CDGXY China Dongxiang Group Company Ltd (PK)

Sportswear and equipment maker Adidas AG (ADS.XE) Thursday raised its outlook for 2011 after profit and sales increased in the first half driven by growth in China and European emerging markets.

"High exposure to fast-growing emerging markets, the further expansion of retail as well as continued momentum at all key brands will more than offset the non-recurrence of sales related to the 2010 FIFA World Cup," the company said in a statement.

Adidas, the world's second-largest maker of sports goods by revenue after Nike Inc. (NKE), expects 2011 sales to increase 10% on a currency neutral basis, while net profit is expected in the range of EUR684 million to EUR652 million for the year. Previously it expected sales to increase at a high single-digit rate.

The company expects earnings per share to increase to a level between EUR3.10 and EUR3.12, up from its previous outlook of EUR2.98 to EUR3.12, and a gross margin of 47.5% to 48.0% compared with 47.8% in 2010. Meanwhile, it continues to expect operating margin to rise between 7.5% and 8%.

Still, the company said it expects the positive effects of a strong retail segment and the Reebok brand on the gross margin to be offset by rise in sourcing costs due to higher raw material costs and capacity constraints. Additionally, gross margin will be partly hurt by a decline in sales in Japan after the disaster there during the first quarter.

Net profit for the quarter ended June. 30 rose 11% to EUR140 million from EUR126 million, just shy of the EUR143 million forecast in a Dow Jones Newswires poll.

Sales increased 5% to EUR3.06 billion, missing analysts' expectations of EUR3.08 billion due to currency effects. On a currency-neutral basis, they rose 10%.

Sales in greater China increased 31%, despite fears among domestic retailers that consumer demand is failing to keep up with the fast pace of retail expansion in the country. But international brands appear to be avoiding the fallout so far, with Adidas' U.S. rival Nike last month reporting a 16% rise in fourth-quarter sales from Greater China.

However, recent profit warnings from Chinese labels Li Ning Co. (LNNGY) and Dongxiang Group (CDGXY) sounded a note of caution for the whole market.

Since the start of the year, Adidas shares have dropped around 13% of their value, compared to the Euro STOXX Consumer goods index, which lost about 8% as growing consumer pessimism across Europe hit retail stocks. They closed Wednesday at EUR48.84.

-By Neetha Mahadevan, Dow Jones Newswires; +49 69 2972 5507; neetha.mahadevan@dowjones.com

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