2nd UPDATE: Adidas Gets China Boost, Raises Outlook

Sportswear and equipment maker Adidas AG (ADS.XE) Thursday raised its outlook for 2011 after strong first-half results driven by growth in greater China, and as sales declines in Japan were less severe than expected.

Net profit for the quarter ended June. 30 rose 11% to EUR140 million, just shy of the EUR143 million forecast in a Dow Jones Newswires poll, while sales increased 5% to EUR3.06 billion, also just missing analysts' expectations of EUR3.08 billion due to foreign exchange volatility as a number of currencies weakened against the euro, and rising commodity prices. On a currency-neutral basis, sales rose 10%.

"High exposure to fast-growing emerging markets, the further expansion of retail as well as continued momentum at all key brands will more than offset the non-recurrence of sales related to the 2010 FIFA World Cup," the company said in a statement.

Growth throughout the first-half and in the second-quarter was driven by strong sales in China and European emerging markets, such as Russia, as it boosted sales and profits despite the financial crisis in Europe and the U.S.

Adidas said sales in greater China increased 31%, overcoming fears among domestic retailers that consumer demand is failing to keep up with the fast pace of retail expansion in the country.

As a result Adidas, which has already raised its sales outlook twice this year, said it expects 2011 sales to increase 10% on a currency neutral basis, with net profit in the range of EUR684 million to EUR652 million. Previously it expected sales to increase at a high single-digit rate.

The company said it also expects a gross margin of 47.5% to 48.0% compared with 47.8% in 2010 and its operating margin to rise between 7.5% and 8%.

Still, Adidas, the world's second-largest maker of sports goods by revenue after Nike Inc. (NKE), said it expects the positive effects of a strong retail segment and the Reebok brand on the gross margin to be offset by higher raw material costs and capacity constraints.

The company also said it now expects the sales decline in Japan following the earthquake and tsunami to be less severe than the 15%-20% drop it previously expected, although margin pressure is expected to continue in the country.

"The company currently offers better operating potential than its peers," Equinet said, noting that although sales were a bit weaker than expected, the 20 basis points increase in gross margin was very positive.

At 1116 GMT, Adidas shares traded up 2.2% at EUR49.89.

-By Neetha Mahadevan, Dow Jones Newswires; +49 69 2972 5507; neetha.mahadevan@dowjones.com

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