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Adidas raises Russia alarm

August 1, 2014

Shares in German sportswear giant Adidas have fallen to two-year lows after the company slashed its projected earnings, citing financial uncertainty in sanction-hit Russia. European markets struggled in general.

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Deutschland Trikot adidas Vier Sterne Verkauf FIFA WM
Image: picture-alliance/dpa

After a dream World Cup for the tournament sponsor, with home country Germany winning in Adidas jerseys againt fellow clients Argentina, the company faced a rather tougher day's trading on Thursday.

Adidas shares plunged by more than 15 percent, a single-day record for the company, closing at 59.41 euros ($79.54). As recently as January, Adidas stock was valued at over 93 euros.

Investors were reacting to revised projections for 2014: Adidas cut its annual net profit forecast to about 650 million euros on Thursday, following its previous estimate of between 830 and 930 million euros. The company said sanctions on Russia and poor performance of its TaylorMade-Adidas Golf subsidiary explained the revisions.

CEO Herbert Hainer said that despite increased turnover, the weaker Russian rouble and marketing costs from the World Cup hurt both revenue and quarterly profits - which sank 16 percent year-on-year to 144 million euros for the April-June quarter.

Hainer pledged more details next week at the company's official earnings report, but said on Thursday that some new business plans for Russia and former Soviet countries would be suspended, while other planned closures could be accelerated.

Russia's rouble has so far lost comparatively little ground against the euro, and was trading more robustly on Thursday than its low-point for 2014 early in March, but investors fear the latest sanctions from the US and EU will take their toll on the Russian economy. Adidas also pointed to deteriorating consumer confidence in Russia and Germany alike.

DAX and other markets slip

The sportswear giant was the biggest loser of the day on Frankfurt's DAX index, although Lufthansa shares also shed 7.33 percent after disappointing earnings figures. The DAX as a whole lost almost 2 percent for the day, but London's FTSE 100 and Paris' CAC 40 also performed poorly.

"German stocks were the worst hit … which is hardly surprising given the amount of trade the country conducts with Russia," analyst Craig Erlam from traders Alpari told the AFP news agency. "When you see profit warnings like these from such a large company, it really makes you realize exactly what these countries are losing every time a fresh batch of sanctions is imposed on Russia."

In the US, the Dow Jones industrial average suffered its worst one-day drop since February, a day after the Federal Reserve rolled back stimulus spending and a New York court order prompted Argentina to go into default. The S&P 500 and Nasdaq indexes on Wall Street suffered 2-percent single day losses.

msh/jm (AFP, dpa, Reuters)