adidas-Salomon saw a sizable gain in its gross margin overshadow sales declines across most regions and brand groups to help the company post a 41% increase in net income for the first quarter of 2004. Gross margin gains due to FX rate benefit and owned-retail “more than offset” the lower margins in North America due to higher close-out sales and a negative FX rate impact of associated with Salomon’s sourcing structure.

Salomon revenues increased 2.0% on a currency-neutral basis in Q1, largely due to gains in the Cycling, Nordic and Apparel categories. Sales in Euros were down 1.6% to €122 million ($152.4 mm) in Q1 from €124 million ($133.0 mm) in Q1 2003.

The company saw currency-neutral sales increases in all regions except North America, where sales declined 6.0% on a currency-neutral basis and declined 17.2% when measured in the company’s Euro reporting currency. North America sales were €24.0 million ($30.0 mm) in the first quarter versus €29.0 million ($31.1 mm) in the year-ago period. Sales for the region were down just 3.6% when measured in U.S. dollars.

On a more upbeat note, Salomon saw a 2.0% currency-neutral gain in Europe while Asia currency-neutral sales jumped 35% and Latin America reported a 96% increase in currency-neutral sales. In the reporting Euro currency, Europe grew 1.1% to €90 million ($112.4 mm) from €89.0 million ($95.5 mm) in Q1 2003. Asia sales increased 20% to €6.0 million ($7.5 mm) and Latin America sales were flat €1.0 million ($1.2 mm).

The division, which is parent to the Salomon, Bonfire, Mavic, Cliché and Arc’Teryx brands, posted a wider operating loss for the period due primarily to the currency exchange impact on both sales and margins. Gross margin declined 190 basis points in Q1 to 31.6% of sales compared to 33.5% in the year-ago period. The impact of European sourcing of product sold around the world was the primary culprit here. The GM impact had a negative effect on the operating loss, which increased 20% to €18.0 million ($22.5 mm) from a loss of €15.0 million ($16.1 mm) in the first quarter last year. Operating margin was reduced to negative 14.3% versus negative 12.4% in the year-ago period.

Salomon sales are expected to grow for the full year, but gross margin and operating profit are expected to remain under pressure.

Consolidated adidas-Salomon group sales declined 2.8% in Euro terms to €1.62 billion in the first quarter, but were up approximately 3.0% in currency-neutral terms. Total currency-neutral footwear sales decreased 3.0% for the quarter and fell 9.0% in the reporting Euro terms to €769 million compared to €841 million in Q1 last year.

Consolidated apparel sales grew 13% in Q1, led by double-digit gains in some Sport Performance categories, better Sport Heritage sales, and increases at Salomon.

Net income for the group jumped 41.2% to €72.0 million ($89.9 mm), or €1.58 per share, due largely to a 340 basis point improvement in the afore-mentioned gross margin that came in at 45.9% of sales versus 42.5% in the year-ago period.