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Adidas blames lousy profit on Russia tensions, Golf

Adidas Golf Partners with USA GolfAdidas Golf Partners with USA Golf
LPGA players Jessica Korda, left, and PGA Tour player Dustin Johnson.Photo by Scott Halleran—Getty Images

Adidas, the German sportswear maker, has warned it will miss its profit targets for the year due to rising tensions in Russia and a declining golf business.

The company now expects profits of about $869 million (650 million euros), compared with the $1.1 billion to $1.2 billion (830 million to 930 million euros) previously stated, according to a statement released Thursday.

Adidas (ADDYY) posted sales growth of 10% in the second quarter, but expects that rate to slow to mid- to high-single digits for the rest of the year.

CEO Herbert Hainer admitted that Adidas had “not executed to our high standards at all times or provided enough flexibility to react in adverse market conditions.”

“We are taking consequent and necessary decisions now to put the Group on a firmer footing to build for the future,” he said.

Adidas points to Russia for its anticipated profit declines. Rising tensions in the country and region are expected to dampen consumer sentiment in the country, and the company is adjusting its plans and will reduce store openings in the region for 2014 and 2015 while further increasing the number of store closures.

“These steps are aimed to reduce risk and protect profit as well as to drive a faster implementation of new inventory management principles for that market,” the company said in a statement.”

Overall sales growth is also under pressure from the golf segment. In the second quarter, TaylorMade-Adidas Golf sales dropped 18% compared to Adidas’ 14% sales growth and Reebok’s 9% gains.

Sales declines in the golf segment are attributed to an overall slow retail market as well as older inventory that the brand hasn’t been able to sell through. Adidas plans to restructure TaylorMade-Adidas Golf to take into account “lower expectations for the golf industry’s development.”

The lowered outlook will prevent the company from achieving its “Route 2015” targets in the original time frame. The five-year strategic business plan aimed to achieve $22.7 billion in sales (17 billion euro) and a sustainable operating margin of 11% by the end of next year. Adidas plans to discuss the program’s delay in more detail during the group’s half-year financial results Aug. 7.