Operating profit fell to â¬42 million ($57 mm) from â¬107 million, reflecting higher marketing costs ahead of the 2010 soccer World Cup, as well as the support of Reebok’s growth strategy in North America. Write-downs on Reebok’s distribution rights in China and also had a negative impact on the company’s other operating expenses.
Looking ahead, adidas Group sales are expected to increase at a low- to mid-single-digit rate on a currency-neutral basis in 2010 as the positive impacts from the 2010 FIFA World Cup, the Group’s high exposure to fast-growing emerging markets as well as improvements at the Reebok brand offset an expected slow turnaround in consumer demand and continuing cautious retailer behavior.
Regional Sales
Fourth quarter currency-neutral Group sales remained stable compared to the prior year. Currency-neutral revenues in Western Europe and European Emerging Markets increased 3% and 8% respectively, supported by strong growth in the football category. Currency-neutral Group sales in North America declined 7%. However, for the first time since the acquisition, Reebok brand sales in this region were up 4% during the quarter. In Greater China, currency-neutral sales declined 22% due to the continued efforts to reduce inventories in the market. Sales in Other Asian Markets and in Latin America were up 2% and 20% on a currency-neutral basis, respectively. Currency translation effects negatively impacted sales in euro terms. Group revenues decreased 5% in euro terms to â¬2.458 billion ($3.3 bn) in the fourth quarter of 2009 from â¬2.574 billion in 2008.
Fourth quarter gross margin stabilizes
The Group’s gross margin decreased 0.2 percentage to 46.2% from 46.4% points in the fourth quarter. Negative currency devaluation effects and higher sourcing costs were almost entirely offset by a positive impact from lower clearance sales compared to the prior year.
Gross margin increased in the Wholesale segment as well as in Other Businesses, but declined in the Retail segment. Group gross profit decreased 5% to â¬1.136 billion ($1.54 bn) (2008: â¬1.194 billion). Other operating expenses as a percentage of sales increased mainly due to higher marketing expenses as a percentage of sales related to the 2010 FIFA World Cup as well as the support of Reebok’s growth strategy in toning in North America. In addition, write-downs on Reebok’s distribution rights in China as well as on own-retail stores negatively impacted the Group’s other operating expenses by â¬19 million and â¬14 million ($19 mm), respectively. As a result, the Group’s operating margin decreased 2.4 percentage points to 1.7% in the fourth quarter of 2009 versus 4.2% in the prior year. Operating profit decreased 61% to â¬42 million ($57 mm) versus â¬107 million in 2008.
In the fourth quarter of 2009, the Group’s net income attributable to shareholders decreased 64% to â¬19 million ($25.8 mm) (2008: â¬54 million) mainly due to the Group’s lower operating profit. Diluted earnings per share for the fourth quarter declined 65% to â¬0.09.
“Without question, 2009 was the most difficult year since I became CEO of the Group,” commented Herbert Hainer, adidas Group CEO.
“However, we rose to the challenge. Despite a 53% decline in operating profit, we generated a 141% increase in net cash from operations for a record â¬1.2 billion. This is definitely the outstanding achievement of the year and a credit to all the hard work and dedication of our employees.
Full Year Results
In 2009, Group revenues decreased 6% on a currency-neutral basis, as a result of lower Wholesale and Other Businesses sales, which more than offset an increase in Retail revenues. Currency-neutral Wholesale revenues decreased 9% during the period, impacted by declines in both adidas and Reebok sales. Currency-neutral Retail sales increased 7% versus the prior year as a result of higher adidas and Reebok sales. Revenues in Other Businesses declined 4% on a currency-neutral basis, primarily impacted by lower TaylorMade-adidas Golf and Rockport sales. Currency translation effects positively impacted segmental sales in euro terms. Group revenues in euro terms decreased 4% to â¬10.381 billion from â¬10.799 billion in 2008.
| 2009 | 2008 | Change y-o-y in euro terms | Change y-o-y currency-neutral |
| ⬠in millions | ⬠in millions | in % | in % |
Wholesale | 7,174 | 7,758 | (8) | (9) |
Retail | 1,906 | 1,738 | 10 | 7 |
Other Businesses | 1,283 | 1,285 | (0) | (4) |
Total1) | 10,381 | 10,799 | (4) | (6) |
1) Including HQ/Consolidation.
Currency-neutral sales decrease in nearly all regions
Currency-neutral adidas Group sales declined in all regions except Latin America in 2009. Revenues in Western Europe declined 5% primarily as a result of lower sales in France and Iberia. In European Emerging Markets, Group sales decreased 7% on a currency-neutral basis, primarily due to declines in Russia as a result of the devaluation of the Russian rouble against the functional currency, the US dollar, which could not be offset by price increases. Sales for the adidas Group in North America decreased 10% on a currency-neutral basis due to declines in the USA and Canada. Sales in Greater China decreased 16% on a currency-neutral basis. Revenues in Other Asian Markets declined 3% primarily as a result of decreases in Japan. In Latin America, sales grew 19% on a currency-neutral basis, with double-digit increases in most of the region’s major markets, also supported by the consolidation of new companies in the region.
Currency translation effects had a mixed impact on regional sales in euro terms. Group revenues in Western Europe decreased 8% to â¬3.262 billion in 2009 from â¬3.527 billion in 2008. In European Emerging Markets, sales declined 5% to ⬠1.122 billion in 2009 from â¬1.179 billion in 2008. Sales in North America decreased 6% to â¬2.360 billion from ⬠2.520 billion in 2008. Revenues in Greater China decreased 10% to â¬967 million in 2009 from â¬1.077 billion in 2008. In Other Asian Markets, sales increased 4% to â¬1.647 billion versus â¬1.585 billion in the prior year. Revenues in Latin America grew 13% to â¬1.006 billion from â¬893 million in the prior year.
| 2009 | 2008 | Change y-o-y | Change y-o-y currency-neutral |
| ⬠in millions | ⬠in millions | in % | in % |
Western Europe | 3,262 | 3,527 | (8) | (5) |
European Emerging Markets | 1,122 | 1,179 | (5) | (7) |
North America | 2,360 | 2,520 | (6) | (10) |
Greater China | 967 | 1,077 | (10) | (16) |
Other Asian Markets | 1,647 |
