adidas Group: First Quarter 2008 Results

  
    
  
  
    
      adidas Group (FWB:ADS):
    
    
      First Quarter adidas Group currency-neutral sales grow 10%
    
    
      During the first quarter of 2008, Group sales increased 10% on a 
      currency-neutral basis, driven by double-digit sales growth in the 
      adidas and TaylorMade-adidas Golf segments. Revenues in the Reebok 
      segment, however, declined. Currency movements negatively impacted Group 
      sales in euro terms. Group revenues grew 3% in euro terms to € 
      2.621 billion in the first quarter of 2008 from € 
      2.538 billion in 2007.
    
    
      “We are off to a fast start to 2008,” 
      commented adidas AG CEO and Chairman Herbert Hainer. “adidas 
      and TaylorMade-adidas Golf were our growth engines. At Reebok, we are 
      progressing on plan to reposition the brand. As a Group, we are stronger 
      than ever before. Most importantly, Group profitability has improved 
      substantially.”
    
    
      Double-digit sales growth at adidas and TaylorMade-adidas Golf in Q1
    
    
      The adidas and TaylorMade-adidas Golf segments set the pace for the Group’s 
      sales growth in the first quarter of 2008. Currency-neutral adidas 
      segment revenues increased 14% during the first three months, driven by 
      strong performance product sales in nearly all major categories. 
      Currency-neutral sales in the Reebok segment declined 6% in the 
      first quarter of 2008, mainly as a result of Reebok’s 
      repositioning efforts in the USA and the UK. At TaylorMade-adidas Golf, 
      currency-neutral revenues increased 17%, due to the strong product 
      offering in all major categories, helped by several new product 
      launches. Currency translation effects negatively impacted sales in all 
      segments in euro terms. adidas sales in euro terms increased 8% 
      to € 1.968 billion in the first quarter of 
      2008 from € 1.819 billion in 2007. Sales at Reebok 
      decreased 13% to reach € 454 million versus € 
      524 million in the prior year. TaylorMade-adidas Golf sales in 
      euro terms increased 6% to € 191 million in 
      2008 from € 180 million in 2007.
    
    
      
        
        
        
          
            First Quarter2008
          
        
        
           
        
        
          
            First Quarter2007
          
        
        
           
        
        
          
            Change y-o-yin euro terms
          
        
        
           
        
        
          
            Change y-o-ycurrency-neutral
          
        
      
      
        
           
        
        
          € in millions
        
        
           
        
        
          € in millions
        
        
           
        
        
          in %
        
        
           
        
        
          in %
        
      
      
        
          adidas
        
        
          1,968
        
        
           
        
        
          1,819
        
        
           
        
        
          8
        
        
           
        
        
           
        
        
          14
        
        
           
        
      
      
        
          Reebok
        
        
          454
        
        
           
        
        
          524
        
        
           
        
        
          (13
        
        
          )
        
        
           
        
        
          (6
        
        
          )
        
      
      
        
          TaylorMade-adidas Golf
        
        
          191
        
        
           
        
        
          180
        
        
           
        
        
          6
        
        
           
        
        
           
        
        
          17
        
        
           
        
      
      
        
          HQ/Consolidation
        
        
          8
        
        
           
        
        
          17
        
        
           
        
        
          (51
        
        
          )
        
        
           
        
        
          (45
        
        
          )
        
      
      
        
          Total
        
        
          2,621
        
        
           
        
        
          2,538
        
        
           
        
        
          3
        
        
           
        
        
           
        
        
          10
        
        
           
        
      
    
    
      Q1 net sales growth by segment 
    
    
      Currency-neutral sales grow at a double-digit rate in all regions 
      except North America
    
    
      adidas Group sales grew at double-digit rates in all regions except 
      North America where revenues declined. First quarter adidas Group sales 
      in Europe grew 12% on a currency-neutral basis as a result of 
      strong increases in the region’s emerging 
      markets. In North America, Group revenues declined by 7% on a 
      currency-neutral basis due to lower adidas and Reebok sales in the USA 
      and Canada. Sales for the adidas Group in Asia increased 25% on a 
      currency-neutral basis in the first quarter of 2008, driven by 
      particularly strong growth in China and Korea. In Latin America, 
      currency-neutral sales grew 18% in the first quarter, with increases 
      coming from all of the region’s major markets. 
      Currency translation effects negatively impacted sales in euro terms in 
      all regions. Sales in Europe increased 9% in euro terms to € 1.249 billion 
      in 2008 from € 1.149 billion in 2007. 
      Revenues in North America decreased 17% to € 
      578 million in 2008 from € 698 million in the 
      prior year. In euro terms, revenues in Asia grew 18% to € 
      594 million in 2008 from € 501 million in 
      2007. Sales in Latin America grew 13% to € 
      177 million in 2008 from € 157 million in the 
      prior year.
    
    
      
        
        
        
           
        
        
          
            First Quarter2008
          
        
        
           
        
        
          
            First Quarter2007
          
        
        
           
        
        
          
            Change y-o-y ineuro terms
          
        
        
           
        
        
          
            Change y-o-ycurrency-neutral
          
        
      
      
        
           
        
        
           
        
        
          € in millions
        
        
           
        
        
          € in millions
        
        
           
        
        
          in %
        
        
           
        
        
          in %
        
      
      
        
          Europe
        
        
           
        
        
          1,249
        
        
           
        
        
          1,149
        
        
           
        
        
          9
        
        
           
        
        
           
        
        
          12
        
        
           
        
      
      
        
          North America
        
        
           
        
        
          578
        
        
           
        
        
          698
        
        
           
        
        
          (17
        
        
          )
        
        
           
        
        
          (7
        
        
          )
        
      
      
        
          Asia
        
        
           
        
        
          594
        
        
           
        
        
          501
        
        
           
        
        
          18
        
        
           
        
        
           
        
        
          25
        
        
           
        
      
      
        
          Latin America
        
        
           
        
        
          177
        
        
           
        
        
          157
        
        
           
        
        
          13
        
        
           
        
        
           
        
        
          18
        
        
           
        
      
      
        
          
            Total1
          
        
        
           
        
        
          2,621
        
        
           
        
        
          2,538
        
        
           
        
        
          3
        
        
           
        
        
           
        
        
          10
        
        
           
        
      
    
    
      Q1 net sales growth by region 
    
    
      1 Including HQ/Consolidation.
    
    
      Record Group gross margin
    
    
      The gross margin of the adidas Group increased by 2.3 percentage points 
      to a new record level of 49.1% of sales in the first quarter of 2008 
      (2007: 46.8%), driven by improvements in all brand segments. This is 
      related to an improving product and regional mix, increased own-retail 
      activities as well as favorable currency movements. Cost synergies 
      resulting from the Reebok integration into the adidas Group continued to 
      have a positive impact. As a result of the Group’s 
      strong underlying top-line growth and gross margin improvement, gross 
      profit for the adidas Group rose 8% in the first quarter of 2008 to 
      reach € 1.288 billion versus € 
      1.188 billion in the prior year.
    
    
      Operating margin increases by 1.7 percentage points
    
    
      The Group’s operating margin increased 1.7 
      percentage points to 10.8% in the first quarter of 2008 (2007: 9.0%). A 
      strong gross margin increase was partly offset by modestly higher 
      operating expenses. Operating expenses as a percentage of sales 
      increased 0.5 percentage points to 39.2% of sales (2007: 38.7%). This 
      development was a result of higher operating overhead costs in the 
      adidas and Reebok segments mainly due to increased infrastructure 
      expenses in emerging markets. Operating profit for the adidas Group 
      increased 23% in the first quarter of 2008 to reach € 
      282 million versus € 229 million in 2007.
    
    
      Income before taxes increases by 31%
    
    
      As a result of the Group’s operating margin 
      increase as well as lower net financial expenses, income before taxes as 
      a percentage of sales increased by 2.0 percentage points to 9.6% in 2008 
      from 7.5% in 2007. Income before taxes for the adidas Group increased 
      31% to € 250 million in the first quarter of 
      2008 from € 191 million in 2007.
    
    
      Net income attributable to shareholders up 32%
    
    
      The Group’s net income attributable to 
      shareholders increased 32% to € 169 million 
      in the first quarter of 2008 from € 128 
      million in 2007. This development is a result of the Group’s 
      strong operating margin improvement and lower net financial expenses. In 
      addition, the Group’s tax rate, which 
      decreased by 0.4 percentage points to 32.0% in the first quarter of 2008 
      from 32.4% in the prior year, contributed to this development. The Group’s 
      minority interests declined by 23% to € 1 
      million in the first quarter of 2008 from € 1 million 
      during the same period in the prior year.
    
    
      Basic and diluted earnings per share increase 33 and 32%
    
    
      Basic earnings per share increased 33% to € 
      0.84 in the first quarter of 2008 versus € 
      0.63 in the prior year. Diluted earnings per share in 2008 grew 32% to € 
      0.79 from € 0.60 in the prior year.
    
    
      Over 3.2 million shares repurchased in the first quarter
    
    
      On January 29, 2008, adidas AG announced the launch of a share buyback 
      program to repurchase up to 5% of the company’s 
      stock capital until November 2008. During the first quarter, the Group 
      purchased over 3.2 million shares at an average price of € 
      42.03. The buyback volume amounted to € 134.8 million 
      in the first quarter. Over the entire buyback period, since January 30 
      to date, adidas AG bought back 5.5 million shares at an average price of € 
      41.73. The total buyback volume amounted to € 229.9 million.
    
    
      Group inventories grow in line with business expectations
    
    
      Group inventories increased 3% to € 1.578 
      billion at the end of the first quarter of 2008 versus € 
      1.536 billion in 2007. On a currency-neutral basis, this represents an 
      increase of 13%. This increase is in line with the Group’s 
      business expectations. It mainly reflects business expansion in emerging 
      markets as well as preparation for deliveries of UEFA EURO 2008™ 
      related products in the second quarter. Group receivables decreased 7% 
      to € 1.645 billion at the end of the first 
      quarter of 2008 versus € 1.777 billion in the 
      prior year. On a currency-neutral basis, receivables were stable.
    
    
      Net borrowings reduced by € 446 million
    
    
      Net borrowings at March 31, 2008 were € 2.073 
      billion, down 18% or € 446 million versus € 
      2.519 billion in the prior year. Strong bottom-line profitability and 
      continued tight working capital management more than offset the 
      financing of the adidas AG share buyback program. Currency effects also 
      positively impacted this development.
    
    
      adidas backlogs grow strongly
    
    
      Backlogs for the adidas brand at the end of the first quarter of 2008 
      increased 13% versus the prior year on a currency-neutral basis. This 
      improvement was supported by adidas’ strength 
      in all major categories. In euro terms, adidas backlogs grew 5%. 
      Footwear backlogs increased 14% in currency-neutral terms (+6% in 
      euros). Double-digit growth in both Asia and Europe more than offset a 
      decline in North America. Apparel backlogs grew 13% on a 
      currency-neutral basis (+5% in euros), driven by strong double-digit 
      increases in Asia and Europe. Hardware backlogs grew largely due to 
      increases in the football category.
    
    
      
        
        
        
           
        
        
          Footwear
        
        
           
        
        
          Apparel
        
        
           
        
        
          
            Total2
          
        
      
      
        
           
        
        
           
        
        
          in €
        
        
           
        
        
          
            currency-neutral
          
        
        
           
        
        
          in €
        
        
           
        
        
          
            currency-neutral
          
        
        
           
        
        
          in €
        
        
           
        
        
          
            currency-neutral
          
        
      
      
        
          Europe
        
        
           
        
        
          15
        
        
           
        
        
           
        
        
          19
        
        
           
        
        
           
        
        
          6
        
        
           
        
        
           
        
        
          10
        
        
           
        
        
           
        
        
          10
        
        
           
        
        
           
        
        
          14
        
        
           
        
      
      
        
          North America
        
        
           
        
        
          (19
        
        
          )
        
        
           
        
        
          (5
        
        
          )
        
        
           
        
        
          (16
        
        
          )
        
        
           
        
        
          (2
        
        
          )
        
        
           
        
        
          (16
        
        
          )
        
        
           
        
        
          (2
        
        
          )
        
      
      
        
          Asia
        
        
           
        
        
          11
        
        
           
        
        
           
        
        
          18
        
        
           
        
        
           
        
        
          15
        
        
           
        
        
           
        
        
          22
        
        
           
        
        
           
        
        
          11
        
        
           
        
        
           
        
        
          19
        
        
           
        
      
      
        
          Total
        
        
           
        
        
          6
        
        
           
        
        
           
        
        
          14
        
        
           
        
        
           
        
        
          5
        
        
           
        
        
           
        
        
          13
        
        
           
        
        
           
        
        
          5
        
        
           
        
        
           
        
        
          13
        
        
           
        
      
    
    
      Year-over-year development of adidas order backlogs by product 
      category and region as at March 31, 2008 
    
    
      2 Includes hardware backlogs.
    
    
      Reebok backlogs decline
    
    
      Currency-neutral Reebok backlogs at the end of the first quarter of 2008 
      decreased 13% versus the prior year on a currency-neutral basis. In euro 
      terms, this represents a decline of 22%. Footwear backlogs decreased 22% 
      in currency-neutral terms (–29% in euros). 
      This is largely the result of the strategic initiatives to revitalize 
      the Reebok brand in the USA, the UK and Japan. Apparel backlogs declined 
      by 12% on a currency-neutral basis (–22% in 
      euros) as a result of the increasing utilization of private label 
      products by key retail partners in the USA and the UK. Hardware backlogs 
      are up at a double-digit rate due to increases in the hockey category. 
      Backlogs at Reebok, however, are expected to improve over the course of 
      the year due to an improved product mix and the launch of the “Your 
      Move” brand campaign.
    
    
      
        
        
        
           
        
        
          Footwear
        
        
           
        
        
          Apparel
        
        
           
        
        
          
            Total1
          
        
      
      
        
           
        
        
           
        
        
          in €
        
        
           
        
        
          
            currency-neutral
          
        
        
           
        
        
          in €
        
        
           
        
        
          
            currency-neutral
          
        
        
           
        
        
          in €
        
        
           
        
        
          
            currency-neutral
          
        
      
      
        
          Europe
        
        
           
        
        
          (13
        
        
          )
        
        
           
        
        
          (8
        
        
          )
        
        
           
        
        
          (19
        
        
          )
        
        
           
        
        
          (13
        
        
          )
        
        
           
        
        
          (13
        
        
          )
        
        
           
        
        
          (8
        
        
          )
        
      
      
        
          North America
        
        
           
        
        
          (49
        
        
          )
        
        
           
        
        
          (40
        
        
          )
        
        
           
        
        
          (27
        
        
          )
        
        
           
        
        
          (15
        
        
          )
        
        
           
        
        
          (33
        
        
          )
        
        
           
        
        
          (22
        
        
          )
        
      
      
        
          Asia
        
        
           
        
        
          (12
        
        
          )
        
        
           
        
        
          (6
        
        
          )
        
        
           
        
        
          (0
        
        
          )
        
        
           
        
        
          6
        
        
           
        
        
           
        
        
          (2
        
        
          )
        
        
           
        
        
          4
        
        
           
        
      
      
        
          Total
        
        
           
        
        
          (29
        
        
          )
        
        
           
        
        
          (22
        
        
          )
        
        
           
        
        
          (22
        
        
          )
        
        
           
        
        
          (12
        
        
          )
        
        
           
        
        
          (22
        
        
          )
        
        
           
        
        
          (13
        
        
          )
        
      
    
    
      Year-over-year development of Reebok order backlogs by product 
      category and region as at March 31, 2008 
    
    
      1 Includes hardware backlogs.
    
    
      2008 outlook reconfirmed
    
    
      In 2008, adidas Group sales are expected to increase at a 
      high-single-digit rate on a currency-neutral basis, driven by growth at 
      all brands. The adidas segment is projected to achieve high-single-digit 
      currency-neutral sales growth in 2008. Revenues in the Reebok segment 
      are expected to grow at a mid- to high-single-digit rate on a 
      currency-neutral basis. The target was raised in March versus initial 
      guidance due to the announced joint venture of Reebok and Vulcabras S.A. 
      in Brazil and Paraguay. Since April 1, 2008, the joint venture 
      distributes Reebok footwear, apparel and accessories in these countries. 
      Currency-neutral TaylorMade-adidas Golf sales are forecasted to grow at 
      a mid-single-digit rate. The adidas Group gross margin is expected to 
      increase modestly to a range of 47.5 to 48.0%, driven by improvements in 
      all three brand segments. The operating margin for the adidas Group is 
      projected to increase to at least 9.5%. Full year net income 
      attributable to shareholders is projected to grow by at least 15% in 
      2008 versus the 2007 level of € 551 million.
    
    
      Herbert Hainer stated: “In 2008, we will 
      reach new heights on both the top and bottom line. A summer of 
      excitement is ahead of us. Our brands will be front and center at the 
      two major sporting events, the UEFA EURO 2008™ 
      and the Olympic Games. Despite a challenging market environment, we are 
      optimistic we will achieve all our targets.”
    
    
      Please visit our corporate website: www.adidas-Group.com