Adidas shares jump on profit optimism

Adidas CEO Kasper Rorsted had lots to smile about ahead of the company’s annual news conference as the brand looks forward to a World Cup windfall. (Reuters)
Updated 14 March 2018

Adidas shares jump on profit optimism

HERZOGENAURACH, Germany: Shares in German sportswear firm Adidas soared on Wednesday after it announced a big buyback, gave an upbeat outlook for 2018 and lifted its 2020 profitability forecast, while conceding it would be hard to match rival Nike’s margins.
Adidas said late on Tuesday it plans to buy back up to €3 billion ($3.7 billion) of its shares, or almost 9 percent of its share capital, by 2021 on top of a higher-than-expected 2017 dividend of €2.60 per share.
The company’s online sales leapt 57 percent in 2017 to €1.5 billion, or about 7 percent of sales.
The company’s shares, which had fallen 15 percent in the past six months as sales growth cooled, were up 10 percent by midday in Germany, the top gainer on the country’s blue-chip index.
“(20)18 will be a good year for us ... ensuring we get the right balance of market share growth and margin growth ... to get us closer to where some of our competitors are,” CEO Kasper Rorsted told a news conference.
After a tough few years, Adidas has returned to form under Rorsted, taking market share from bigger rival Nike in North America and selling its underperforming TaylorMade golf and CCM Hockey brands.
Since taking over in 2016, Rorsted has put a sharper focus on improving profitability, which still lags Nike.
Finance chief Harm Ohlmeyer, who used to lead the Adidas online business, told the news conference it would be hard to close the gap completely given Nike’s dominance of the US market, but he said online sales were helping margins.
Rosted said there was still huge potential to increase online sales further given that e-commerce accounts for about 15 to 20 percent of sales for the global sporting goods market.
Adidas forecast currency-neutral sales would rise around 10 percent in 2018, with an operating margin of between 10.3 and 10.5 percent, up from 9.8 percent in 2017.
Nike reported an operating margin of 13.8 percent for its 2016/17 fiscal year.
Adidas expects a boost from the 2018 soccer World Cup, although Rorsted noted that the event has less impact than before as soccer now accounts for less than 10 percent of sales.
He said the company had no plans to boycott the tournament despite rising political tension between the West and Russia: “Isolation is not the best way to resolution,” he said.
Adidas lifted its forecast for the operating margin to hit 11.5 percent by 2020, up from a previous forecast of 11 percent. Rorsted highlighted steps to improve efficiency, such as more global purchasing, shared business services and fewer products.
Fourth-quarter sales rose 12 percent to €5.06 billion, missing analyst forecasts for €5.13 billion as sales in Russia and at its Reebok brand slipped.
It reported operating profit more than tripled to €132 million, beating analyst forecasts for €61 million, but recorded a net loss of €41 million after a tax impact of €76 million due to changes in the US tax code.
Rorsted said a turnaround plan that he launched for loss-making Reebok was bearing fruit, with the brand expected to return to growth in North America in 2018.
“While the slowdown in organic growth is going to raise some questions today, confidence on the profitability progression implies a continued superior growth potential,” said Morgan Stanley analysts, who rate the stock “equal-weight.”


EasyJet to cut 4,500 jobs to stay competitive after crisis

Updated 17 min 1 sec ago

EasyJet to cut 4,500 jobs to stay competitive after crisis

  • UK budget airline expects a smaller market in future after easing of lockdown travel measures

LONDON: The UK’s easyJet plans to cut up to 4,500 jobs and shrink its fleet to adjust to the smaller travel market which is forecast to emerge from the coronavirus crisis.

EasyJet, which employs more than 15,000 people in eight countries across Europe, is moving later than others in announcing job cuts as a result of the coronavirus pandemic, which has brought airlines across the world to their knees.

Most have been forced to cut jobs, including more than 15,000 in Britain, as they prepare for a market which is not forecast to return to 2019 levels until 2023.

EasyJet, which said on Thursday it would launch a consultation process with staff, also plans to shrink its fleet by 15 percent to 302 planes by the end of 2021 and to cut costs through deals with airports, suppliers and in marketing.

Shares in easyJet rose 6 percent to 751 pence, their highest level since mid-March, before coronavirus grounded its fleet.

“Exactly the kind of overhaul the cost base needs,” Bernstein analyst Daniel Roeska said of easyJet’s cuts, which go deeper than those of Ryanair and Wizz Air, who have said they will lay off 15 percent and 19 percent of staff respectively.

EasyJet said it expects to be flying around 30 percent of its capacity by the fourth quarter, which leaves it trailing Ryanair which is planning to fly 40 percent in July.

“The leverage to growing market share over the next two years seems to rest with Ryanair and Wizz, who see their cost bases as allowing them to exploit this crisis,” Goodbody analyst Mark Simpson said.

EasyJet Chief Executive Johan Lundgren said that job cuts would ensure easyJet emerges as “a more competitive business.” Around 8,000 of its staff are based in Britain.

Lundgren told reporters that easyJet was talking to the British government about a 14-day quarantine rule which airlines say will further stifle any travel recovery.

Over the last six weeks easyJet has also been grappling with an attempt by its biggest shareholder to oust its senior bosses, and the fallout from a cyberattack.

It said that talks with lessors interested in acquiring aircraft on a sale and leaseback basis were ongoing, and that proceeds would now be £500 million to £650 million ($798 million), around 25 percent higher than previously expected in April.