Adidas May Shed Golf Business

Adidas May Shed Golf Business

Adidas May Shed Golf Business

The FINANCIAL -- Adidas AG reported a slight rise in second-quarter earnings Thursday, supported by strong sales in China and Western Europe, and said it could shed its golf unit.

The world's second-largest sportswear maker, after Nike Inc., said net profit rose 1.4% to €146 million ($159 million), from €144 million a year earlier, according to Nasdaq.

The company's main growth drivers were the positive performances of its Adidas and Reebok brands and strong consumer sentiment in China and Western Europe.

Compared with the same period last year, when Adidas benefited from revenue related to the FIFA World Cup, sales rose 5% to €3.9 billion, when adjusted for currency fluctuations.

Adidas's chief executive, Herbert Hainer, was under investor pressure last year after issuing a string of profit warnings and scrapping the company's financial targets for 2014 and 2015. In March this year, Adidas launched a new strategic plan and reported strong first-quarter results, and the embattled boss declared a financial resurgence was under way.

"We have said all along that our new strategy 'Creating the New' will already show first positive results this year. The second quarter is—without a doubt—proof positive for that," Mr. Hainer said Thursday.

A blow for management in the second quarter, however, was the continued negative performance of its TaylorMade-Adidas Golf unit. Mr. Hainer has been pushing for a recovery in the business, but sluggish demand for golf equipment, inventory overhang and a poorer-than-expected performance of its new products has been a challenge for the German sporting goods maker. TaylorMade-Adidas Golf's currency-adjusted sales were down 26% in the period. Adidas Thursday said it had engaged with Guggenheim Partners investment bank to analyze "future options" for the business, and that it in particular was looking at its Adams and Ashworth brands.

"I know that some big shareholders have been lobbying to make Adidas refocus on its best-performing segment, which is the Adidas brand," said Cé dric Rossi, an analyst at Bryan Garnier in Paris. "Today's statement is probably an answer to that pressure."

Mr. Rossi said he thinks it is "too soon" for Adidas to give up on its entire golf business now. He expects Adidas to only look to sell the least profitable parts of it, such as the above mentioned brands.

Mr. Hainer said Thursday that the company is also working to improve golf unit promotions, pricing, costs and trade patterns.

"The outcome will and has to be a more nimble and profitable golf company," he said.

Adidas's currency-adjusted sales in North America were down 0.5% in the second quarter. The company reported sales growth in the region in the first quarter of the year, but at the time, higher marketing costs offset that gain.

The company recently made several internal changes to improve its North American business, including shifting top management and design resources to its regional headquarters in Portland and spending more on U.S.-targeted advertising. Mr. Hainer has said he expects Adidas to be profitable in North America by the end of the year.

Adidas's organic sales in Greater China and Western Europe were up 19.3% and 12%, respectively.

Adidas's rivals are also enjoying strong momentum, as global consumers are seeking to live healthier and the sporting goods market is flourishing. Baltimore-based Under Armour Inc., which according to retail-sales figures collected by SportScanInfo and Sterne Agee surpassed Adidas as the no. 2 seller of sports apparel and footwear in the U.S. last year, reported a 29% revenue surge in the second quarter. Nike Inc., Adidas's main competitor, reported a 13% currency- adjusted sales growth in the three months ended May 31.

Late Wednesday, Adidas announced it would be buying Austrian developer and manufacturer of fitness and health applications and hardware Runtastic GmbH for €220 million. Adidas hopes Runtastic's more than 70 million users will help boost sports shoe and apparel sales. Under Armour Inc. has also been cashing out on developers of apps to monitor personal fitness.

Adidas confirmed its guidance for 2015. The company expects sales to increase at a mid-single-digit rate on a currency neutral basis.