adidas-Salomon in the first quarter of 2003: Group earnings up 19%; sales grow currency-neutral 12%
- Strong growth in Asia and Europe drives net sales improvement
- Currency-neutral adidas backlogs up 9%
- Highest first quarter bottom-line improvement in six years
Strong top-line performance and high bottom-line improvement
adidas-Salomon today reported first quarter 2003 financial results. For the first quarter ending March 31, 2003, net sales increased 2% from € 1,638 million in 2002 to € 1,669 million in 2003. On a currency-neutral basis, sales grew 12%. Gross margin grew 0.7 percentage points to 42.5% in 2003 from 41.8% in 2002. This was achieved despite difficult retail conditions in all major markets. The Group's net income increased 19% from € 43 million in 2002 to € 51 million in 2003. This represents basic earnings per share of € 1.13 versus € 0.95 in the prior year.
adidas brand leads Group growth
adidas revenues increased by 6% from € 1,330 million in the first three months of 2002 to € 1,405 million in 2003. On a currency-neutral basis, this increase was 16% and represents the brand's highest gain in more than four years. Drivers of this growth were strong developments in running, football and basketball. Salomon sales grew 1% (+7% currency-neutral) from € 123 million to € 124 million. This improvement reflects solid double-digit growth in apparel, bicycle components and alpine skis in the otherwise challenging winter market sector. TaylorMade-adidas Golf figures were affected by the change in the timing of product introductions and the non-renewal of the Slazenger Golf license. This was reflected in a decline of 24% (-11% currency-neutral) from € 176 million to € 134 million for TaylorMade-adidas Golf in the first quarter.
Strong growth in Europe and Asia drives net sales improvement
Sales for adidas-Salomon in Europe increased 10% from € 851 million in the first quarter of 2002 to € 933 million in 2003. On a currency-neutral basis, this increase was 12%, representing the strongest growth in the region in seven quarters. Asia was again the fastest growing region for the Group in the first quarter. Sales increased 8% to reach € 281 million in 2003 (2002: € 260 million). On a currency-neutral basis, this increase was 21%. In North America, 2003 first quarter sales for the Group declined 15% to € 405 million versus € 475 million in the prior year. On a currency-neutral basis, however, sales increased 4%. In Latin America, sales declined 8% in the first quarter of 2003 to € 36 million (2002: € 39 million). On a currency-neutral basis, sales grew 45%.
Currency-neutral adidas backlogs up 9%
Despite an increasingly difficult marketplace, underlying backlog growth for brand adidas represents the seventh consecutive quarter of positive development. At the end of the first quarter of 2003, order backlogs for brand adidas declined 2%. On a currency-neutral basis, this equates to an increase of 9%. Footwear backlogs declined 1% but were up 11% on a currency-neutral basis. Apparel orders were down 3%, however in currency-neutral terms this represents an increase of 6%. In Europe, orders increased 8% (+12% currency-neutral) supported by strong footwear which increased 14% (+19% currency-neutral). Apparel backlogs grew 3%. On a currency-neutral basis, this is a 7% increase. In Asia, backlogs grew 7% (+22% currency-neutral). Footwear backlogs declined 2% (+12% currency-neutral), while apparel orders grew 21% (+38% currency-neutral). In North America, order backlogs decreased 22% (-3% currency-neutral). Footwear backlogs declined 20% (+0% currency-neutral). Apparel orders declined 27% (-9% currency-neutral). However, this reduction reflects improvements in the Group’s global supply chain, which have shortened the order window for customers by one full month starting in the first quarter of 2003. On a like-for-like basis, currency-neutral apparel orders increased at mid-single-digit rates.
Gross margin improves
adidas-Salomon gross profit grew 4% in the first three months of 2003 to reach € 708 million versus € 684 million in 2002. In addition to positive top-line development, this increase was driven by a 0.7 percentage point gross margin improvement to 42.5% (2002: 41.8%).
Operating profit up 18%
Operating expenses, including selling, general and administrative expenses (SG&A) and depreciation and amortization (excluding goodwill), grew 1% from € 585 million in the first quarter of 2002 to € 592 million in 2003. As a percentage of net sales this equates to 35.5% which is 0.3 percentage points lower than the 2002 level of 35.8%. Operating profit for the Group increased 18% from € 98 million in 2002 to € 116 million in 2003.
Earnings grow 19%
Financial expenses declined 5% from € 19 million in the first quarter of 2002 to € 18 million in 2003. The reduction was positively impacted by the Group's lower average borrowings. Income before taxes increased 23% from € 79 million to € 98 million in 2003. The Group tax rate improved by 0.9 percentage points from 41.9% in the first quarter of 2002 to 41.0% in 2003. Minority interests doubled to € 6 million (2002: € 3 million) due to strong results from adidas South Korea. As a result of the Group's strong operational performance, net income increased 19% from € 43 million in the first quarter of 2002 to € 51 million in 2003, and EPS was € 1.13 in 2003 versus € 0.95 in 2002.
Herbert Hainer, Chairman and CEO of adidas-Salomon, stated, "adidas-Salomon has started 2003 strongly, with sales for the Group up 12% on a currency-neutral basis. All of our operating measurements moved visibly in the right direction. Our 19% earnings increase is the highest first quarter improvement in six years. But we still have work ahead of us for the remainder of the year, in particular when we look at our adidas order backlog development in North America. Our North American organization is already moving on several initiatives to re-ignite the success of the previous quarters."
Solid working capital improvement and debt reduction
At the end of March, inventories were reduced by 8% from € 1.2 billion in 2002 to € 1.1 billion in 2003. On a currency-neutral basis, inventories increased 2%, which is considerably below sales growth expectations for the second quarter. Receivables decreased by 3% year-over-year to € 1.4 billion in 2003 versus € 1.4 billion in 2002. On a currency-neutral basis, receivables increased by 9%. This rate is below the Group’s first quarter currency-neutral sales growth and reflects strict discipline in the Group's trade terms management. Net borrowings at March 31, 2003 were € 1.6 billion, down 15% or € 285 million versus € 1.9 billion in the prior year.
Group sales and earnings growth targets confirmed
As a result of adidas backlogs, retailer feedback and the anticipated macroeconomic environment, adidas-Salomon is maintaining its 2003 sales growth target of around 5% on a currency-neutral basis. The net income growth target for the Group also remains unchanged with earnings expected to grow between 10 and 15%.
Herbert Hainer continued, "I am pleased to confirm that our Group's financial and operational targets for 2003 remain unchanged, with further sales increases, a stable high gross margin and an improving operating margin. Regional market developments are subject to rapid changes, but we have proven over the last three years that we are strong enough and fast enough to deliver, despite the ever-changing conditions on the fields on which we compete."