Adidas investors shrug off €475m Reebok charge

World’s second-largest sportswear maker posts better-than-expected results

Adidas investors have shrugged off a €475 million impairment charge for 2016 related to the botched acquisition of Reebok that is equivalent to almost half the group's reported net income for that year.

The world’s second-largest sportswear maker disclosed on Thursday that a German accounting watchdog had concluded that its balance sheet brand value for Reebok, which it bought in 2006, was too high. But the market focused instead on Adidas’s better-than-expected second-quarter results, which showed sales up more than 4 per cent and profits increased over 17 per cent. Shares rose 8.5 per cent in response.

Adidas has struggled with Reebok’s tepid growth and poor profitability from the start.

In the second quarter of 2018, Reebok sales fell 3 per cent because of weak demand for its training and running kit. Adidas CEO Kasper Rorsted on Thursday said that Reebok currently accounts for one-tenth of group revenue but none of its profits.


Reebok’s poor performance between 2006 and 2016 has led the German Financial Reporting Enforcement Panel (FREP) to conclude that Adidas’s assessment of the brand’s earning potential was too optimistic and the book value too high.

The restatement reduced Reebok's book value by 37 per cent to around €800 million. The previous assessment was signed off by group accountants KPMG but Adidas has accepted the watchdog's view.

‘Rare event’

Chief financial officer Harm Ohlmeyer, who was appointed in May 2017, said that such a big retrospective restatement “is indeed a rare event” and stressed that this was an isolated incident.

"We as a company stand for very prudent accounting. We have a very conservative nature," Mr Ohlmeyer told journalists, adding that the restatement has no impact on the company's cash position, its 2018 income and its guidance.

Analysts downplayed the accounting issue. "This is irrelevant as it is backward-looking," said Macquarie analyst Andreas Inderst.

In the second quarter, Adidas increased quarterly sales by 4.4 per cent year-on-year to €5.3 billion, compared with €5.2 billion expected by analysts, according to data from S&P Global Market Intelligence. With the effect of foreign exchange movements stripped out, the increase was 10 per cent.

Operating profit in the three months to June was 17.2 per cent higher than a year ago and at €592 million beat analyst expectations of €546 million. Operating margin in the quarter improved by 1.2 percentage points to 11.3 per cent.

Adidas said it is on track to meet its full-year guidance of 10 per cent revenue growth excluding foreign exchange movements, as sales in North America and Asia-Pacific are increasing at double-digit rates. It wants to improve its operating margin for the year to 10.3-10.5 per cent, compared with 9.8 per cent last year.

– Copyright The Financial Times Limited 2018