Adidas Looks to World Cup to Boost Revenues

German sports clothing and equipment manufacturer Adidas AG reported a woeful 62 percent profit drop last year.
Adidas Looks to World Cup to Boost Revenues
3/7/2010
Updated:
3/7/2010
German sports clothing and equipment manufacturer Adidas AG reported a woeful 62 percent profit drop last year.

Adidas’s profits fell to 245 million euros (US$333 million), and top-line total sales also dropped 6 percent to €10.4 billion (US$14.2 billion). Despite such a setback, the comapny offered a positive outlook for 2010 and planned to increase profits by 50 to 75 percent this year, and grow its sales by “low-to-mid-single digits.”

“Without question, 2009 was the most difficult year since I became CEO,” said Adidas’s Herbert Hainer in a statement. Hainer has been the chief executive of Adidas since 2001.

Adidas is putting hopes in the upcoming World Cup 2010 in South Africa, where it is planning to outshine its rivals Nike Inc. and Puma AG. It will be the biggest sponsor of the games, sponsoring a total of 12 team including Germany, the European champion Spain, and the hosting South African team. Nike will sponsor nine teams and Puma seven teams.

During the previous World Cup in Germany, Adidas was able to increase its sales by more than €1 billion (US$1.4 billion), as fans went out on a frenzy buying soccer balls and jerseys.

Due to the still-struggling global economy, Adidas is not hoping for such glamorous figures anymore, but is offering a rather conservative 63 percent increase in sales in 2010.

“In light of the World Cup, the outlook for 2010 is rather weak,” said Heino Ruland, is a strategist at Ruland Research.

Adidas’s poor performance in 2009 was also partly attributed to its subsidiary Reebok, which it acquired in 2005 for roughly 3 billion euros (US$4.1 billion). Reebok, which is based in the United Staes, saw its sales decline 7 percent last year compared to 2008.

In 2010, Reebok is planning to come out with a brand new muscle-activating sport shoe “Easy Tone” and increase its prices on other products in order to snap out of its negative growth. To cheer up investors, Adidas addressed one of the biggest concerns in 2009, the slumping sales in North America.

“Adidas and Reebok will grow this year in North America,” said Hainer. “I think we will grow more in North America than Nike. But I have no proof yet.”

In addition to the World Cup, Adidas hopes to boost its business by opening 150 more stores worldwide. These stores proved to be successful in 2009, when Adidas opened 328 of them.

Besides relying on sales, the company has also put forth a cost saving program that helped it to save 60 million euros (US$82 million) in 2009 and forecast another 100 million euro (US$137 million) savings in 2010.