Cost of Sales Growth Largely in Line with Revenue Increase
Our Group defines cost of sales as the amount we pay to third parties
for expenses associated with producing and delivering our products.
Similarly, although only representing a very small portion of total
cost of sales, own-production expenses at adidas and Reebok as well as
assembling expenses at TaylorMade-adidas Golf are also included in the
Group’s cost of sales. In 2006, cost of sales was € 5.589 billion,
representing an increase of 63% from € 3.439 billion in 2005. This
reflects higher sourcing costs necessitated by the first-time
consolidation of the Reebok business. For the adidas Group excluding
Reebok, cost of sales grew 15% to € 3.943 billion in 2006 from € 3.439
billion in 2005, broadly in line with the strong organic sales growth
during the period. Increasing labor and raw material costs were largely
compensated by efficiency gains within our supply chain as well as
positive impacts from an improved business and product mix.
Gross Margin in %
Gross Profit € in millions
Gross Profit by Quarter € in millions
Group Gross Profit Increases 41%
The Group’s gross margin declined 3.6 percentage points to 44.6% of
sales in 2006 (2005: 48.2%), mainly reflecting the first-time
consolidation of Reebok, which more than offset a positive gross margin
development in the adidas segment. Due to Reebok’s strong presence in
North America, where average gross margins are lower than in other
regions, Reebok carries a significantly lower gross margin than the
Group average. In addition, Reebok’s gross profit in 2006 includes
negative impacts from purchase price allocation in an amount of € 76
million. As a result of the Group’s strong top-line growth, gross
profit rose by 41% in 2006 to reach € 4.495 billion versus € 3.197
billion in the prior year. For the adidas Group excluding Reebok, gross
margin decreased 0.4 percentage points to 47.8% in 2006 (2005: 48.2%),
mainly due to a gross margin decline in the Group’s HQ/Consolidation
segment as a result of the Group’s cooperation agreement with Amer
Sports Corporation, which more than offset the gross margin increase at
adidas. The gross margin of TaylorMade-adidas Golf declined marginally
as a result of the inclusion of the Greg Norman apparel business. Gross
profit for the Group excluding Reebok grew by 13% to € 3.605 billion in
2006 (2005: € 3.197 billion).
Royalty and Commission Income Grows Strongly
Royalty and commission income for the adidas Group increased 94% on a
currency-neutral basis, mainly driven by the first-time consolidation of
the Reebok business. In euro terms, royalty and commission income
increased by 91% to € 90 million in 2006 from € 47 million in the prior
year. Royalty and commission income for the adidas Group excluding
Reebok increased 19% on a currency-neutral basis due to higher royalty
and commission income at brand adidas. An increased number of units
sold as well as higher average royalty rates drove this development. In
euro terms, royalty and commission income for the adidas Group
excluding Reebok grew 18% to € 56 million in 2006 from € 47 million in
2005.
