FRANKFURT (Reuters) - Adidas (ADSGn.DE) has cut the 2015 sales target for its struggling Reebok brand by a third to 2 billion euros ($2.6 billion) after a torrid year in which it lost a major American football contract and fraud was discovered at its Indian operation.
The German company, the world’s second-largest sports apparel firm, bought Reebok in August 2005 for $3.8 billion to try to close the gap on market leader Nike (NKE.N) in the United States. It enjoyed initial success with a range of toning shoes, but has since struggled to find its feet.
Sales at Reebok slumped 26 percent in the second quarter and annual revenue is expected to fall from 2011’s 1.96 billion euros. Its performance contrasts sharply with the rest of the Adidas group, which expects overall sales to rise nearly 10 percent to about 14.5 billion euros in 2012.
Adidas Chief Executive Herbert Hainer has said that Reebok needs to come up with new products and will focus on fitness categories such as keep-fit trend Crossfit, running, gym, yoga and dance.
Reebok will also restrict sales growth in less lucrative markets such as India and Latin America and instead focus on improving its profit.
“While we have seen some good progress from the brand ... we cannot claim that we are on the path to sustainable global success just yet,” Hainer told investors in California.
Shares in Adidas, which have gained 30 percent this year and touched a record high of 65.76 euros on Wednesday, were down 1.5 percent at 64.56 euros at 0830 GMT, making them the biggest faller on Germany’s Dax index of leading shares .GDAXI.
The reduced target for Reebok is a rare spot of bad news for Adidas, which has managed to perform better than Nike and Puma (PUMG.DE) this year in Europe and China, where consumer spending has slowed.
Adidas kept an overall target to increase group sales to 17 billion euros by 2015, with faster than expected growth at its Adidas brand and golf business offsetting the weakness at Reebok.
Sales for the Adidas brand are now expected to reach 12.8 billion euros in 2015, up 5 percent from the previous target of 12.2 billion euros.
Hainer said the group would reach an operating profit margin of 11 percent by 2015, approaching 9 percent in 2013 and 8 percent in 2012. He also hinted that the 2015 sales target could be exceeded.
Analysts at the presentation in California welcomed the focus on profit rather than outright sales growth.
“We think the new sales composition makes margin targets more credible (as the more profitable brands grow stronger),” Deutsche Bank analyst Michael Kuhn wrote in a note.
Of the 33 analysts covering Adidas, 24 have a “buy” or “strong buy” rating on the stock, according to Thomson Reuters StarMine.
Adidas announced in April that it had uncovered commercial irregularities at Reebok India and replaced management there.
It said the fraud and a subsequent restructuring of Indian operations would cost Adidas almost 200 million euros. The unit’s two former managers were arrested on Thursday in India on suspicion of fraud.
Reebok in 2010 lost the contract to provide kit for players in the NFL American football league to Nike. Adidas has said that it gave up the pricey contract because it did not fit with Reebok’s new focus on all things fitness.
The contract officially ended in March 2012. Adidas had said earlier in the year that it would result in lost sales of about $200 million in 2012.
It said on Friday that of the 1 billion euro reduction to the Reebok sales goal, about a third was down to the NFL loss and that it is now reporting sales related to NHL hockey products under a different business segment. ($1 = 0.7721 euros)
Editing by David Goodman