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Adidas issues profit warning

German sportswear giant Adidas, which also owns the Reebok brand, has issued a profit warning after it was hit by rising costs on top of falling sales.

Pre-tax profits at the Adidas group sunk by 97% to just €5 million (£4.4m) in the first three months of 2009. Currency-neutral group sales fell 6% to €2.58 billion (£2.28bn), compared to €2.62bn (£2.32bn) in the first three months of 2009.

Within that European sales fell 5%, largely driven by drops in the German market. Group borrowings soared from €2bn (£1.77bn) a year ago to €2.8bn (£2.4bn), after it borrowed more cash to expand its retail stores.

“We feel the effects of the economic downturn in many of our key markets. However, our group is well positioned for this challenging period, and we are doing all the right things to keep our company on its long-term growth path.”

Adidas chairman and chief executive Herbert Hainer

Adidas chairman and chief executive Herbert Hainer blamed tumbling profits on the global recession, and said the group had faced a number of economic and market challenges in the first quarter of 2009. He cited higher prices for raw materials, falling sales in Europe and the US and the weaker dollar against the Euro as major factors for the poor performance. First quarter performance of Adidas football categories was also down, because it was against the build up to last year’s Euro 2008.

Adidas said it would close regional offices in Europe and Asia and could shut some of its retail stores to help save more than €100m (£88.7m) a year. Adidas did not disclose how many jobs could be cut.

Hainer said: “We feel the effects of the economic downturn in many of our key markets. However, our group is well positioned for this challenging period, and we are doing all the right things to keep our company on its long-term growth path.”

Hainer warned that the business for the rest of the year would be difficult, with margins and earnings per share expected to decline further.

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