Adidas cuts costs after profits sink 97 percent
German sports equipment and clothing maker adidas reported a huge profit drop on Tuesday and said it was launching a major global cost-cutting and reorganisation programme to shore up its finances.
Adidas said its net profit in the first quarter had fallen by a whopping 97 percent to just five million euros (6.7 million dollars).
A company statement also said sales had lost a much more modest two percent to 2.58 billion euros in the first three months of the year, even though 2008 sales had benefitted from the European football (soccer) championships.
"We feel the effects of the economic downturn in many of our key markets," adidas chairman and chief executive Herbert Hainer said in the statement.
He added that the group's results had been "materially affected by higher input prices, currency devaluation effects and restructuring costs."
Refinancing costs also weighed heavily on the group results, and shares in the company plunged in midday trading on the Frankfurt stock exchange.
Adidas announced a major restructuring of its operations that would include the elimination of regional headquarters in Europe and Asia and was expected to generate more than 100 million euros in annual savings.
Hainer said: "We are now in a position to make a game-changing structural refinement to our business," and added: "The current economic climate adds urgency to accelerate our plans."
He told a telephone conference with analysts that 750 jobs had been cut in the first quarter at Reebok, the shoe unit Rockport and the TaylorMade-adidas Golf division, with the possible addition of 500-600 more.
The adidas group currently employs more than 38,000 people.
A joint operating model between adidas and Reebok would be used in Europe and Latin America following its success in Asia, the statement said.
Adidas also planned to simplify the product creation process for both its own and Reebok brands.
The new organisational model would "set the foundation for sustainable long-term growth," the statement added.
Since 2000, the adidas group had grown from 95 companies to 190 worldwide, the company said, and gone from being mainly a wholesaler to a company with "a far more significant retail component."
Adidas said it expected its operating margin to decline, but that earnings per share were expected "to be around breakeven in the first six months of 2009" before getting well back into the black later this year.
Hainer said that while adidas would face many of the same obstacles going forward, "I am convinced we will put most of these effects behind us in the current year."
Shares in the company plunged by 8.24 percent to 27.07 euros in midday trading on the Frankfurt stock exchange, while the DAX index of German blue-chips was 0.21 percent lower overall.
Dow Jones Newswires reported that the investment bank MM Warbug had put a hold rating on adidas stock. The bank said the huge first quarter profit drop should lead to "a clear cutback in 2009/2010 earnings estimates."
