Everything seemed to be going Adidas’ way until the western world clashed with Russia.
“[T]he 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 contribution from Russia/CIS,” said management in a new statement. “As a result, Management has decided to significantly reduce its store opening plan in the market for 2014 and 2015, and to further increase the number of store closures.”
Shares of the $US12 billion global shoe brand plunged by over 14% early in the European trading session.
In recent weeks, the U.S. and the European Union unveiled a series of economic sanctions against Russia for its involvement in destabilzing Ukraine. Sanctions were targeted at financial and energy firms. However, these industries haven’t been the only ones affected by the turmoil.
To be clear, Adidas actually just wrapped up a strong second quarter. They surely benefited from having sponsored both teams in the World Cup final (Germany and Argentina).
The company said sales jumped 10% during the period, driven by 14% growth in Adidas brand sales. This was somewhat offset by an 18% drop in TaylorMade-adidas Golf brand sales.
Overall, there was more bad news than good.
“Taking these developments and initiatives into account, Management now expects a mid- to high-single-digit currency-neutral sales increase (previously: high-single-digit increase) for the full year 2014 and net income attributable to shareholders to be at a level of around € 650 million (previously: € 830 million to € 930 million),” they said.
Despite what’s going on in Russia, Adidas is pushing forward with its growth efforts in the rest of the world.
“[F]ollowing the strong performance at the 2014 FIFA World Cup, and improving momentum at brand adidas and Reebok, Management has decided to step up marketing and point-of-sale investments over the next 18 months to secure and drive faster growth rates and market share gains, particularly in the developed markets such as North America and Western Europe,” they said.
Adidas will provide a more complete update when it announces its full Q2 results on August 7.