Home / Media / Press Releases
Media

adidas-Salomon in the first nine months of 2003: Group earnings up 17%; Currency-neutral sales grow 7%

November 05, 2003
  • Sales driven by solid underlying growth in Europe, Asia and Latin America
  • Gross margin increases 0.7 percentage points to 44.1%
  • Operating margin up 0.9 percentage points to 9.1%
  • Group full year sales and earnings growth targets confirmed

adidas-Salomon currency-neutral sales up 7% for the first nine months

Currency-neutral sales for the Group in the third quarter grew 6%. On a reported basis, however, at € 1.9 billion, third quarter sales were slightly lower than the level achieved in 2002. During the first nine months, sales increased 7% on a currency-neutral basis. This represents a decline of 2% in reported terms from € 5.0 billion in 2002 to € 4.9 billion in 2003.

Herbert Hainer, Chairman and CEO of adidas-Salomon, stated: "We've faced a number of economic, political and market challenges in the first nine months of 2003, and overall have delivered excellent sales and earnings performances. Regionally, Europe and Asia have done particularly well and we are quickly moving to refocus our efforts in North America. adidas-Salomon is an organization with flexibility, imagination and tenacity - exactly the types of skills that it takes to win in our industry today."

TaylorMade-adidas Golf the fastest growing segment in the first nine months

Revenues at TaylorMade-adidas Golf in the first nine months increased 9% on a currency-neutral basis. This represents a decline of 6% in reported terms, from € 516 million in 2002 to € 487 million in 2003. Excluding the € 21 million sales for Slazenger Golf in the first nine months of 2002 from a licensing arrangement that was not renewed in 2003, sales for TaylorMade-adidas Golf increased 14% in currency-neutral terms (-2% in euro terms), making TaylorMade-adidas Golf the Group’s fastest growing segment. The underlying sales increase is attributable to growth in RAC irons as well as in adidas Golf footwear and apparel. At brand adidas, sales increased 8% on a currency-neutral basis in the first nine months. In reported terms, this represents a decline of 1% from € 4.1 billion in 2002 to € 4.0 billion in 2003. Drivers of this development were solid underlying growth in the Sport Performance running and training categories as well as in the Sport Heritage division. Salomon sales in the first nine months were down 2% on a currency-neutral basis. This represents a decline of 8% in reported terms from € 424 million to € 390 million. Solid growth in cycling components and soft goods was offset by lower sales in the alpine, snowboard and inline skate categories due to difficult retail conditions.

Scroll

 

1st nine months 2002

1st nine months 2003

Change y-o-y

 in euro terms

Change y-o-y

currency-neutral

 

€ in millions

€ in millions

in %

in %

adidas

4,050

4,017

(1)

8

Salomon

424

390

(8)

(2)

TaylorMade-adidas Golf

516

487

(6)

9

Total

5,012

4,913

(2)

7

adidas-Salomon sales by brand in the first nine months of 2003, “Total” includes HQ/Consolidation

 

Currency-neutral sales in Europe grow 8%

Sales for adidas-Salomon in Europe increased 8% on a currency-neutral basis in the first nine months of 2003. In reported terms, this represents an increase of 5% from € 2.5 billion in 2002 to € 2.7 billion in 2003. The main drivers of this underlying increase were particularly strong developments in Italy, France and the UK as well as in the emerging markets. Group sales in Asia increased 10% on a currency-neutral basis in the first nine months of 2003. In reported terms, this represents a decrease of 3% to € 817 million (2002: € 841 million). Underlying growth was driven by vigorous increases in China, Japan and South Korea. In North America, sales for the Group in the first nine months of 2003 were stable in currency-neutral terms compared to the prior year’s level. In reported terms, sales declined 16% to € 1.2 billion versus € 1.5 billion in the prior year. This reflects a weakness in demand for certain adidas product lines and the difficult market conditions there. In Latin America, sales were up 37% in the first nine months of 2003 on a currency-neutral basis, making it the fastest growing region within the Group. This represents an increase of 8% in reported terms to € 130 million compared to € 120 million in 2002. Higher sales in Argentina and Brazil were the main drivers of this improvement.

Scroll

 

 

1st nine months 2002

1st nine months 2003

Change y-o-y

in euro terms

Change y-o-y
currency-neutral

 

€ in millions

€ in millions

in %

in %

Europe

2,541

2,677

5

8

North America

1,483

1,249

(16)

0

Asia

841

817

(3)

10

Latin America

120

130

8

37

Total

5,012

4,913

(2)

7

adidas-Salomon sales by region in the first nine months of 2003, “Total” includes HQ/Consolidation

 


adidas order backlog reflects mixed regional development

Order backlog for brand adidas declined 2% on a currency-neutral basis (-8% in euro) at the end of the third quarter of 2003. This development reflects tough comparisons with the prior year and continued weakness in North America. Footwear backlogs declined 10% in currency-neutral terms ( 16% in euro) driven by significantly lower orders in North America. Apparel orders increased 6% in currency-neutral terms, highlighting the brand’s activities to grow sales in this product category. In reported terms, orders were stable compared to the prior year’s levels. In Europe, orders increased 7% on a currency-neutral basis (+4% in euro) supported by strong growth in apparel, where backlogs were up 13% (+9% in euro). Footwear backlogs were up 1% currency-neutral (-2% in euro). In Asia, currency-neutral backlogs grew 11% (+2% in euro), with strong improvements coming from Japan and China. Footwear backlogs declined 1% currency-neutral (-8% in euro). On a currency-neutral basis, apparel orders increased 22% (+13% in euro). In North America, order backlogs were down 23% on a currency-neutral basis, which is in line with the guidance adidas-Salomon provided for the market at the Investor Day on September 30. This represents a decline of 35% in reported terms. Currency-neutral footwear backlogs declined 29% (-40% in euro). Currency-neutral apparel orders decreased 16% (-28% in euro).

 

 

Scroll

 

Footwear

Apparel

Total

Change y-o-y

in %

in euro

currency-neutral

in euro

currency-neutral

in euro

currency-

neutral

Europe

(2)

1

9

13

4

7

North America

(40)

(29)

(28)

(16)

(35)

(23)

Asia

(8)

(1)

13

22

2

11

Total

(16)

(10)

0

6

(8)

(2)

adidas order backlogs by product category and region as at September 30, 2003

 

Gross margin grows

adidas-Salomon gross profit declined 1%, or € 11 million, in the first nine months of 2003 to reach € 2.2 billion versus € 2.2 billion in 2002, reflecting the Group’s decrease in reported sales. The gross margin, however, improved 0.7 percentage points to 44.1% (2002: 43.4%). Currency effects, which are also captured in the headquarter function as a result of the Group's centralized hedging strategy, positively impacted the Group's gross margin by around 1.0 percentage points.

Operating profit up 9%

Operating expenses, including selling, general and administrative expenses (SG&A) and depreciation and amortization (excluding goodwill), were reduced by 3% from € 1.8 billion in the first nine months of 2002 to € 1.7 billion in 2003. As a percentage of net sales this equates to 35.0%, which is 0.3 percentage points lower than the 2002 level of 35.2%. This reduction is evidence of the Group's focus on cost discipline. As a result, operating profit for the Group increased 9% from € 410 million in 2002 to € 448 million in 2003. The operating margin increased 0.9 percentage points from 8.2% in the first nine months of 2002 to 9.1% in 2003.

Earnings up 17%

Financial expenses declined 36% from € 69 million in the first nine months of 2002 to € 44 million in 2003. The main factor contributing to this development was the financial stabilization of emerging markets such as Argentina, Turkey and Brazil. As a result of operating improvements and the positive development of financial expenses, adidas-Salomon IBT in the first nine months increased 18% from € 341 million in 2002 to € 401 million in 2003. As a percentage of net sales, income before taxes improved by 1.4 percentage points from 6.8% in 2002 to 8.2% in 2003. Minority interests were up 15% to € 13 million (2002: € 11 million), mainly due to higher profits in Turkey. The Group tax rate increased 0.4 percentage points from 38.2% in the first nine months of 2002 to 38.6% in 2003. Net income for the Group increased 17% from € 199 million in the first nine months of 2002 to € 234 million in 2003. EPS was € 5.14 in 2003 versus € 4.40 in 2002.

Strong working capital management and debt reduction continue

Group inventories were reduced by 5% from € 1.2 billion at the end of September 2002 to € 1.1 billion in 2003. On a currency-neutral basis, inventories increased 1%, which is below currency-neutral sales growth expectations for the fourth quarter. Receivables decreased year-over-year by 2% to € 1.5 billion in 2003 versus € 1.5 billion in 2002. On a currency-neutral basis, receivables increased by 4%, which is below the Group's third quarter currency-neutral sales growth. These working capital improvements, together with strong operating results, led to a reduction of net borrowings at September 30, 2003 to € 1.4 billion, down 23% or € 420 million versus € 1.8 billion in the prior year.

Strong results in Q3

In the third quarter of 2003, Group net sales grew 6% on a currency-neutral basis. In reported terms, however, revenues declined 1% or € 16 million from € 1.9 billion in 2002 to € 1.9 billion in 2003. Group gross margin increased 1.2 percentage points from 43.8% in 2002 to 45.0% in 2003. Operating expenses were down 2% from € 576 million in the third quarter of 2002 to € 564 million in 2003. As a percentage of sales, operating expenses were down 0.4 percentage points from 30.8% in 2002 to 30.5% in 2003. As a result, operating profit rose 11% to € 270 million in the third quarter of 2003 (2002: € 243 million). The operating margin was up 1.6 percentage points to 14.6% (2002: 13.0%). These developments in combination with a 29% improvement in financial expenses to € 17 million (2002: € 23 million) led to an increase in the Group's income before taxes by 15% to € 254 million (2002: € 220 million). The tax rate for the third quarter increased 0.7 percentage points to 37.9% (2002: 37.2%). As a result, net income increased 15% from € 131 million in 2002 to € 150 million in 2003. adidas-Salomon EPS was € 3.31 for the third quarter of 2003 versus € 2.89 in 2002.

Full year sales and earnings targets confirmed

As a result of the Group's performance during the first nine months of 2003 and business expectations for the remainder of the year, adidas-Salomon confirms the sales and earnings guidance as provided with the 2002 full year results. Group revenues are expected to increase by at least 5% on a currency-neutral basis. Group gross margin is likely to exceed the target of 42 to 43% and operating margin is expected to improve by approximately 50 basis points. As a result of these developments, Group earnings for the full year are expected to grow between 10 and 15%.

Herbert Hainer stated: "We've delivered on our promised performances so far in 2003 and are set to make our sales, margin and earnings targets for the full year. Exciting new technologies, which we will showcase at some of the world's biggest sports events, will help us take the positive momentum into 2004."
 

Popular