Adidas takeover eats into profits

Sportswear and equipment group Adidas-Salomon AG yesterday reported disappointing first half consolidated results, weighed down by its acquisition of French group Salomon earlier this year.

But while a 25 million deutschmarks loss at Salomon and the cost of the purchase dragged the group's net profit into the red, the Adidas division raised operating profit 51 per cent to DM444 million ($251 million), pleasing analysts.

"The good news is that Adidas itself gave a fantastic performance. We also seem to have these integration costs behind us," said Mr Antje Witte, analyst at HSBC Trinkhaus.

Adidas-Salomon gave a preliminary indication of first half results on July 24th, warning that the acquisition of Salomon had led to a one-time charge of DM723 million, knocking its share price down then by nearly 8 per cent.

The inclusion of this charge resulted in the group recording a first-half net loss of DM487 million. The Adidas division alone posted first-half sales growth of 39 per cent to DM4.4 billion with sales in footwear substantially outperforming apparel, reversing a trend of the last two years.

Orders in hand for the division for the next six months amounted to DM3.3 billion, representing an increase of 31 per cent compared to the previous year, the group said.

Adidas-Salomon's chairman Mr Robert Louis-Dreyfus said the strong growth in orders would sustain the group's momentum in the second half and forecast that combined 1998 sales could rise to DM10 billion. Investors initially cheered the result, driving Adidas' stock price 4.7 per cent higher to DM268, but the share closed 4 marks weaker at DM252. "When the results came out the stock rallied on good volumes and now it's down on good volumes too - it's pure volatility," one dealer said.

The group earlier reported a 58 per cent rise in first half sales to DM4.9 billion but said the purchase of Salomon, for DM2.4 billion, resulted in substantial goodwill depreciation and an increase in operating costs.