The Adidas Group has again raised its guidance for the full year, after its sales increased by 20 percent to €5.0 billion for continuing operations in the second quarter, up by 19 percent in constant currencies, and operating profit surged by 18 percent to €505 million.
The group issued preliminary figures as part of the guidance upgrade, ahead of more detailed results later this week. The rise in operating profit came in spite of the inclusion of a one-off gain of €70 million from the early termination of its partnership with Chelsea FC in the same quarter in 2016. The improvement was driven by a higher gross margin and operating expense leverage. The group's net income from continuing operations was up by 16 percent to €347 million for the three months.
These numbers exclude discontinued operations consisting of some of the Adidas group's assets in golf and ice hockey. The divestment of TaylorMade, Adams Golf, Ashworth and CCM Hockey had a non-operational negative impact of about €200 million on discontinued operations in the second quarter.
The Adidas Group said that Birch Hill Equity Partners, a Canadian private equity firm, agreed to buy CCM Hockey for $110 million. Most of that is to be paid in cash and the remainder in the form of a secured note. Subject to customary closing conditions, the transaction is expected to be completed in the third quarter. It will lead to a non-operational charge in the high double-digit million range for discontinued operations in the second quarter.
CCM Hockey landed with the Adidas group as part of its acquisition of Reebok. The company reported sales of €271 million last year, which was a decline of 14 percent in reported terms and 13 percent in constant currencies, due to tumbling sales in the licensed apparel business as well as the sticks and skates categories.
The Adidas group announced earlier this year an agreement to sell TaylorMade Golf for $425 million to KPS Capital Partners, a U.S. private equity fund. It previously sold the Rockport brand and decided to offload more activities as part of its five-year strategic plan, Creating the New. Reebok wasn't on the to-sell list but Kasper Rorsted, the Adidas group's chief executive since last October, has made it clear that Reebok would be put up for sale as well if its performance doesn't improve in the years ahead.
After the sales and profit uptick in the first half of the year, the Adidas group predicts that its turnover will firm up by 17 to 19 percent in the full year, up from a previous forecast of a rise from 12 to 14 percent, on adjusted net sales of €18,483 million for the group's continuing operations in 2016.
The Adidas group further projects an increase in its gross margin in the second half, with continued operating leverage. Net income from continuing operations should thus increase at a rate of 26 to 28 percent for the year, to reach between €1,360 million and €1,390 million – significantly more than the guidance provided in March, which predicted a rise of net income of 13 to 15 percent. The Adidas Group will publish its full quarterly results on August 3.
