Herzogenaurach, November 7, 2002 - Third quarter net sales for adidas-Salomon grew 4% from € 1.8 billion in 2001 to € 1.9 billion in 2002. On a currency-neutral basis, third quarter revenues grew 10%. As a result, Group sales increased 6% (+9% currency-neutral) from € 4.7 billion in the first nine months of 2001 to € 5.0 billion in 2002. This increase was in line with the Group's full year sales growth target of at least 5%.
Herbert Hainer, Chairman and CEO of adidas-Salomon, commenting on the sales development: "adidas-Salomon is in a better position than ever before. Our achievements in the first nine months of the year go to show how well our organization is tuned to keep on delivering, even in challenging times."
All product segments develop positively
Footwear sales were the primary growth driver, with sales up 7% year-over-year for the Group from € 2.1 billion in the first nine months of 2001 to € 2.3 billion during the same period in 2002. A 46% increase in basketball sales as well as healthy growth in the football and running categories were the main contributors to this development. Apparel sales grew 4% from € 1.7 billion in the first nine months of 2001 to € 1.8 billion in the same period in 2002, with particularly strong growth coming from the football category where sales grew 45%. Hardware revenues grew 11% from € 852 million to € 942 million, fueled by the success of TaylorMade’s R500 Series drivers and new sales from the Maxfli and Slazenger Golf brands as well as Football World Cup products
adidas sales continue to exceed expectations
In the first nine months adidas sales increased 6% (+ 9% currency-neutral) from € 3.8 billion in 2001 to € 4.1 billion in 2002. At TaylorMade-adidas Golf, sales in the first nine months of 2002 reached € 516 million, representing an increase of 18% from € 438 million in the prior year. The first-time inclusion of Maxfli and Slazenger Golf sales contributed € 76 million to the positive development during the first nine months of 2002. Salomon sales for the first nine months of 2002 declined 1% versus the prior year from € 427 million in 2001 to € 424 million in 2002.
Regional growth led by Asia, sales growth in North America continues
In the first nine months of 2002, Asia sales grew 21% to € 841 million versus € 693 million in 2001. In North America, Group sales increased 4% from € 1.4 billion in 2001 to € 1.5 billion in 2002. On a currency-neutral basis, this increase was 8%. In Europe, sales increased 4% to reach € 2.5 billion versus € 2.4 billion in the same period of 2001. In Latin America, Group sales declined 7% from € 129 million in the first nine months of 2001 to € 120 million in 2002. Currency-neutral sales grew by 27%.
Exciting product line-up drives best adidas order backlogs in four years
At the end of September, underlying order backlog growth was 16%, representing the strongest development in four years. The main contributor to backlog growth was North America, where backlogs increased 22% on a currency-neutral basis (+13% in euro). The major driver of this development was the 25% currency-neutral increase in footwear orders (+16% in euro). Apparel backlogs also showed a strong improvement with orders up 17% on a currency-neutral basis (+8% in euro). In Europe, orders were up 13% on a currency-neutral basis (+12% in euro) supported by strong growth in footwear, which increased 23% currency-neutral (+22% in euro). Apparel backlogs grew 1% in euro and in constant currency, despite ongoing market difficulties. In Asia, total backlogs grew 15% on a currency-neutral basis (+7% in euro). Footwear backlogs increased 24% in constant currency (+14% in euro). Apparel backlogs rose 9% on a currency-neutral basis (+1% in euro).
Herbert Hainer stated: "These backlogs prove our ability to drive ongoing sales growth. They also prove that we have managed to revitalize the adidas brand with cutting-edge technology and design innovation."
Gross margin further strengthened
In the third quarter of 2002, the Group's gross margin improved 1.8 percentage points from 42.0% to 43.8%. Gross margin improvements came from brand adidas as a result of increased own-retail activities as well as a lower level of clearance sales and better clearance margins. TaylorMade-adidas Golf also delivered improvements fueled by the strong introduction of the high-margin R500 Series drivers. As a result, the Group’s gross margin in the first nine months of 2002 increased 0.6 percentage points from the prior year's 42.8% to 43.4%.
10% increase in Q3 operating profit
Operating expenses as a percent of sales in the third quarter were 30.8%. This represents an increase of 1.1 percentage points versus the same period of 2001. On a year-to-date basis, Group expenses also increased. This reflects spending for key strategic initiatives, including marketing expenses for the 2002 FIFA World CupTM, expansion of adidas own-retail activities and start-up activities associated with the purchase of the remaining shares of adidas Italy. Operating expenses as a percent of sales for the first nine months therefore increased 1.3 percentage points on a year-over-year basis to reach 35.2% in line with expectations. As a result of the positive top-line development and strong gross margin, operating profit increased 10% in the third quarter to € 243 million versus € 222 million in 2001. Operating profit for the first nine months of 2002 declined by 2% to € 410 million compared to € 420 million for the same period in the previous year. This development is in line with Group expectations and reflects the higher operating expenses as a percent of sales resulting from the strategic initiatives mentioned above.
Financial expenses and minorities decrease in the first nine months of 2002
Financial expenses decreased 22% from € 30 million in the third quarter of 2001 to € 23 million in 2002. Year-to-date financial expenses were € 69 million, representing a decrease of 22% versus € 89 million in the same period in the previous year. This was due to lower interest expenses which were driven by both lower average interest rates and the lower average debt level. Income before taxes was € 341 million, up 3% compared to € 330 million in the same period in 2001. Net income development was supported by a decrease in the tax burden due to a favorable earnings mix. The effective tax rate improved by 0.8 percentage points to 38.2% in the first nine months of 2002 compared to 39.0% in the same period in 2001. Minority interests decreased 33% in the first nine months from € 17 million in 2001 to € 11 million in 2002, largely as a result of the acquisition of the remaining shares of adidas Italy.
Q3 EPS increases 15%
Net income for the third quarter increased 15% from € 114 million in 2001 to € 131 million in 2002, taking earnings per share to € 2.89 for the third quarter of 2002 compared to € 2.51 in 2001. As a result, net income for the first nine months of 2002 increased in line with expectations by 8% from € 184 million in the same period in 2001 to € 199 million in 2002. Basic and diluted earnings per share were € 4.40 versus € 4.07 in the first nine months of 2001.
Herbert Hainer continued: "It is not easy in today's market uncertainty, but we are strong enough and flexible enough to deliver excellent results despite these challenges. I expect to see continued earnings growth for the remainder of the year. And, I believe adidas-Salomon is well prepared to take this momentum into 2003."
Debt reduction of € 114 million
At the end of September, inventories for the Group were reduced by 4% versus the previous year. Receivables increased 4%, which was in line with sales growth for the period. As a result, net debt for the Group decreased 6% or € 114 million from € 2.0 billion at the end of September 2001 to € 1.8 billion in 2002.
Group sales and earnings on track
adidas-Salomon remains confident regarding its 2002 top-line growth target of at least 5%. adidas order backlogs as well as retailer feedback for TaylorMade-adidas Golf indicate that sales will continue to develop positively in the fourth quarter. The development of net income in the first nine months of 2002 strongly confirms the Group's full year earnings growth target of 5 to 10%.