* Marketing spend to rise 1 pct point to 13-14 pct of sales
* New five-year plan due in Q1 2015
* 2014 operating margin target cut to 6.5-7 pct vs 8.5-9 pct
* Sales up in Europe, Latin America
* Shares down 4 pct
(Adds details from conference call)
By Emma Thomasson
BERLIN, Aug 7 Adidas, the world's
second-biggest sportswear firm, will ramp up spending on
marketing following a profit warning last week as it seeks to
halt the advance of market leader Nike.
The German group said it planned to boost marketing spending
to about 13 percent of sales in 2014 and to 13-14 percent in
2015, but would aim to compensate for that with stronger sales
growth and tighter cost control.
While Adidas declined to give a figure, the rise amounts to
an extra 100-200 million euros given Adidas spent 12.4 percent
of its 2013 revenue of 14.5 billion euros ($19.4 billion) on
sales and marketing. Nike spent 10.8 percent of sales of $27.8
billion on marketing in its 2013/14 financial year.
Adidas said it would provide more details when it presents a
new five-year strategic plan in the first quarter of 2015.
The higher spending, along with investment in more of its
own stores, prompted Adidas to cut its target for operating
margins - operating profit as a percentage of sales - to 6.5-7.0
percent for 2014 from 8.5-9.0 percent previously. That is well
below the 13 percent Nike saw in its fiscal year to May 31.
Chief Executive Herbert Hainer said Adidas had left its
brands exposed to attack in some markets, such as its home turf
of western Europe, where Nike has been stealing market share.
"We know consumers love our brands when they hear our
stories. Therefore, we will be bringing even more of these to
life on the streets, screens and stores in the future," Hainer
told a media conference call on Thursday.
Hainer said the new marketing drive was illustrated by a
record $1.3 billion shirt deal it sealed with Manchester United
last month and the signing of four of the top six
National Basketball Association (NBA) draft players.
Adidas had already flagged plans to increase marketing
spending last week when it cut sales and net income targets for
2014 and scrapped its goals for 2015, blaming a poor performance
at its golf business and volatile emerging market currencies,
particularly the Russian rouble.
SHARES FALL AGAIN
Adidas shares, which tumbled after the profit warning and
are down almost 38 percent this year, were off 4 percent at 1024
GMT at a new two-year low, underperforming a flat German
Citi analysts, who rate the stock "neutral", said they
remained sceptical, given the planned reduction of stores in
Russia, higher marketing costs and adverse currency trends.
"We continue to fear that earnings growth trends could
remain muted despite the recently lowered EBIT (earnings before
interest and taxation) base," they wrote in a note.
Hainer said Adidas, which runs more than 1,000 stores in
Russia, now aims to add only 80 this year, down from a planned
150, with a similar number expected for 2015 due to higher risks
to consumer sentiment and spending over the Ukraine crisis.
That move, as well as more discounting of stock in Russia,
would trim about 50 million euros from operating profit in the
second half. A planned restructuring of the golf unit would mean
a hit of 50-60 million euros.
Adidas last week cut its net income forecast for 2014 to
around 650 million euros from between 830 and 930 million.
While almost two-thirds of its sales are made through
third-party retailers, Adidas has been opening more of its own
shops, particularly in emerging markets such as Russia, because
they are more profitable.
Sales from its own outlets, adjusted for currency changes,
rose 22 percent in the first half to 1.75 billion euros ($2.3
billion), while wholesale sales rose 5 percent to 4.44 billion.
Adidas, which already reported that second-quarter sales
rose a currency-adjusted 10 percent to 3.47 billion euros, said
all regions had contributed to that increase, with western
Europe up 13 percent, eastern Europe up 14 percent - driven by a
double-digit rise in Russia - and Latin America up 33 percent.
In North America, where Adidas has struggled to make inroads
into Nike territory, group sales rose 1 percent as a good
performance by the core Adidas brand and Reebok fitness were
offset by an 18 percent fall at its TaylorMade golf unit.
(1 US dollar = 0.7482 euro)
(Editing by Maria Sheahan and David Clarke)