The second-biggest sporting-goods manufacturer – Adidas AG announced today that it plans to launch a €1.5-billion ($1.9 billion) buyback program spanning three years as part of the companys attempt to soothe investor anxiety.
According to the information shared in the companys statement, the three-year buyback plan is planned to start in the fourth quarter of the fiscal year and run through the end of 2017. Adidas said that it will mainly be financed from cash flow. The Germany-based sporting goods maker also intends to issue two euro-denominated bonds that amount to up to €1 billion, its first bond offering in about 5 years. Adidas plans to use the proceeds in order to replace a maturing bond, to fund pensions and also contribute to investors returns.
In addition, one of the companys spokesmen explained that the buyback would not come at the expense of a planned increase in marketing investments and that that the $1.9 billion it plans to return to investors will complement the companys already set dividend policy to pay out 20%-40% of its net income to shareholders.
The companys share price has fallen about 40% since peaking at little over €93 in January after the company announced restructuring and following three downward revisions of financial performance forecasts. The declining stock resulted in a report saying that activist investors are considering to purchase stakes, which adds even more pressure on Adidas Chief Executive Officer Mr. Herbert Hainer.
And while Nike recently reported upbeat sales growth on both sides of the Atlantic, Adidas admitted it was feeling increasing pressure by its US rival on home turf, but also by its smaller rival Under Armour Inc.
“This is just a sop for beleaguered shareholders, but does not solve the operational problems at Adidas. Top management seems to be under enormous pressure,” commented in an interview for Reuters Ingo Speich, a fund manager at Union Investment which is the ninth-biggest investor in Adidas holding a 1.2% stake.
In July, Adidas trimmed its full-year net profit forecast to around €650 million from a previous projection of between €830 to €930 million. This was the third downward revision in less than a year. Additionally, Germany-based Adidas said that downbeat demand in the US for golf products, shrinking sales in Russia and high marketing costs related to the World Cup in Brazil wouldnt allow it to achieve its profit goal for next year.
Adidas AG was up 2.14% to trade at €60.71 per share by 12:02 GMT in Frankfurt, trimming its one year change of -24.78%. The company is valued at €12.40 billion, based on Tuesdays close. According to the Financial Times, the 33 analysts offering 12 month price targets for Adidas AG have a median target of €65.00, with a high estimate of €100.00 and a low estimate of €50.00. The median estimate represents a 9.70% increase from the previous close of €59.25.
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