Adidas considers giving up golf as cycling booms

Reuters News
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Posted: Aug 06, 2015 1:51 AM

By Emma Thomasson and Jörn Poltz

LONDON/MUNICH (Reuters) - German sportswear company Adidas has appointed investment bank Guggenheim Partners to help with the possible sale of its golf brands, which are struggling as the sport loses popularity, particularly in the United States.

Adidas made the announcement on Thursday as deteriorating golf sales overshadowed otherwise strong second-quarter results, boosted by double-digit sales growth in both western Europe and China, which it expects to continue for the rest of the year.

After peaking around 2000 when Tiger Woods was in his prime, the number of U.S. golfers has been steadily falling as fewer young people take up the sport and as busy professionals switch to cycling rather than spending the best part of a day playing 18 holes.

Adidas bought the TaylorMade brand in 1997 along with Salomon, developing it into the world's biggest golf supplier. It acquired the Ashworth brand in 2008 for $72.8 million and the Adams brand for $70 million four years later.

Investors have criticized Adidas for responding too slowly to the declining popularity of the sport, flooding the market with new products that it then had to discount heavily.

Golf sales fell to about 6 percent of sales in 2014, forcing the group to warn on profits several times, while Adidas is not a major player in the booming business for high-end bicyles.

Chief Executive Herbert Hainer admitted that two new golf clubs - the R15 and the AeroBurner drivers - had not sold well and competitors had been raising their game, but said he had high hopes for another new club which it will be launching soon.

He told reporters on a conference call that Adidas was initially looking into the possible sale of its smaller golf brands Adams and Ashworth, which have suffered most in the downturn, although it was considering all options for the main TaylorMade label for which it also announced a turnaround plan.

The number of people playing golf in the United States, which accounts for about half the global golf market, has fallen to an estimated 23 million from nearly 30 million in 2000, with the number of courses declining for the past eight years.

The Professional Golfers' Association (PGA) is trying to market the sport to youngsters and make the game more family-friendly and Hainer said the number of golf rounds played had reversed their downwards trend recently.

But that has yet to be reflected in sales of Adidas golf equipment. In the second quarter the firm's golf sales fell by a currency-adjusted 26 percent, accelerating a 9 percent decline in the previous three months.

Other companies in the golf market include Nike, Kering's Puma and Callaway Golf. The company formerly known as Fortune Brands sold its golf business in 2011 for $1.2 billion to a group led by Fila Korea and Korean private equity fund Mirae Asset Private Equity.

ROBUST MOMENTUM

Despite the slump in golf Adidas group sales rose in the last quarter by 15 percent to 3.91 billion euros ($4.27 billion) or 5 percent excluding the impact of currencies, beating an average of analysts' forecasts of 3.8 billion euros.

Adidas shares, which are up 31 percent this year helped by a stock buyback and improving sales, were up 0.8 percent at 1217 GMT, outperforming a flat German blue-chip index.

Hainer said he expected robust momentum to continue in the second half, citing a strong order book and "unprecedented" demand for Manchester United kit launched on Saturday after it displaced Nike as new suppliers to the English side.

He said the weak performance of the golf business would not put the group's 2015 targets at risk.

Adidas has already overhauled top management at the golf business and launched a restructuring program last year, but Hainer said a more radical overhaul of the business was needed, including a review of marketing and production and more cost cutting.

(Additional reporting by Martinne Geller; Editing by Balazs Koranyi and Greg Mahlich)