Earlier we noted the European economic 'recovery' is rolling over rapidly [8], and now - confirmed by Adidas - it seems the impact of weakening JPY and weakenig USD are starting to weigh on European companies:
- *ADIDAS CUTS 2013 NET INCOME FORECAST TO EU820M-850M RANGE (from EU890-920m)
- *ADIDAS CITES FURTHER WEAKENING OF SEVERAL CURRENCIES VS EURO
With EURJPY at four-year highs and EURUSD back at 2013 highs, it seems the reality of currency wars are coming home to Draghi - when's the next ECB meeting?
The full Adidas Press Release:
Following today's Executive Board meeting, Management is updating its full year expectations to account for recent negative market developments. Firstly, the further weakening of several currencies versus the euro throughout August and September such as the Russian rouble, Japanese yen, Brazilian real, Argentine peso, Turkish lira and Australian dollar have intensified the negative currency translation headwinds already highlighted by Management during the course of the year. This is estimated to lead to a high-single-digit percentage point negative translation impact in the third quarter. Secondly, an unexpected short-term distribution constraint as a result of the transition to the adidas Group's new distribution facility in Chekhov, close to Moscow, is impacting the quantity of new product flow to stores. While the problem is expected to be resolved at the beginning of the fourth quarter, this, together with the weakness of the Russian rouble, means that the Group's 2013 goals for Russia/CIS are no longer attainable. Finally, the continued softness in the global golf market and TaylorMade-adidas Golf's focus on maintaining healthy inventory levels in the marketplace will lead to a lower sales and profit contribution from the segment than originally forecasted.
Taking all of these issues into account, Management now expects a low-single-digit currency-neutral sales increase (previously: low- to mid-single digit increase) for the full year, an operating margin of around 8.5% (previously: approaching 9.0%) and net income attributable to shareholders to increase at a mid-single-digit rate to a level of € 820 million to € 850 million (previously: € 890 million to € 920 million). In terms of phasing, a significant portion of the negative impact will be in the third quarter, with Management continuing to expect a strong rebound in sales and profitability growth in the fourth quarter. adidas Group nine months financial results will be released on November 7, 2013.
"Despite the increased headwinds we are facing in the short term, we remain confident and resolute in pursuit of our Route 2015 strategic aspirations," stated Herbert Hainer, adidas Group CEO. "Based on the strong demand for our highlight concepts and innovations in our key categories, the upcoming initiatives for the FIFA World Cup 2014(TM) and positive customer feedback to our spring/summer 2014 collections both at adidas and Reebok, momentum will clearly return to our business in the fourth quarter and beyond."
But for all those waiting on Draghi to do something... we note note that there have been numerous expectations for yet another LTRO out of Europe either in Q4 or Q1. The issue, however, is that the first two LTRO were conceived to push the EUR higher, not lower. Which means that the traditional ECB arsenal may be quite limited to push the currency lower, unless of course the European crisis see another re-flaring, in the process of course crushing all hopes about a European recovery.
Either that, or the ECB "rumor" about a rate cut (into negative territory) is once again on the table.
What profoundly negative impact such a move would have on money markets, and overall liquidity, remains to be seen.