Adidas reported a fourth quarter net loss for the year ended December 2012 after goodwill impairment charges on its subsidiary Reebok brand which took a toll on its profits. In the face of heavy impairment expenses, Adidas expects lower profits for 2013.
Reebok Woes Drain Profits
German sportswear giant Adidas AG posted an unexpected loss in its fourth quarter owing to hefty impairment charges and lower-than-expected sales at its Reebok brand. Data showed that the fourth quarter net loss of Adidas for the year 2012 was nearly €273 million. According to a statement released by Adidas, the full year net profit for 2012 slumped by approximately 14.3 percent to €526 million from a year earlier. In addition, the findings indicated that the fourth quarter operating loss for 2012 was around €239 million. However, analysts expected the company to achieve an operating profit of nearly €28.6 million. Despite a fourth quarter net loss, Adidas witnessed an increase in revenues as sales rose slightly over 3.9 percent to €3.3 billion, compared to a year earlier.
Adidas incurred heavy goodwill impairment charges after performance weakened at its subsidiary Reebok brand. To top it all, the €273 million quarterly loss of Adidas also includes the €265 million asset impairment charge following lower-than-expected performance of Reebok in the US and Latin America. In addition, Reebok failed to create demand for its muscle tone products in the American markets and suffered huge losses at the cost of heavy impairment charges.
In November 2012, Adidas reduced Reebok’s sales target by one-third as the brand suffered from poor sales. Moreover, overall sales slumped by 12 percent to €428 million in the fourth quarter of 2012 as Reebok witnessed an 18 percent drop at its hockey unit.
Adidas Predicts Lower 2013 Profits
Despite incurring heavy asset impairment charges, Adidas expects an increase in sales by a “mid-single-digit” percent as the sportswear giant is investing in new products and targeting emerging markets. Adidas expects operating profit to rise by approximately 2 percent in 2013. However, Adidas predicts lower-than-expected profits for 2013. Adidas expects net income for 2013 to be €920 million, down from the €946 million profit estimate predicted by analysts. According to a statement released by Adidas, the low profits estimate owe to “reduced growth assumptions” at its subsidiary Reebok brand. Moreover, financial irregularities at Reebok’s Indian unit posed further difficulties as Adidas resorted to cut its wholesale revenue guidance for 2012.
However, Adidas does not intend to scale down Reebok’s operations in India and plans to keep its brand active in the hope of profitable returns from the region. In addition, Adidas increased its dividend by nearly 35 percent as it expects to enjoy strong sales from emerging markets like China. In the last 10 months, the company's shares improved by approximately 5 percent in Frankfurt trading. In addition, on the 7th of March, shares advanced by nearly 3.8 percent to €74 per share in Frankfurt trading. Underlining the impact of increased sales in emerging markets, Adidas CEO Herbert Hainer said: "2012 has been another successful year for the Adidas group."