Adidas Shares Drop As Profit Margin Hit by Currency and Spending

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Shares of Adidas AG fell their most in the past four months as swings in currency and spending in stores crimped its profit during the just ended third quarter, even as the maker of sneakers reported quarterly sales that met estimates on Wall Street on the demand it had for its classic styles in China, Europe and the U.S.

Adidas posted €5.4 billion or $6 billion in revenue that was an increase of 14% and €563 million in operating profit that represented an increase of 12%, said the maker of Ultra Boost running footwear and Stan Smith sneakers.

Analysts were expecting sales of €5.38 billion and €564.8 million in profit. Gross margin dropped by 0.9% to end the quarter at 47.6%.

CEO Kasper Rorsted, only one month after taking over the reins of the business from former CEO Herbert Hainer, has inherited a company that has been revitalized and has increased its annual forecast on four occasions in 2016.

Adidas has gained some much needed market share from newcomer Under Armour, which in October, forecasted its worst overall growth in the past 7 years.

Adidas has gained on Nike as well. Nike shares dropped to their lowest in over a year earlier this week on a drop in business across the U.S.

However, Adidas has spent more at retail in order to keep its most popular shoes in stock and in the eyes of the consumer.

The company, based in Germany, said its operating expense had increased by 12% to more than €2.1 billion during the three-month period and that inventories had ballooned by over 19%.

Shares of the sneaker maker were down by 3.7% in trading on Thursday mornings after falling by 5.4%, it biggest decline intraday since June 24.

The increase in the stock’s price by 63% this year might be pricing in much of the momentum for next year.

Adidas reconfirmed its sales growth, net income and operating margin forecast for the full year. Its operating margin will increase up to 7.5%, in comparison with its 6.5% in 2015. Closing a margin gap it has with Nike is a mandate that Rorsted made as the CEO.

Sales of Adidas-brand products were up 20% excluding swings in currency the company added. Sales in its critical market of North America were up 20%. In China, Hong Kong, Macau and Taiwan an increase of 25% was posted.

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