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Production bottlenecks to hobble Adidas in 2019

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German sporting goods maker Adidas said Wednesday it booked vaulting profits in 2018, but crimped its expectations for this year as it runs into limits on production capacity.

[FRANKFURT] German sporting goods maker Adidas said Wednesday it booked vaulting profits in 2018, but crimped its expectations for this year as it runs into limits on production capacity.

Net profit at the Herzogenaurach-based group leaped 45 per cent year-on-year, to 1.7 billion euros (S$2.6 billion), Adidas said.

The firm booked an 3 per cent increase in revenues to a record 21.9 billion euros last year, a figure it aims to lift by "between five and eight per cent" in 2019.

But while Adidas claimed in a statement to see a "strong increase in demand" for its clothing, "supply chain shortages" in the US especially mean it will not manage to keep up.

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A "capacity problem in the manufacturing plants" means "we cannot cover the full demand in the short term... we're in catch-up mode in America," chief executive Kasper Rorsted said.

He added that the effect in the first six months would cost between 200 and 400 million euros of sales or one to two percentage points of growth in 2019.

North America had been one of the "strategic growth drivers" contributing double-digit expansion to 2018's result alongside China and the group's growing e-commerce operation, Mr Rorsted said.

Across the world, Adidas' flagship three-stripe brand saw sales grow 9.0 per cent adjusted for currency effects.

But subsidiary Reebok's turnover fell 3.0 per cent, continuing a struggle for growth that has persisted since Adidas took it over in 2005.

Rorsted said Reebok had returned to slight profitability ahead of a 2020 target date as it built up margins and closed 250 "low-performance" retail stores.

Meanwhile the brand was spending more on marketing than Adidas proportional to its size, he added.

Looking ahead to 2019, Asia will defend its title as the Adidas group's sales powerhouse with double-digit expansion, while North America and emerging markets are expected to add high single-digit figures.

Meanwhile the firm hopes to turn a corner in Europe - which accounts for one-third of sales - after a 6.0-per cent decline in sales in the final quarter of 2018, forecasting "a slight increase" in currency-adjusted revenues.

Adidas aims for a bottom line between 10 and 14 per cent higher than 2018, at up to 1.95 billion euros.

And it said it would offer investors a dividend of 3.35 euros per share for last year, up 29 per cent on 2017.

AFP