adidas Group First Quarter 2008 Results

5/6/2008, 7:30 AM (Source: GlobeNewswire)
Net income attributable to shareholders grows 32%
Group sales increase 10% on a currency-neutral basis
Currency-neutral adidas backlogs increase 13%
 

* adidas and TaylorMade-adidas Golf currency-neutral sales increase
at double-digit rates
* Group gross margin increases 2.3 percentage points to new record
level of 49.1%
* Currency-neutral Reebok backlogs decline 13%
* 2008 outlook reconfirmed

 
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 | First | Change | Change y-o-y |
| |Quarter |Quarter |y-o-y in| currency-neutral |
| | 2008 | 2007 | euro | |
| | | | terms | |
|-----------------+--------+--------+--------+------------------------|
|  | ¤ in | ¤ in | in % | in % |
| |millions|millions| | |
|-----------------+--------+--------+--------+------------------------|
|adidas | 1,968 | 1,819 | 8 | 14 |
|-----------------+--------+--------+--------+------------------------|
|Reebok | 454 | 524 | (13) | (6) |
|-----------------+--------+--------+--------+------------------------|
|TaylorMade-adidas| 191 | 180 | 6 | 17 |
|Golf | | | | |
|-----------------+--------+--------+--------+------------------------|
|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 | First | Change | Change y-o-y |
| | Quarter | Quarter | y-o-y | currency-neutral |
| | 2008 | 2007 | in euro | |
| | | | terms | |
|----------+----------+----------+---------+------------------------|
|   | ¤ in | ¤ in | in % | in % |
| | millions | millions | | |
|----------+----------+----------+---------+------------------------|
| Europe | 1,249 | 1,149 | 9 | 12 |
|----------+----------+----------+---------+------------------------|
| North | 578 | 698 | (17) | (7) |
| America | | | | |
|----------+----------+----------+---------+------------------------|
| Asia | 594 | 501 | 18 | 25 |
|----------+----------+----------+---------+------------------------|
| Latin | 177 | 157 | 13 | 18 |
| America | | | | |
|----------+----------+----------+---------+------------------------|
| Total[1] | 2,621 | 2,538 | 3 | 10 |
+-------------------------------------------------------------------+

Q1 net sales growth by region
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(TM) 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 | Total[2] |
|---------+-------------------------+-------------------------+-------------------------|
|  | in ¤ | currency-neutral | in ¤ | currency-neutral | in ¤ | currency-neutral |
|---------+------+------------------+------+------------------+------+------------------|
|Europe | 15 | 19 | 6 | 10 | 10 | 14 |
|---------+------+------------------+------+------------------+------+------------------|
|North | (19) | (5) | (16) | (2) | (16) | (2) |
|America | | | | | | |
|---------+------+------------------+------+------------------+------+------------------|
|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
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 | Total[3] |
|---------+-------------------------+-------------------------+-------------------------|
|  | in ¤ | currency-neutral | in ¤ | currency-neutral | in ¤ | currency-neutral |
|---------+------+------------------+------+------------------+------+------------------|
|Europe | (13) | (8) | (19) | (13) | (13) | (8) |
|---------+------+------------------+------+------------------+------+------------------|
|North | (49) | (40) | (27) | (15) | (33) | (22) |
|America | | | | | | |
|---------+------+------------------+------+------------------+------+------------------|
|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
 
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(TM) and the Olympic Games. Despite a challenging
market environment, we are optimistic we will achieve all our
targets."
 
***
Contacts:
 

Media Relations Investor
Relations
Jan Runau Natalie M.
Knight
Chief Corporate Vice President
                                           
Communications Officer                  Investor
                                   Relations
Tel.: +49 (0) 9132 84-3830       Tel.: +49 (0)
9132 84-2187
   
Anne Putz Hendric Junker
Head of Corporate PR Senior Investor
Relations
Manager
Tel.: +49 (0) 9132 84-2964 Tel.: +49 (0)
9132 84-4989
   
Kirsten Keck John-Paul
O'Meara
Corporate PR Manager Senior Investor
Relations
Manager
Tel.: +49 (0) 9132 84-6207 Tel.: +49 (0)
9132 84-2751

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

[1] Including HQ/Consolidation.
[2] Includes hardware backlogs.
 
[3] Includes hardware backlogs.

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