Back to top

Adidas Warns on Profits as Risk to Russian Economy Persists

Read MoreHide Full Article

It seems that the standoff between Russia and the West is still far from resolved and has now started hurting the European companies, even before the fresh sanctions began taking effect. Although the latest sanctions unveiled by the U.S. and European Union are targeted on the financial and energy firms, other industries too have started facing the heat.

Yesterday, the world’s second-largest sporting goods company, Adidas AG (ADDYY - Free Report) cut its sales and profit forecast for 2014 citing an increasing risk to consumer sentiments and spending in the Russian market due to mounting tensions with the West over the Ukraine issue.

Sports equipment maker Adidas unveiled that it now projects sales for the year to increase in the mid-to-high single-digit range on a currency neutral basis, down from the previous guidance range of high-single-digit. Furthermore, profit attributable to the shareholders is now anticipated to come around €650 million, significantly lower than the earlier projected range of €830 million to €930 million.

Further, in a move to reduce risk and protect profits in the Russian market, the company wants to reduce its store opening plan till next year end. Simultaneously, Adidas intends to speed up its store closure procedure in the country.

The company has got a huge blow from the recent economic situation in Russia, as it earns a significant amount of its revenue from the country. Moreover, Adidas had planned to increase its namesake and Reebok stores in the region ahead of The FIFA World Cup 2018 slated to take place in the country.

However, despite facing challenges in the Russian market, the company has decided to keep up with its growth strategies in rest of the world, especially in North America and Western Europe. The company has got a new momentum at its brands after a solid performance at this year’s mega soccer event held in Brazil.

Returning to the Russian economic conditions, we believe the increasing political tension will influence the outcome of several companies. Thus, it is best to keep a close watch on those companies which have high exposure in the Russian market until the crisis is resolved.

Other Stocks to Consider

Currently, Adidas carries a Zacks Rank #5 (Strong Sell). However, some better-ranked stocks in the shoe & apparel related industries are Sketchers USA Inc. (SKX - Free Report) , Iconix Brand Group, Inc. (ICON - Free Report) and Deckers Outdoor Corp. (DECK - Free Report) . Of these, Skechers holds a Zacks Rank #1 (Strong Buy) while Iconix Brand and Deckers carries Zacks Rank #2 (Buy).

More from Zacks Analyst Blog

You May Like