adidas-Salomon saw fairly balanced sales increases across all three divisions in the third quarter, but a slowdown in brand adidas order backlog in Europe is offsetting excitement over renewed energy in North America. Total third quarter net sales grew 5.4% in euro terms to 1.95 billion ($2.39 bn) from 1.85 billion ($2.09 bn) in Q3 2003. Currency-neutral sales increased 9%.
Gross margin improved 280 basis points to 47.8% of sales from 45.0% in the year-ago period. Net income was up 19.3% to 179 million ($219 mm), or 3.91 ($4.78) per diluted share, versus 150 million ($169 mm), or 3.31 ($3.73) per diluted share, in Q3 2003.
Salomon sales were up 3.0% to 205 million ($251 mm) in Q3 compared to 199 million ($224 mm) in the year-ago period, but increased 6.0% in currency-neutral terms. Sales in Europe grew 12.4% for the period to 118 million from 105 million in the year-ago quarter. In North America, Salomon saw sales increase 2.6% when measured in U.S. dollars, but declined 5.5% in Euro terms to 69 million ($84 mm) from 73 million ($82 mm) in Q3 last year. Asia/Pacific sales fell 15.8% in Q3 to 16 million ($20 mm) from 19 million ($21 mm) in the year-ago period and Latin America sales were flat at 1.0 million ($1.2 mm) in the quarter.
Gross margins at Salomon declined 180 basis points in Q3 to 42.9% of sales versus 44.7% of sales in the year-ago period. The decrease is due to FX rate impact of sourcing goods in Europe that are sold internationally. Reduction in operating expenses more than offset declines in GM as operating profit for the division rose 5.6% to 25 million ($31 mm). Salomon posted a YTD operating loss of 7.0 million, a 133% increase compared to the 3.0 million operating loss posted in the YTD period last year.
Looking ahead, the company expects full year currency-neutral sales at Salomon to increase at a mid-single-digit rate, but GM and operating margin are expected to decline.
adidas-Salomon reiterated its August guidance that calls for Group revenues to increase by around 5% on a currency-neutral basis, with double-digit currency-neutral growth in Asia and Latin America and mid-single-digit sales growth in Europe. North America sales are expected to increase 3% to 5% for 2004. For 2005, adidas-Salomon sees mid- to high-single-digit currency-neutral revenue growth and 10% to 15% growth in earnings.
