Adidas shares fall as supply chain problems slow growth

[March 13, 2019]   HERZOGENAURACH, Germany (Reuters) - Adidas expects supply chain issues to curb sales growth in the first half of the year, particularly in North America, but said it hopes to see off a challenge from Nike in Europe and return to growth in the region.

Shares in the German sportswear brand, up 22 percent in the last year, initially fell more than 5 percent but pared loses to trade down 3.5 percent by 1040 GMT.

Nike has been regaining ground, helped by a steady stream of new product launches and a strong showing by Nike-sponsored teams at the soccer World Cup, after several years when Adidas ate into its home market of North America.

Adidas said currency-neutral sales growth would slow to between 5 and 8 percent in 2019, from 8 percent in 2018, with supply issues accounting for a 1-2 percent fall as it struggles to meet strong demand for mid-priced apparel.

In contrast, Nike has forecast sales growth for 2019 approaching low double digits, and German rival Puma a currency-adjusted 10 percent.

"The volume grew quicker than anticipated and we didn't respond quickly enough to that demand signal," Chief Executive Kasper Rorsted told a news conference, noting that Adidas had doubled its sales in North America in the last three years.

Adidas produces 457 pieces of apparel a year, sourcing most of them from Cambodia, China and Vietnam. Rorsted said the shortages had nothing to do with U.S. trade tensions with China.

The company expects sales growth of just 3-4 percent in the first half of the year, speeding up in the second half as it ramps up supplies by reallocating factory capacity and prioritizing the U.S. market.

"The overall outlook is very solid for 2019, although top line growth will be rather back-end-loaded and this might be a temporary drag on Adidas shares," wrote Macquarie analysts.

Rorsted declined to comment on whether the supply chain issues resulted in the removal of Gil Steyaert as global operations head after just over a year in the role, and his replacement with Martin Shankland last month.

General view of a match ball with Adidas logo at the Euro 2016 semi final in Lyon, France REUTERS/Carl Recine/File Photo

REEBOK RECOVERY

Adidas said it should reach an operating profit margin of between 11.3 percent and 11.5 percent in 2019, up from 10.8 percent in 2018, with the return of the Reebok brand to profit helping it hit a target originally set for 2020 a year early.

Adidas confirmed its other targets for 2020 and Rorsted said it would present a new medium-term strategy toward the end of next year.

Fourth-quarter sales rose by a currency-adjusted 5 percent to 5.234 billion euros ($5.91 billion), ahead of average analyst forecasts for 5.2 billion, while attributable net profit came in at 108 million, versus consensus for 88 million.

Sales rose 13 percent in greater China and 9 percent in North America, but fell 6 percent in Europe.

Adidas said it expected to revive growth in Europe in the course of 2019, forecasting a slight increase in currency-neutral revenues for the region.

Rorsted said that Adidas had relied too much in Europe on a short-term trend for fashion shoes, like its retro Stan Smith and Superstar, with global sales of those models down half a billion euros in 2018 from the previous year.

To recover in Europe, he said it is investing heavily in marketing, including with sponsorship deals like the one it struck with English soccer side Arsenal.

"We will continue to invest heavily in sports. We want to be the best sports company in the world, not the best fashion company," Rorsted said.

(Reporting by Emma Thomasson; Editing by Kirsten Donovan and Keith Weir)

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