adidas-Salomon AG today reported fourth quarter and full year 2001 results for the period ended December 31, 2001.
Best fourth quarter earnings ever
For the fourth quarter of 2001, adidas-Salomon net sales were stable at € 1.4 billion. On a currency-neutral basis, this represents an increase of 5%. Gross margin declined 1.4 percentage points versus the prior year to 41.6%, largely as a result of the weak euro. Q4 operating profit increased 4% to € 55 million for the quarter compared to € 53 million in the same period in 2000. Net income reached € 24 million, or € 0.53 per share, compared to € 5 million or € 0.10 per share in the comparable year-ago period, a nearly fivefold increase and the best fourth quarter earnings ever.
Group net sales in 2001 reach new record level
For the full year of 2001, adidas-Salomon net sales increased 5% to a Group record of € 6.1 billion from € 5.8 billion in 2000, driven by growth in all product categories. Footwear sales posted a 5% gain, with net sales of € 2.7 billion in 2001. Strong improvements in the Forever Sport basketball category and the Originals division were the drivers of this increase. Hardware sales grew 9% to € 1.2 billion, largely driven by higher sales at the TaylorMade-adidas Golf and Salomon brands. Apparel sales increased 2% to € 2.2 billion for the year, led by improvements in technical apparel within the Forever Sport division.
positive sales performance across all brands
Sales performance was positive across all brands for 2001. Net sales at TaylorMade-adidas Golf climbed 24% to € 545 million in the full year versus € 441 million in 2000, benefiting from successful market repositioning of the TaylorMade brand and in particular strong net sales of the 300 Series metalwoods and irons. Net sales at adidas grew 3% to € 4.8 billion for 2001. Salomon net sales, which include Mavic for the first time, increased 2% to € 714 million for the year, despite weakness in Q4 as a result of the difficult travel environment and poor winter conditions.
Strong net sales development in Asia and Europe
Asia was the fastest-growing region for the Group in 2001. Net sales grew 15% in the region to reach a record € 1 billion for the full year versus € 875 million in 2000, with big increases coming from adidas Japan signaling increased momentum associated with this year's World Cup. Higher sales at TaylorMade-adidas Golf were also an important driver of sales growth in the region. In Europe, net sales gained 7% to reach € 3.1 billion compared to € 2.9 billion in 2000, led by double-digit increases in footwear sales. Net sales in North America declined 5% to € 1.8 billion in 2001 versus € 1.9 billion in the prior year. This is in line with Management's expectations and reflects lower adidas net sales as the brand's efforts to target athletic specialty retailers more aggressively led to initial declines in the volume sales channel. Net sales in Latin America increased 4% to € 178 million for the year, led by higher adidas sales in Brazil and Colombia.
Gross margin at high end of target range
The gross margin for the year 2001 was 42.6%, down 0.8 percentage points versus 2000, as a result of increased sourcing costs associated with the weak euro and the highly promotional US retail sales environment. These effects were partly offset by margin gains from the further expansion of adidas own-retail activities and positive contributions from Salomon and TaylorMade-adidas Golf. The Group's gross margin was at the high end of the 41 to 43% range communicated by Management as the ongoing target for the Group.
Strict cost control leads to operating profit improvement
Operating profit increased 9% year-over-year to € 475 million compared to € 437 million last year. Operating expenses year-over-year were reduced 105 basis points to 34.8% of net sales, the first decline in five years. This operating profit improvement reflects strong top-line results, a continued healthy gross margin and strict cost control, and savings in the marketing working budget.
Earnings per share up 15%
In 2001, net income climbed 15% to € 208 million, or € 4.60 per share, from € 182 million, or € 4.01 per share, in 2000.
Herbert Hainer, Chairman and CEO of adidas-Salomon, commented, "In one of the most challenging retail markets in years, we are pleased to have delivered on our targets in 2001. We achieved record-breaking sales, drove growth in all our brands and, most importantly, we grew our earnings by 15%."
Order backlogs up
adidas order backlogs continued to develop positively. At year-end, orders increased 4% over the previous year. In Asia, backlogs climbed 18%, as the region continued to demonstrate growing demand. Backlogs in North America increased 8% or 3% in constant currency. This represents the first time in three years that overall backlogs for the region were positive. Orders fell 2% in Europe at year-end, reflecting a generally more conservative retail purchasing environment. Underlying growth in the region, however, was positive.
Net borrowings reduced by more than € 100 million
Net borrowings were down € 112 million versus the prior year, to € 1.7 billion. This exceeded the Group's debt reduction target of € 100 million and reflects significant progress on working capital management. Inventories at adidas-Salomon were reduced by 2% in 2001. Year-end trade receivables increased 11% compared to the prior year. Shareholders' equity rose 24% to € 1 billion in 2001 versus € 815 million in the prior year.
Dividend level maintained
The adidas-Salomon Executive Board will propose paying a dividend of € 0.92 per share to the Annual General Meeting of Shareholders on May 8, the same amount as in the previous year. This represents a payout ratio of 20% of net income, which is at the top end of the 15 to 20% range recommended by the Company's dividend policy.
Based on current information, adidas-Salomon expects to achieve net sales growth of at least 5% and net income growth in the range of 5 to 10% in 2002. This earnings improvement reflects anticipated costs associated with an increase in marketing around this year's football World Cup, the purchase of the remaining 50% interest in adidas Italy as well as costs related to the further expansion of adidas own-retail activities.
Herbert Hainer continued, "adidas-Salomon is strong and well-positioned for continued growth in 2002. We expect to increase net sales in all regions, in particular with double-digit growth in North America and Asia. Gross margin will remain strong despite challenging market conditions. And we will make strategic, long-term investments in 2002 which are critical to growing our brands globally and positioning the Company for the future."