Adidas income up, shares rise

FRANKFURT, Germany (Reuters) -- Second-quarter net income rose sharply at Adidas, Europe's biggest sports-goods maker, as the integration of its Reebok division helped cut costs and increase margins despite nearly flat sales growth.

Sales fell in North America but grew in all other markets in the first half, Adidas said on Wednesday, adding next year's Euro 2008 soccer tournament and Olympic Games would boost revenue and earnings.

"I am fully confident in our ability to deliver sustained profitable momentum in 2007 and beyond," Chief Executive Herbert Hainer said. Shares of Adidas opened more than 4 percent higher and were up 3.3 percent at 44.56 euros by 0750 GMT, the leading gainer on Germany's blue-chip DAX index, which rose 0.8 percent.

Adidas said second-quarter net income rose 27 percent to 104 million euros ($144 million), above the average forecast of 96 million euros in a Reuters poll of 15 analysts.

In euro terms, sales fell 1 percent to 2.4 billion euros, narrowly beating an average forecast of 2.377 billion euros. The company credited its higher margins -- gross margin increased 2.8 percentage points to 47.4 percent -- to cost cuts and synergies from integrating Reebok, which it bought in 2005.

On a currency-adjusted basis, sales rose 3 percent, despite tough comparisons with the prior year when sales were high because of the soccer World Cup in Germany.

The company's Adidas and Reebok footwear brands lost shelf space at U.S. mall-based retail chains and family footwear stores in the first half of this year, analysts had said. In addition, both brands lost market share in the top five European footwear markets in the same time, primarily to rival Nike, analysts added.

Adidas, known for its three-stripes logo, said the order backlog -- a key indication of retailers' future sales -- for the Adidas brand rose 6 percent on a euro currency basis.

At Reebok the order backlog expressed in euros fell 3 percent year-on-year at the end of June. On a currency-neutral basis, Reebok's order backlog was flat. "In particular the order backlog situation is comforting given the difficult U.S. market environment," Equinet analyst Ingbert Faust wrote in a report.

"Second-half 2007 will see stronger sales and profit growth." Adidas bought Reebok to complement its strength in classic sportswear and its strong position in Europe with Reebok's focus on the U.S. market and lifestyle fashion, a segment tapped successfully by German rival Puma.

Signs that Reebok's integration is paying off emerged in the first quarter, when order backlog rose 3 percent on a currency neutral basis, the first rise since the takeover.

Adidas reiterated that it expects currency-neutral sales to grow by a mid-single-digit percentage in 2007 and the rise in net income to approach about 15 percent. E-mail to a friend

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