Adidas shares drop as currency swing hits margin

Shares in Adidas fell the most in four months as currency swings and in-store spending crimped profitability in the third quarter, even as the sports kit maker reported sales that met analysts’ estimates on sales in Europe, the US and China.

Adidas shares drop as currency swing hits margin

Revenue rose 14% to €5.4bn and operating profit increased 12% to €563m.

Analysts on average had expected sales of €5.38bn and profit of €564.9m. Gross margin slipped 0.9 percentage points to 47.6%.

“They talked about foreign currency effects being greater in the second half of the year and the gross- margin headwinds were always going to be there,” said John Guy, an analyst at MainFirst Bank.

“The performance is solid and ahead of peers, but there’s no additional upgrade as we saw earlier this year,” he aid.

Chief executive Kasper Rorsted, a month into the job since taking the reins from longtime CEO Herbert Hainer, inherits a revitalised company that has raised its annual forecast four times this year.

Adidas is gaining share at the expense of Under Armour, which last month forecast its worst growth since 2009, and Nike, whose shares fell to their lowest price in more than a year this week on a slowdown in the US.

However, Adidas is spending more to keep its track shoes in stock and in front of consumers. The German company said operating expenses rose 12% €2.1bn in the quarter, and that its inventories ballooned 19%.

Shares of Adidas fell 3.7% at one stage in Frankfurt trading after dropping up to 8%, the biggest intraday decline since June 24.

The stock’s near 50% growth this year — the biggest gain in Germany’s 30-stock Dax Index — may be pricing in much of next year’s momentum.

The company is currently valued on stock markets at €29.5bn.

“The 2017 outlook looks challenged despite strong momentum as the comparison base becomes much tougher, and expectations in the name are already high,” Piral Dadhania, an analyst at RBC Capital Markets, said in a note to clients.

Adidas reiterated its forecast for sales growth, operating margin and net income this year.

The operating margin will rise to as much as 7.5%, compared with last year’s 6.5%. Closing a margin gap with Nike is one of Mr Rorsted’s mandates as CEO.

Adidas-brand sales jumped 20% excluding currency swings, the company said. Sales in the very important north American market rose 20%.

China, Taiwan, Hong Kong and Macau posted a 25% increase. “The great momentum across all major markets shows the strength of our strategy,” Mr Rorsted said in the statement.

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