German sportswear and equipment manufacturer Adidas announced its first quarter profit on Monday, exceeding its expectations. The company raised its annual performance target, but warned its Reebok India company's illegal behavior could have an impact on its performance.

Adidas said its net profit rose 38% to 289 million euros in the first quarter, and its growth was mainly benefited from the growth of China and Japan, as well as the selling, cost and tax rate reduction of customized Golf products. The average estimate of analysts surveyed by Dow Jones newswires was US $237 million.

In the first quarter, Adidas's operating profit increased by 39% to 409 million euros. If the exchange rate was fixed, the revenue grew by 14% to 3 billion 800 million euros, and the market was expected to be 3 billion 640 million euros.

Adidas is the second largest sportswear manufacturer in the world, behind Nike. The company has raised its performance target and expects net profit growth of 12% to 17% in 2012, after its expected growth of 10% to 15%. According to the constant exchange rate, the company expects sales to grow by 5% to 9%.

The company's gross profit margin fell for the third consecutive quarter, down from 48.4% in the first quarter of 2011 to 47.7%.

The rise in cotton, rubber and labor costs in China has also led to a decline in profits for Adidas's competitors. Puma said last week that gross margins fell from 52.4% to 51.2% in the first quarter due to rising raw material costs.

　　 Adidas Looking forward to London Olympic Games as well as European Soccer Championship Competition and other events will stimulate sales growth. The company also expects to benefit from fast-growing emerging markets, where rising incomes are stimulating demand for brand products and clothing in emerging markets.

The company also said that the wrongful act of Reebok India would bring 125 million euros of pre tax losses to the company and could lead the company to rereport its performance last year.

In a statement, the company said, "management has assured shareholders that the company has taken measures to protect the interests of the group in the past, now and in the future. The company has appointed a new leader to manage the company in India by the end of March."

Adidas said it would continue to restructure India's performance and change its local business practices, which could result in an extra one-time expenditure of 70 million euros.

Adidas's share price has risen 18% in the past 12 months, while the European Stoxx consumer goods sector rose 0.1% in the same period. The stock closed at 59.82 euros last Friday.