Adidas slightly trimmed its 2013 revenue forecast because of “lackluster” sales in Europe and a wide range of deteriorating currencies against the Euro.

The company now expects group sales to rise by a low to medium single-digit percentage in 2013, compared with previous guidance for a medium single-digit rate. However it said it was sticking to its profit targets and EPS guidance for the year, slightly raising its gross margin projections.

Second-quarter net profit grew 4.1 percent to €172 million ($228.8 mm) due to lower taxes and improved margins. Gross margins advanced 210 basis points to 50.1 percent. Operating profit, however, was down 1.9 percent to €252 million ($335.2 mm).

Revenues slid 3.8 percent to €3.38 billion ($4.4 bn) but were “stable” on a currency-neutral (C-N) basis. Strong gains in Latin America and Greater China helped offset a double-digit decline in Western Europe and a more modest slide in North America.

Analysts had expected quarterly sales to decline by 2 percent to €3.44 billion and operating profit of €261 million.

“Considering the material challenges we faced from currency headwinds, the difficult comparisons related to last year's major sporting events and the continued soft trading environment in Europe, this is a solid result, including many highlights which underpin the strength and potential of our business global,” said Herbert Hainer, Adidas’ CEO, on a conference call with analysts.

Adidas Brand revenues were down 3.9 percent to €2.55 billion ($3.4 bn) and dipped 0.3 percent on C-N basis. Reebok rebounded, showing an increase of 5.7 percent to €355 million ($472.2 mm) and expanding 10.6 percent C-N. In its Other Businesses segment (TaylorMade-Adidas, Rockport, Reebok-CCM Hockey), sales were down 8.7 percent to €502 million ($667.7 mm) and were off 4.5 percent C-N, reflecting a double-digit decline at TaylorMade.

Wholesale revenues for the Adidas and Reebok brand declined 4.7 percent to 2.01 billion and were down 1.0 percent C-N. Sales growth on C-N basis at Adidas Sport Style was more than offset by revenue declines at Reebok and Adidas Sport Performance.

Gross margin for the Wholesale segment was up 2.8 percentage points for the quarter, driven by pricing as well as a more favorable product and regional mix.

Retail Revenues for the Adidas and Reebok brand were up 1.5 percent to €867 million ($1.15 bn) and advanced 5.3 percent C-N. Comparable store sales were down 2 percent for the quarter due to ongoing difficult trading environment in Russia CIS. Beyond Russia CIS, retail gains were described as “robust” during the quarter, with all other regions showing comp store sales increases in Q2.

Adidas Brand comp store sales were down 1 percent in the quarter while Reebok comps decreased 3 percent. E-commerce revenues jumped 79 percent.

Retail gross margin increased 2.5 percentage points to 65.4 percent for the quarter, aided by more favorable pricing and product mix as well as less clearance activities. Eighty-four stores were added during the quarter, leading to an increase in segmental operating expenses as a percentage of sales of 3 percentage points for the quarter. At the end of the quarter, it operated 2,542 stores, including 1,437 Adidas locations, 356 Reebok, and 749 factory outlets.

In the Other Business segment, TaylorMade’s sales dropped 13.2 percent to €348 million ($462.8 mm) and was down 8.4 percent C-N. Sales decreased for TaylorMade in many regions such as Western Europe, other Asian Markets and North America.

Hainer said the golf market has been “considerably weaker” this year due to a late start to the season in many countries. As a result, rounds played around the world have declined on average at a double-digit rate.

“With golfers starting to play later this has had a knock-on impact on trends at retail,” said Hainer. “Right now, this is particularly visible in metalwoods where retail sales are down at a high single-digit rate in the first half. As the dominant market leader in the category with a market share of close to 40 percent, we are unfortunately not immune from this.”

TaylorMade was also going up against growth of 20 percent last year and 16 percent the year before.

Among other brands in the Other Business segment, Rockport revenues were up 3.0 percent to €69 million ($91.8 mm) and gained 6.8 percent C-N. Reebok-CCM Hockey’s sales inched up 0.3 percent to €65 million ($86.4 mm) and added 1.6 percent C-N.

The Other Business segmental quarterly gross margin decreased 1.9 percentage points to 43.4 percent. Lower product margins at TaylorMade-Adidas Golf more than offset higher product margins at Reebok and Reebok-CCM Hockey.

By region, sales in North America were down 3.8 percent to €826 million ($1.1 bn) and gave back 2.0 percent on C-N basis. The drop largely reflects declines at TaylorMade due to the late start to the golf season. Adidas Brand sales were flat in Q2 as strong growth in running and training was offset by declines in basketball, due to strong comparisons against major launches a year ago. At Reebok, sales in North America excluding the NFL impact were up 1 percent. Hainer added on the region, “As we move into the second half of the year, I fully expect trends to improve for both brands, with a strong line-up of new innovations hitting the market in time for the back-to-school and the holiday seasons.”

In Western Europe, revenues slumped 12.1 percent to €812 million ($1.08 bn) and were down 11.2 percent C-N. The decline was mainly due to high prior year comparisons related to the sell-in of event-related products for the UEFA EURO 2012 and the London 2012 Olympic Games as well as the ongoing macroeconomic challenges in the region.

France, Poland and the Nordics were described as “bright spots,” but sales were down in most other major markets, including strong double-digit drops in the UK, Spain and Italy. The London 2012 Olympic Games accounted for approximately 3 percentage points of the decline.

Hainer expects Western Europe will ”turn the corner” in the second half. He noted that second-quarter retail comps for the company there were up 2 percent in the period after sliding 4 percent in the first quarter. Added Hainer, “Discussions with our wholesale partners have also moved into more constructive territory as excitement builds ahead of the 2014 FIFA World Cup and the strong reception to our latest products in Running and Originals as well as at Reebok.”

In European Emerging Markets, sales fell 4.1 percent to €467 million ($621.1 mm) and eased 0.3 percent C-N. Growth in most of the region’s markets was offset by double-digit declines in the Ukraine. Hainer said Russia and the CIS regions have been hurt by rampant retail space expansion and a slowdown in consumer spending but Adidas is still seeing “strong margin development in this already highly profitable market.” Positive comps are expected to return in the second half.

In Greater China, revenues grew 7.0 percent to €371 million and added 6.4 percent C-N, with continued momentum across all channels. Comparable store sales were up 11 percent. Hainer pointed to a recent survey by Millward Brown of more than 60,000 consumers in China in which Adidas ranked the highest of all clothing and footwear brands in the top 20 most powerful international brands. Stated Hainer, “This is leading to significant market share gains as we once again close in on market leadership in the region.”

In Other Asian Markets, sales were down 6.6 percent to €531 million ($706.2 mm) but increased 6.6 percent on C-N basis, led by strong growth in South Korea, India and Australia.

The strongest gains came in Latin America, up 13.4 percent to €376 million ($493.4 mm) and ahead 21.2 percent on C-N basis, with strong growth in all key markets.

Calling out some highlights for each brand, Hainer said Adidas Brand running sales grew 16 percent in Q2 on the strength of the ongoing Boost launch and continued strong performances in other key running franchises, such as Supernova, Response and ClimaCool.

Adidas Outdoor sales ran up 25 percent. Hainer said award-winning innovation is continuing to “drive our position up the league table of the leading outdoor brands in the world.”

Adidas Originals continued its momentum, with sales increasing 8 percent driven by strong growth in the emerging markets and high demand for its action sport styles, where sales almost doubled. Adidas Sport Style sales increased 9 percent driven by strong growth of 12 percent at the NEO label.

Regarding Reebok, Fitness Training and Classics increased 13 percent and 21 percent respectively in the quarter, with “solid growth” in both footwear and apparel.

Hainer said the 10.6 percent C-N gain in the quarter means sales were down only 4 percent in the first half. Excluding the NFL impact, sales were up 1 percent in the first six months. The brand's gross margin again improved significantly, expanding 4.1 percentage points to 39.4 percent in the first half, the highest first half gross margin the company has achieved since acquiring Reebok in 2006.

“Although we still have some considerable work to do to turn all markets around, I am confident Reebok will show currency-neutral sales growth for the full year,” said Hainer. “And key to this success is the strong product foundation and the close connection we are creating with the fitness consumer as we gain credibility by building on our existing partnerships, such as with CrossFit, and through new associations with exciting grass roots events like the Spartan Race or The Color Run.”

He believes that as a result of actions taken over the last 18 months, Reebok is “delivering a more consistent brand look and feel to our key target consumers.”

The 180 basis point improvement in gross margin in Q2 reflected more favorable pricing, product and regional sales mix as well as a larger share of higher-margin Retail sales, which more than offset the negative effect of a less favorable hedging rate. Other operating expenses as a percentage of sales increased 1.9 percentage points to 44.3 percent compared to 42.4 percent the prior year.

Regarding the updated outlook, growth in the low- to mid-single-digit rate on a C-N basis. Euro’s strengthening against many other currencies will have a 5 to 6 percentage point impact. Sales gains are set to improve in the remaining quarters of 2013, with the fourth quarter expected to be stronger than normal.

For the Adidas Brand, growth is expected to be driven in the back half by the launch of Springblade and expansion of Boost in running as well as revival of momentum in basketball around programs for its endorsers such as Derrick Rose. Football (soccer) is also expected to see strong gains and Adidas will be revealing its activation efforts for the 2014 FIFA World Cup. A miCoach Smart Ball is also being introduced.

At Reebok, the pace of new product introductions is being accelerated for back-to school, including the Reebok One Series performance footwear and apparel collections, the ATV 19+ versatile running shoe, and strong updates in Classics, particularly the franchise five and the retro basketball. Reebok’s Shaq product “has been flying off the shelves,” Hainer said.

On the engagement side, the ReebokONE platform already has over 5,200 members, and Reebok just entered a new partnership with the largest provider of group exercise programming in the world, Les Mills, to support its yoga and dance franchises. Reebok’s first Fit Hub store in London will open Sept. 12.

TaylorMade is expected to get a boost by the launch at the end of July of SLDR, already the number one driver on tour; as well as the extension of the adiZero and adicross platforms into footwear.

Gross margins are expected to increase to a level between 48.5 percent and 49.0 percent this year, up from between 48.0 percent and 48.5 percent forecasted previously, and up from 47.7 percent in 2012. Due to the faster pace of new store openings, operating expenses as a percentage of sales are projected to increase compared to its previous guidance of a modest decline.

Due to the strong gross margin development, its operating margin target of approaching 9.0 percent for the full year remains unchanged. Net income attributable to shareholders is also still expected to increase at a rate between 12 percent and 16 percent.