Adidas sees hit from emerging market currency swings

German sportswear company Adidas on Wednesday warned that weakening emerging market currencies, notably the Russian ruble, would hurt 2014 results and pose a risk to its 2015 targets even as sales are helped by the soccer World Cup.

The world's second biggest sportswear firm, which has been losing ground to market leader Nike, makes about half of its sales in fast-growing emerging markets, where currencies have been sliding in recent months.

"The currency situation, as it is right now, represents a significant risk to the achievement of our goals," Chief Executive Herbert Hainer told a news conference.

"We cannot ignore the significant weakness of the Russian ruble since the beginning of the year as well as the current uncertainty in the region, both of which have added considerable risk to our results in euros."

Adidas has set targets for 2015 sales of 17 billion euros ($23.4 billion) and an operating margin of 11 percent - both ambitious given a new margin target of 8.5-9 percent for 2014 and 2013 sales falling 3 percent to 14.5 billion euros.

Nike, which has been encroaching on Adidas' home territory in western Europe and challenging its dominance in the soccer market, hopes to add $10 billion in sales by 2017 to reach $36 billion after $25.3 billion in fiscal 2013.

Nike saw total revenue rise 8 percent to $6.43 billion in the quarter ended November 30, as sales in western Europe grew 12 percent. Adidas said sales in western Europe rose 1.9 percent in its fourth quarter to December 31, but fell 7 percent for the year.

Adidas shares, which have fallen 10 percent this year on currency concerns to make the company one of the worst performing German blue-chip stocks, were down 1.1 percent at 1030 GMT, against a German market off 0.3 percent.

"Due to the fact that the 2014 earnings guidance from the side of Adidas management is well below market expectations, short term price pressure is to be expected," said DZ Bank analyst Herbert Sturm.

Nike has extended its global lead, with a 14.6 percent share of the global sportswear market in 2012 compared with 11.4 percent for Adidas, according to Euromonitor data.

It is catching up in western Europe, with 12.4 percent to 13.2 percent for Adidas.

ATTACK AND WIN

But Hainer, who on Tuesday extended his contract until 2017, said the company founded in 1949 would use the soccer World Cup to retaliate, dismissing suggestions it was no longer no. 1 in soccer in its home market of Germany.

"We will attack and we will win market share in 2014," he said, adding that World Cup products like the Brazuca official match ball and colorful Samba boots are already selling well as it targets a record 2 billion euros in soccer sales in 2014.

Adidas is also optimistic about its running business, where sales grew 17 percent in 2013, helped by the launch of shoes with Boost cushioning in the sole. It sold 1.5 million pairs of Boost shoes in 2013 and is targeting 9 million in 2014.

For 2014, Adidas expects the World Cup, exposure to emerging markets and the expansion of its retail business to help currency-neutral sales grow at a high single-digit rate, accelerating from a rise of 3 percent in 2013.

But it forecast foreign exchange effects will have a mid single-digit percentage point hit to sales growth and cut operating profit by 150-250 million euros.

That could prompt the company to increase prices selectively and it might also choose to change its investment priorities or business model if currency trends persist, Chief Financial Officer Robin Stalker said.

On the brighter side, Hainer said long-struggling fitness brand Reebok was already close to a 2015 target to lift its gross margin above 40 percent after the metric rose 4 percentage points in 2013 to 39.7 percent.