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adidas-Salomon in the first quarter

Sales up strongly +++ Pre-tax results at previous year's level +++ Net income down +++ Results in line with expectations +++ Outlook unchanged

Group sales up 9 per cent, strongest growth in Salomon and Taylor Made adidas-Salomon net sales in the first quarter of 2000 increased by 9 per cent to Euro 1.5 billion (DM 3.0 billion), growing at a stronger rate than last year. However, the increase was substantially due to currency effects. If exchange rates had remained at the prior year's level, the net sales increase would have been 1 per cent. Growth was recorded in all three product divisions. As a result of the above-average sales performance of the Salomon and Taylor Made products, Hardware sales showed the strongest growth, increasing by 39 per cent. Footwear sales were up 7 per cent, while Apparel grew 2 per cent despite an unfavourable market environment.

All brands grew sales

Sales under the adidas brand in the first quarter of 2000 totalled Euro 1.3 billion (DM 2.5 billion). This represents an increase of 4 per cent year-over-year. In light of the weakness shown in 1999, the development of Apparel sales was pleasing, growing again by 2 per cent. Footwear sales increased by 6 per cent, due to above-average growth in the Basketball, Soccer, Adventure and Alternative Sports categories. Sales under the Salomon brand reached Euro 98 million (DM 191 million), increasing by 22 per cent and thereby sustaining the strong growth phase. Sales in winter products remained strong, finishing a very successful season 1999/2000. Growth was also fuelled likewise by summer products, in particular Hiking/Outdoor Footwear. Taylor Made adidas Golf grew sales by 58 per cent to Euro 125 million (DM 245 million). These figures show that the new SuperSteel products have been well accepted and the stepped-up sales efforts are showing initial results.

Continued strong growth in Asia, increasing growth in Europe, at previous year's level in North America

In terms of regional performance, Asia continued to deliver the highest growth rates, at 37 per cent. In Europe, sales grew 8 per cent, underlining the trend of increasing growth rates registered in the preceding quarters, while in North America net sales virtually remained at the previous year's level.

Strong US Dollar depressed gross margin

The gross margin in the first quarter - as already forecast - could not be maintained at the previous year's high level. 42.0 per cent represents a deterioration of 0.7 percentage points but is still within the bounds of the expected range. The negative impacts of a strong US Dollar for the Group as a whole could only partly be offset by a changed product mix and a lower rate of clearance sales.

Currency effects plus cost of growth and efficiency program increased operating expenses

Operating expenses in the first quarter were up 11 per cent year-over-year, again being significantly impacted by currency effects. If exchange rates had remained unchanged, operating expenses would have shown an increase of only 3 per cent, which is largely due to the additional expenses in the framework of the growth and efficiency program. Operating profit at Euro 115 million (DM 224 million) declined 7 per cent compared to the previous year.

Income before taxes at previous year's level, decrease in net income in line with expectations

Income before taxes reached Euro 101 million (DM 197 million), maintaining the previous year's level (up 0.7 per cent) despite the decline in the operating profit. The financial result, in particular currency translation effects, and the royalty and commission income showed a year-over-year improvement. An increased tax rate and higher minority interests drove net income for the first quarter down by 13 per cent to Euro 53 million (DM 103 million). This meant that earnings per share reached Euro 1.16 (DM 2.27).

Order situation remained positive

The order books for the adidas brand continued to show moderate growth. At the end of March, orders were around 1 per cent above the previous year's level. Orders grew by 22 per cent in Asia and 8 per cent in Europe. North America in contrast recorded a decrease of 13 per cent. However, orders for Footwear increased by 2 per cent. Order development for the Salomon, Taylor Made and Mavic brands was positive overall.

Outlook

The results recorded for the first quarter of 2000 have not changed the outlook for the full year. adidas-Salomon continues to expect that consolidated sales in 2000 will increase only moderately by about 2 per cent, although the continued strength of the US Dollar may make this forecast appear conservative. In order to get back onto a steeper growth track again in the future, adidas-Salomon in January of this year decided to initiate a growth and efficiency program. This includes the following measures:

  • Reorganize management structures in order to create clear and simple structures, allowing more transparent responsibilities and faster decision-making.
  • Increase the flexibility, speed and cost efficiency of the global sourcing organization.
  • Improve presence on the internet and accelerate development of e-commerce.
  • Streamline the product range, with the aim to reduce complexity and revitalize the market with innovative products,
  • Expand significantly the sales and marketing activities of the Taylor Made and Salomon brands, in order to create the conditions for increasing success in the marketplace.

 

These measures are expected to cost DM 75 million or Euro 38 million in the year 2000. As, in addition, it has to be anticipated that the tax rate for the year will be above 40 per cent, net income in 2000 will be approximately 20 per cent below the level of 1999 - as previously stated. 2000 is a year of consolidation. But with the measures contained in the growth and efficiency program adidas-Salomon is committed to grow earnings by 15 per cent annually in the years 2001 to 2003.