battling dwindling sales across the world as cash-strapped consumers reduce discretionary spending.
To mitigate the impact, Adidas launched a broad cost cutting programme earlier this year, which already showed effect and helped prop up third-quarter net profit, which fell by almost a third, but was in line with analysts' expectations.
Adidas shares rose 3.7 percent to 33.85 euros by 1358 GMT, ranging among the top gainers in Germany's blue-chip DAX index .GDAXI, which was up 1.4 percent.
Analysts pointed to lower inventories and reduced debt. Adidas said it may bring its gearing ratio to below 50 percent by the end of the year -- initially a medium term target -- given a similar cash flow development for the rest of the year.
The major short term trigger is the improvement at inventories, said DZ Bank analyst Herbert Sturm. Adidas should benefit from an expected economic recovery next year as well as from lower sourcing costs and the strong euro, as more than 90 percent of material costs were in dollars, Sturm added.
Last but not least, 2010 soccer World Cup in South Africa will have a positive impact, he said.
HOVERING BETWEEN FEAR AND OPTIMISM
Adidas aims for record sales with soccer related products of more than 1.3 billion euros ($1.9 billion) in 2010 on the back of the soccer world cup in South Africa, it reiterated.
Ten teams sponsored by Adidas have already qualified for the tournament, while France and Russia are still in the running.
Consumer and retailer sentiment still hovers between fear and optimism. However, we are well prepared to face any challenges thrown our way and I am cautiously optimistic, Hainer said, declining to give a more concrete outlook for 2010.
Adidas said it still expects 2009 group margins and earnings per share to decline due to higher operating costs and sees group sales down by a mid-single-digit rate. It expects full-year net income at 230 million to 260 million euros.
The global economy would continue to face strong headwinds in the next six to twelve months, Hainer said. Difficulties in key markets like the United States and China would last into the first half of next year, he added.
The world's top athletic shoe and apparel maker, Nike, struck a similarly cautious tone when it reported better than expected quarterly results in September, saying retailers and consumers remained wary going into the holiday season.
However, Adidas' Hainer expects this year's holiday shopping season to be better than last year he said. Not everything is doom and gloom. ... People have heard bad news for twelve months now in a row and they want to have some highlights.
Adidas has countered declines in consumer spending by keeping marketing expenses stable -- unlike Nike -- closing regional offices, slowing expansion and by cutting about 1,000 of its roughly 39,000 jobs in the first quarter.
Chief Financial Officer Robin Stalker said Adidas now expected such measures to cost less than initially anticipated. The programme is set to generate cost savings of more than 100 million euros per year from 2010.
Third-quarter net income fell 29.7 percent to 213 million euros ($314 million), on sales of 2.89 billion euros, down 6.3 percent. Both figures were broadly in line with the average estimate in a Reuters poll of analysts.
Adidas shares trade at 13.8 times 12-month forward earnings, at a discount to Nike, which trades at a multiple of about 16, as investors remain wary of Reebok's weak performance. Reebok's third-quarter operating profit fell 34 percent to 17 million.
Puma is due to report third-quarter results on Monday.
(Reporting by Eva Kuehne and Christian Kraemer; Editing by Michael Shields and Simon Jessop)