adidas Group First Quarter 2007 Results

5/8/2007, 7:30 AM (Source: GlobeNewswire)
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Group sales grow 9% on a currency-neutral basis
First positive currency-neutral Reebok backlogs
since consolidation within the Group (+3%)
adidas currency-neutral backlogs increase 7% with growth in all
regions


* Group gross margin increases 1.8 percentage points to 46.8%
* Net income attributable to shareholders declines 11% in line with
expectations
* 2007 outlook reconfirmed, net income growth expected to approach
15%


First quarter adidas Group currency-neutral sales grow 9%
During the first quarter of 2007, Group sales increased 9% on a
currency-neutral basis, mainly driven by sales growth in the adidas
segment and the inclusion of an additional month in the Reebok
segment versus the prior year. Currency-neutral sales grew in all
regions except North America, where the development was stable. In
euro terms, revenues grew 3% to € 2.538 billion from € 2.459 billion
in 2006. On a like-for-like basis, including Reebok's revenues for
the full three-month periods and excluding the effect from the
disposal of the Greg Norman Collection (GNC) wholesale business,
sales increased 4% in currency-neutral terms.

"Our Group has gotten off to a strong start in 2007," commented
adidas AG Chairman and CEO Herbert Hainer. "The Reebok integration is
beginning to pay off as we realize the first revenue and cost
synergies. adidas and TaylorMade-adidas Golf impressed with strong
product launches."

adidas and Reebok segments drive first quarter top-line growth
The adidas segment set the pace for the Group's organic sales growth
in the first quarter of 2007. Currency-neutral adidas revenues
increased 7% during the first three months. In the Reebok segment,
currency-neutral sales increased 22% as in the first quarter of 2007
three months of Reebok's revenues are consolidated versus only
February and March in the prior year. On a like-for-like basis,
comparing the full three-month periods and excluding the transfer of
the NBA and Liverpool licensed businesses to brand adidas,
currency-neutral Reebok sales declined by 5%. At TaylorMade-adidas
Golf, currency-neutral revenues decreased 4%. On a like-for-like
basis, excluding prior year GNC sales, however, sales increased 5%.
Currency translation effects negatively impacted sales at all brands
in euro terms. adidas sales in euro terms increased 2% to € 1.819
billion in the first quarter of 2007 from € 1.776 billion in 2006.
Sales at Reebok increased 15% to reach € 524 million versus € 454
million in the prior year. TaylorMade-adidas Golf sales in euro terms
declined 10% to € 180 million in 2007 from € 201 million in 2006.


+---------------------------------------------------------------------+
| | 2007 | 2006 | Change | Change y-o-y |
| | | |y-o-y in| currency-neutral |
| | | | euro | |
| | | | terms | |
|-----------------+--------+--------+--------+------------------------|
| | € in | € in | in % | in % |
| |millions|millions| | |
|-----------------+--------+--------+--------+------------------------|
|adidas | 1,819 | 1,776 | 2 | 7 |
|-----------------+--------+--------+--------+------------------------|
|Reebok[1] | 524 | 454 | 15 | 22 |
|-----------------+--------+--------+--------+------------------------|
|TaylorMade-adidas| 180 | 201 | (10) | (4) |
|Golf[2] | | | | |
|-----------------+--------+--------+--------+------------------------|
|HQ/Consolidation | 17 | 28 | (41) | (37) |
|-----------------+--------+--------+--------+------------------------|
|Total | 2,538 | 2,459 | 3 | 9 |
+---------------------------------------------------------------------+

Q1 net sales growth by segment

Sales increase strongly in nearly all regions
adidas Group sales grew strongly in all regions except North America
where sales were stable. This growth was driven by strong operational
developments at brand adidas as well as the consolidation of three
months of Reebok's revenues in the first quarter of 2007 versus only
February and March in the prior year. First quarter adidas Group
sales in Europe grew 10% on a currency-neutral basis. In North
America, Group sales were stable on a currency-neutral basis. Sales
for the adidas Group in Asia and Latin America increased 13% and 36%
respectively on a currency-neutral basis in the first quarter of
2007. Currency translation effects negatively impacted reported sales
in all regions. Sales in Europe increased 8% in euro terms to
€ 1.149 billion in 2007 from € 1.067 billion in 2006. Sales in North
America decreased 8% to € 698 million in 2007 from € 759 million in
the prior year. In euro terms, revenues in Asia grew 6% to € 501
million in 2007 from € 474 million in 2006. Sales in Latin America
grew 25% to € 157 million in 2007 from € 126 million in the prior
year.

+-------------------------------------------------------------------+
| | 2007 | 2006[3] | Change | Change y-o-y |
| | | | y-o-y | currency-neutral |
| | | | in euro | |
| | | | terms | |
|----------+----------+----------+---------+------------------------|
| | € in | € in | in % | in % |
| | millions | millions | | |
|----------+----------+----------+---------+------------------------|
| Europe | 1,149 | 1,067 | 8 | 10 |
|----------+----------+----------+---------+------------------------|
| North | 698 | 759 | (8) | 0 |
| America | | | | |
|----------+----------+----------+---------+------------------------|
| Asia | 501 | 474 | 6 | 13 |
|----------+----------+----------+---------+------------------------|
| Latin | 157 | 126 | 25 | 36 |
| America | | | | |
|----------+----------+----------+---------+------------------------|
| Total[4] | 2,538 | 2,459 | 3 | 9 |
+-------------------------------------------------------------------+

Q1 net sales growth by region
Group gross margin increases by 1.8 percentage points
The gross margin of the adidas Group increased by 1.8 percentage
points to 46.8% in the first quarter of 2007 (2006: 45.0%), driven by
improvements in all segments. This mainly reflects the non-recurrence
of negative impacts from purchase price allocation in the Reebok
segment in an amount of € 22 million, positive impacts from increased
own-retail activities at brand adidas as well as the first cost
synergies in the sourcing of both adidas and Reebok products. This
more than offset negative gross margin impacts at Reebok due to the
inclusion of an additional month of Reebok results in the first
quarter of 2007, as January is traditionally characterized by higher
than average clearance activities. An increased gross margin at
TaylorMade-adidas Golf also contributed to the Group gross margin
increase. As a result of the Group's strong underlying top-line
growth and gross margin improvement, gross profit for the adidas
Group rose strongly by 7% in the first quarter of 2007 to reach €
1.188 billion versus € 1.107 billion in the prior year.

Operating profit declines 8%
The operating margin of the adidas Group declined 1.1 percentage
points to 9.0% in the first quarter of 2007 (2006: 10.1%) largely due
to the inclusion of an additional month of Reebok results, as January
is traditionally characterized by higher than average operating
expenses as a percentage of sales, as well as timing effects in the
marketing working budget. The operating expense increase more than
compensated gross profit improvements. As a result, operating profit
for the adidas Group declined 8% in the first quarter of 2007 to
reach € 229 million versus € 248 million in 2006.

Income before taxes decreases by 13%
Income before taxes for the adidas Group declined 13% to € 191
million in the first quarter of 2007 from € 220 million in 2006. The
decline in the Group operating profit as well as increased net
financial expenses contributed to this development. Net financial
expenses increased 36% to € 38 million from € 28 million in the prior
year as a result of lower financial income in 2007 compared to the
first quarter of the prior year.

Net income attributable to shareholders down 11% in line with
expectations
The Group's net income attributable to shareholders declined 11% to
€ 128 million in the first quarter of 2007 from € 144 million in 2006
as a result of a decline of the Group's operating profit, increased
net financial expenses as well as a slightly higher tax rate, which
increased 0.5 percentage points to 32.4% in the first quarter of 2007
from 31.8% in the prior year. The Group's minority interests,
however, declined by 78% to € 1 million in the first quarter of 2007
from € 6 million in the prior year due to the take-over of the adidas
joint venture partner in Korea, effective September 1, 2006.

Basic and diluted earnings per share decline 11%
In line with the decrease of the Group's net income attributable to
shareholders, basic earnings per share declined 11% to € 0.63 in the
first quarter of 2007 versus € 0.71 in 2006. Diluted earnings per
share in the first quarter of 2007 also declined 11% to € 0.60 from €
0.67 in the prior year. The dilutive effect mainly results from
approximately sixteen million additional potential shares that could
be created in relation to the outstanding convertible bond, for which
conversion criteria were met for the first time at the end of the
fourth quarter of 2004.

Working capital progress continues
Group inventories decreased 3% to € 1.536 billion at the end of the
first quarter of 2007 versus € 1.586 billion in 2006. On a
currency-neutral basis, inventories increased 3% which is below sales
growth expectations for the adidas Group. Group receivables decreased
6% (-1% currency-neutral) to € 1.777 billion at the end of the first
quarter of 2007 versus € 1.898 billion in the prior year, clearly
below sales growth in the quarter.

Net borrowings reduced by € 432 million
Net borrowings at March 31, 2007 were € 2.519 billion, down 15% or
€ 432 million versus € 2.952 billion in the prior year. Strong
bottom-line profitability and continued tight working capital
management were the drivers of this reduction.

adidas backlogs grow 7% on a currency-neutral basis
Backlogs for the adidas brand at the end of March 2007 increased 7%
versus the prior year on a currency-neutral basis. This represents a
significant sequential improvement of 6 percentage points versus the
prior quarter, driven by notable increases in Europe and North
America. The increase acknowledges the strong product pipeline for
the second half of the year. In euro terms, adidas backlogs grew 2%.
Footwear backlogs increased 5% in currency-neutral terms (stable in
euros). Mixed development in North America was more than offset by
growth in Asia and in Europe's emerging markets. Apparel backlogs
grew 12% on a currency-neutral basis (+7% in euros), driven by a
solid increase in Europe and double-digit growth in both North
America and Asia.


+------------------------------------------------------------------------------------+
| | Footwear | Apparel | Total[5] |
|---------+-------------------------+-----------------------+------------------------|
| | in € | currency-neutral |in €| currency-neutral |in € | currency-neutral |
|---------+------+------------------+----+------------------+-----+------------------|
|Europe | 0 | 2 | 6 | 7 | 2 | 4 |
|---------+------+------------------+----+------------------+-----+------------------|
|North | (14) | (6) | 2 | 12 | (7) | 2 |
|America | | | | | | |
|---------+------+------------------+----+------------------+-----+------------------|
|Asia | 14 | 22 | 10 | 18 | 10 | 18 |
|---------+------+------------------+----+------------------+-----+------------------|
|Total | (0) | 5 | 7 | 12 | 2 | 7 |
+------------------------------------------------------------------------------------+

Year-over-year development adidas order backlogs by product category
and region as at March 31, 2007
Reebok backlog development positive for first time since
consolidation within the Group
Backlogs for the Reebok brand at the end of the first quarter
increased 3% versus the prior year on a currency-neutral basis,
showing the first positive quarter-end development since the
consolidation of the business within the adidas Group. In euro terms,
this equates to a decline of 3%. Footwear backlogs declined 9% in
currency-neutral terms (-14% in euros), mainly due to decreases in
North America and Europe. Apparel backlogs grew by 16% on a
currency-neutral basis (+9% in euros), driven by strong growth in
North America and Asia.


+------------------------------------------------------------------------------------+
| | Footwear | Apparel | Total[6] |
|---------+-------------------------+-----------------------+------------------------|
| | in € | currency-neutral |in €| currency-neutral |in € | currency-neutral |
|---------+------+------------------+----+------------------+-----+------------------|
|Europe | (7) | (6) | 2 | 3 | (1) | 0 |
|---------+------+------------------+----+------------------+-----+------------------|
|North | (21) | (13) | 7 | 18 | (8) | 1 |
|America | | | | | | |
|---------+------+------------------+----+------------------+-----+------------------|
|Total | (14) | (9) | 9 | 16 | (3) | 3 |
+------------------------------------------------------------------------------------+

Year-over-year development Reebok order backlogs by product category
and region as at March 31, 2007

2007 outlook reconfirmed
Based on the solid performance in the first quarter, Group revenues
for the full year are projected to grow at mid-single-digit rates in
2007. Growth in the remaining quarters will be weighted towards the
second half as the positive effects of the 2006 FIFA World Cup(TM)
will not be repeated in the second quarter of 2007. Sales at brand
adidas are expected to increase at a mid-single-digit rate on a
currency-neutral basis in 2007. Revenues at Reebok are forecasted to
improve at low-single digit rates compared to the prior year.
Currency-neutral TaylorMade-adidas Golf sales will grow at
mid-single-digit rates on a like-for-like basis. The Group gross
margin is expected to be in the range of between 45 and 47%, driven
by underlying improvements in all three brand segments and the
non-recurrence of a € 76 million non-cash accounting charge related
to purchase price allocation, which negatively impacted the Reebok
gross margin in 2006. The Group's operating margin is forecasted to
be around 9%, which will be modestly higher than in 2006. Gross
margin improvements at all brands will drive this development,
largely offset by higher operating expenses at Reebok,
TaylorMade-adidas Golf and within HQ/Consolidation. Net income
attributable to shareholders for the adidas Group is expected to grow
at a double-digit rate, approaching 15%.

Herbert Hainer stated: "The positive Reebok backlog development is
encouraging as we begin to make progress on the revitalization of the
brand. We still have a way to go, and will maintain discipline and
focus to ensure we bring about sustainable and long-term profitable
growth at Reebok. For the Group, we are on track and ready to drive
strong top-and bottom-line growth in 2007 despite the lack of major
sport events."
[1] Reebok first quarter 2006 results only included two months of the
three-month period.
[2] Including Greg Norman apparel business from February 1, 2006 to
November 30, 2006.
[3] Including Reebok business segment from February 1, 2006 onwards.
Including Greg Norman apparel business from February 1, 2006 to
November 30, 2006.
[4] Including HQ/Consolidation.
[5] Includes hardware backlogs.
[6] Includes hardware backlogs.


Contacts:

Media
Relations
Jan Runau
Chief Corporate Communications Officer
Tel.: +49 (0) 9132 84-3830

Anne Putz
Team Leader Corporate PR
Tel.: +49 (0) 9132 84-2964

Kirsten Keck
Corporate PR Manager
Tel.: +49 (0) 9132 84-6207

Investor Relations
Natalie M. Knight
Vice President, Investor Relations
Tel.: +49 (0) 9132 84-3584

Hendric Junker
Senior Investor Relations Manager
Tel.: +49 (0) 9132 84-4989

John-Paul O'Meara
Tel.: +49 (0) 9132 84-2751
Investor Relations Manager

Please visit our corporate website: www.adidas-Group.com



--- End of Message ---

adidas Group
Herzogenaurach Germany

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