Adidas AG had been expected to deliver a weak first quarter because of a different phasing of World Cup-related shipments compared with previous years. But results came in slightly worse than many expected, partly due to sharp drop in revenue in North America.

Earnings decreased 33.8 percent from the prior year, to €204 million ($280.5 mm), below Wall Street’s consensus target of €218.8 million. Revenues were down 5.8 percent to €3.5 billion ($4.81 bn), also short of the Street’s view of €3.1 billion.

Operating profit dropped 31.4 percent to €303 million ($416.6 mm). Of the operating decline, €80 million ($110 mm) was due to a poor quarter at TaylorMade due to a change in shipping cycles and a declining U.S. golfing market. Another €50 million ($69 mm) came from currency changes and less favorable hedging rates.

Based on expectations that the World Cup in Brazil later this summer will foster growth in the second half, Adidas stuck to its full-year guidance.

Hainer said the challenges around currencies and TaylorMade Golf “mask some very encouraging underlying developments” across business units. These include robust momentum in emerging markets, with European Emerging Markets, Latin America and Greater China growing 28 percent, 19 percent and 5 percent, respectively. Its own retail network was also strong, with comps ahead 8 percent. Adidas delivered double-digit growth rates football in Western Europe, which Nike has been gaining traction. Reebok generated its fourth consecutive quarter of growth, and Adidas Brand globally grew 5 percent, with growth in every region except the Americas.

Unfortunately, North America, its second largest market after Western Europe, suffered a 19.9 percent drop in sales on a currency-neutral (c-n) basis, mainly due to double- digit sales declines in the USA. In the fourth quarter, sales on a c-n basis had jumped 14.2 percent. On a euro basis, reported sales in the latest quarter were down 23.6 percent to €680 million ($935 mm).

Hainer said TaylorMade-Adidas Golf accounted for more than half of the sales decline in the North America region.

Globally, TaylorMade’s revenues tumbled 34.5 percent, partly due to “continuing challenges in the underlying golf market,” with rounds down a further 5 percent in the US in the first quarter amid wintry weather conditions. But the decline particularly reflected the company's decision to change the timing of key shipments and new product launches, which are designed to drive higher margins and reduce inventory risk by shipping closer to key selling periods.

Still, Adidas and Reebok both saw a “slow start to the year,” in North America, declining 13 percent and 8 percent, respectively. For Adidas, Originals “missed some fashion trends in the market over the past twelve months.” Basketball footwear sales also declined due to the comparison with the ramp-up for the Derrick Rose return in the prior year. Reebok saw drops in its running product in the wholesale-channel, although Hainer stressed that all of Reebok’s other fitness-related products as well as Classics “are doing extremely well.”

He pointed to the retail gain of 13 percent in the region in the period as “clearly showing the strong consumer desire and conversion of our brands when they are presented in the right way.” As such, the challenges at wholesale he attributed largely to execution issues.

“My Board colleagues and I definitely are not happy with our performance in North America, but let me assure you of one thing – we are fully committed to driving long-term success for the Group in this market,” said Hainer. “When it comes to our brand positioning, we are convinced that we are focusing on the right areas. Nonetheless, our biggest obstacle has been and still is the quality of our execution, particularly in the wholesale channel.”

Those challenges were cited as the reason the company recently moved to a joint operating model for Adidas and Reebok and also appointed Mark King, “who has been responsible for taking TaylorMade – Adidas Golf to the top of the golf industry,” as president of Adidas Group North America, effective June 1. King will be replacing Patrik Nilsson, who was originally said to have left the company for personal reasons with a return to his home country Sweden to become CEO of fashion brand Gant.

Also as part of the organizational changes, Roland Auschel, member of the executive board of Adidas AG and responsible for global sales, took responsibility for the region at the board level from Hainer. Eric Liedtke, currently SVP Adidas Sport Performance and recently appointed to Adidas’ board, is also involved in building the “next strategic plan” for North America.

Said Hainer, “While this team will focus their attention on building a more robust Group executional strategy for the market in the long term, in the short term, we already see improving trends for both brands in North America, and I expect Adidas and Reebok to reverse the negative trend from the first quarter and to grow in North America for the full year.”

In other regions, revenues in Western Europe remained stable on c-n terms, as double-digit increases in Germany and Poland were offset by sales declines in Italy and the UK. Reported sales were also flat at €1.1 billion ($1.51 bn).

In European Emerging Markets, the 28-percent c-n gain was tied to double-digit sales increases in nearly all markets. Reported revenues grew 10.2 percent to €477 million (655.9 mm).

In Greater China, sales increased 5 percent on a c-n basis and gained 2.4 percent on a reported basis to €419 million ($576.1 mm).

C-n revenues in Other Asian Markets remained stable, as sales increases in India and South Korea were offset by declines in Japan and Australia. Reported revenues were down 9.6 percent to €482 million ($662.8 mm).

In Latin America, a 19 percent c-n gain was due to double-digit increases in nearly all markets, in particular Argentina, Brazil, Mexico and Colombia. In euro terms, sales were down 3.1 percent to €377 million ($518.4 mm).

Wholesale revenues for Adidas Brand and Reebok increased 1 percent on a c-n basis due to growth at Adidas Brand. The gains were mainly due to growth at Adidas Sport Performance, led by the football, training and running categories. Revenues at Adidas Originals & Sport Style were below the prior year level, as growth at Adidas NEO was more than offset by sales declines at Adidas Originals. Sales at Reebok 10 declined, as growth in fitness, training and Classics was more than offset by declines in other categories. Reported Wholesale sales were down 10.0 percent to €794 million ($1.09 bn).

Gross margin for the Wholesale segment was down 50 basis points to 43.8 percent as the positive effect from a more favorable pricing mix was more than offset by negative currency effects following the devaluation of currencies such as the Argentine peso and Brazilian real. Wholesales operating profits was down 6.1 percent to €838 million ($1.15 bn) as the gross margin decrease was only partly offset by reduced segmental operating expenses as a percent of sales.

In its Retail segment for Adidas Brand and Reebok, revenues increased 21.6 percent as a result of double-digit growth at both Adidas and Reebok. Comparable store sales accelerated significantly with the 8 percent comp gain coming from growth across all regions and all store types. Double-digit comp increases were seen in European Emerging Markets, Greater China and Latin America. By brand, comps grew 9 percent at Adidas and 4 percent at Reebok. E-commerce continued to grow at strong double-digit rates, with sales up 72 percent. Reported Retail sales were down 5.0 percent to €2.36 billion ($3.2 bn).

Retail gross margin decreased 80 basis points to 59.9 percent as a more favorable product mix more than offset by a less favorable pricing and regional sales mix. In particular, the devaluation of the Russian ruble versus the euro and the US dollar negatively impacted the segmental gross margin by 90 basis points. Segmental operating expenses as a percentage of sales remained stable at 46.8 percent. Retail segment operating income was up 3.7 percent to €105 million ($138.6 mm).

Revenues in Other Businesses were down 26.7 percent on a c-n basis, due to a 34.5 percent sales decline at TaylorMade-Adidas Golf. Reported Other Business sales were down 30.2 percent to €382 million ($525.3 mm). C-n revenues at Rockport also decreased 6.9 percent, while sales at Reebok-CCM Hockey grew 12.7 percent on c-n basis versus the prior year.

On a reported basis, sales of TaylorMade was down 37.7 percent to €264 million ($363 mm) and Rockport was down 12.1 percent to €53 million ($72.0 mm) while Reebok-CCM gained 5.1 percent to €32 million ($44 mm).

The segmental gross margin decreased 5.5 percentage points to 39.0 percent, as a result of lower product margins at TaylorMade-Adidas Golf due to a lower volume of new product, which more than offset higher product margins at Rockport and Reebok-CCM Hockey. Other Business operating income was down 56.5 percent to €75 million ($103 mm).

On a currency-neutral basis, Adidas brand revenues rose 5.4 percent globally, with every region growing except for North America. Reported revenues dipped 1.1 percent to €2.83 billion ($3.9 bn).

Hainer said football category sales for the Adidas Brand were up 27 percent with “impressive double-digit growth rates in Western Europe, Latin America, Russia/CIS and North America.” The gains were driven by a number of well-received launches, including its Earth and Carnival footwear packs, the Samba Primeknit knitted boot, the Primeknit FS boot and sock hybrid, the adizero f50 Messi 371 boot, and the adizero f50 crazylight.

The running category business for the Adidas Brand was up 7 percent, driven by strong double-digit growth in Western Europe, Emerging Markets and Japan. One million pairs of running shoes featuring its Boost technology were shipped in the quarter, with momentum expected to continue. Training grew 8 percent and apparel is expected to see a “new period of sustained growth.” Early successes the ClimaChill, with a digital marketing campaign around David Beckham already seeing 4.6 million views on YouTube.

In lifestyle, while “softer trends” for Originals are being seen in North America and Western Europe, its Originals & Sport Style business grew 3 percent overall with double-digit growth in all of its emerging market. Hainer said launches such as the Originals ZX Flux “are enjoying encouraging early signs from Western Europe with sell-throughs clearly outpacing our major competitor at Foot Locker Europe.” Originals is also seeing a strong response to its new collaborations with TopShop and Farm as well as record conversion from the Stan Smith re-launch. Added Hainer, “We have an array of hotly anticipated initiatives in the pipeline, be it Kanye West or Pharrell Williams , amongst others , to bring momentum back to the category.”

The Adidas NEO label continued its momentum, increasing 24 percent in the quarter with double-digit growth in all regions. Said Hainer, “Our Selena Gomez collaboration took on a whole new dynamic in its second year, with over five hundred thousand conversations on Twitter in the first two days after the collection launch.”

Reebok recorded its fourth consecutive quarter of growth for the brand, with sales increasing 3 percent. Said Hainer, “More importantly y, we also achieved a 5 further solid gross margin increase of 50 basis points to 39.6 percent, despite the currency headwinds we faced throughout the Group.”

Reported revenues were off 5.3 percent to €358 million ($492.4 mm).

He said Reebok continues to benefit from its increasing loyalty to the “fit generation,” helped by grassroots engagement through collaborations with CrossFit, Spartan Race and Les Mills. Future promising launches include ZQuick for running and training, the All Terrain series for obstacle racing and the Skyscape shoe, a walking shoe for women. Reebok fitness-specific apparel grew 14 percent in the period.

Said Hainer, “We also continue to see nice momentum in Classics, where sales increased 19 percent in the quarter , with strong demand for retro basketball products as well as the GL 6000 series.”

Companywide, gross margin of the Adidas Group decreased 1.0 percentage points to 49.1 percent mainly due to less favorable hedging rates, lower margins at TaylorMade-Adidas Golf resulting from strategic changes in the product and launch cycles, negative effects resulting from foreign currency devaluation as well as higher input costs. Currency devaluation effects were mainly related to Russia/CIS, where sales and gross profit were negatively impacted by the significant devaluation of the Russian ruble against the euro and the US dollar.

In euro terms, other operating expenses increased 1.7 percent to €1.51 billion ($2.08 bn) as a result of higher expenditure related to the expansion of the Group’s own-retail activities as well as an increase in sales working budget expenditure.

Looking ahead, Hainer confirmed its full year guidance provide in March “with only some minor changes.” The weak start to the golf market in 2014 is likely to mean that TaylorMade’s sales will be moderately below the prior year level on a c-n basis. However, this will be offset by own retail, which is now expected to be at the upper end of the c-n range of high-single digit to low double-digit growth initially expected for the year.

“While we still have to be wary of currencies and their effects on our financials, the first quarter will be the low point of our performance,” said Haier. “I expect a strong second quarter to point the way forward.”

He said Adidas will have “our largest football offensive ever” heading into the World Cup, which is sponsors. He added, “The energy and intensity of our campaign and product concepts will be a clear statement and sign of things to come from our Group as we drive towards the realization of our strategic goals and our 2014 financial guidance.”

Boost will reach more than 9 million pairs as it spreads across categories, including basketball. New Originals initiatives will help Adidas “reclaim growth and stamp our authority as the most desired and authentic streetwear label in the world of sport,” Hainer said.

Reebok is seeing “growing momentum” in North America but also gaining positive feedback from positive Spring/Summer 2015 line reviews from its international accounts. Hainer added, “While up to now Reebok’s successes have been driven mainly from controlled space related markets and channels, I firmly believe this will be a turning point to unlocking the wholesale potential of the brand.”

Adidas Group sales are still forecasted to increase at a high-single-digit rate on a c-n basis in 2014. Revenues are expected to gain a boost from the upcoming World Cup, with Adidas the Official Partner of the 2014 FIFA World Cup in Brazil. Group sales development will also be favorably impacted by the Group’s high exposure to fast-growing emerging markets as well as the further expansion of Retail. Currency translation is expected to have a significant negative impact on the Group’s top-line development in euro terms.

Net income attributable to shareholders continues to be expected to be at a level between €830 million and €930 million compared to the 2013 net income attributable to shareholders, excluding goodwill impairment losses, of €839 million. This represents basic earnings per share of between €3.97 and €4.45.