Adidas share price falls following warning on Russia

Shares in German sportswear brand Adidas took a hit today after the company announced that conditions in Russia could affect profits, and that its targets for 2015 were no longer achievable. 

 

Adidas currently runs 1,000 stores in Russia, but it revealed that it intends to close some of its branches to "reduce risk and protect profit". It is also going to limit the number of new stores it opens there in 2014 and 2015. 

 

The company cites uncertainty in Ukraine as one of the main reasons for its decision, saying that this has led to an increase in the volatility of the Russian consumer market. There has also been a decline in the value of the rouble.

 

"The recent trend change in the Russian rouble as well as increasing risks to consumer sentiment and consumer spending from current tensions in the region point to higher risks to the short-term profitability," it said in a statement.

 

A profit warning issued today said that net income this year could be almost a third lower than was originally forecast. The previous target for 2014 was 830m-930m euros, but today this was revised down to 650m euros (£515m).

 

On the back of the news, shares went down by as much as 14 per cent in morning trading. 

 

Ingo Speich, a fund manager at Union Investment, the tenth-biggest investor in Adidas, said: "The profit warning could almost have been predicted but the extent of it is catastrophic… unfavourable conditions are no excuse. Nike is stealing Adidas' thunder in important markets."

 

The news came despite the fact that Adidas sponsored Germany, the winning team, in this year's World Cup. But it said that uncertainty in Russia and higher market spending during the World Cup had counteracted this. 

 

Chief executive Herbert Hainer remains optimistic, however, saying in a statement earlier today: “Everything we announced today has one objective: to strengthen our brands, to drive consumer desire, and to set our group up for long-term success.

 

"We will return the group to a higher and more consistent level of earnings growth in the mid to long term."