Showing the brand is indeed regaining market share against Nike and several other competitors, Adidas Group reported currency-neutral revenues for the Adidas Brand vaulted 36 percent in the first quarter in the North America region.

The gain came despite the loss of shelf space due to the exit of Sports Authority and several other chains over the last year that other vendors have blamed for slowing sales. In its most recent quarter ended February 28, Nike only saw a gain of 4 percent in North America. In its first quarter ended March 31, Under Armour’s sales in the region declined 1.1 percent.

“We are continuing the very strong momentum that we have seen in North America in the last two years,” said Adidas CEO Kasper Rorsted, who took the helm at Adidas in October, replacing longtime chief Herbert Hainer.

The gains for the Adidas Brand in the region were led by top line growth in running and Originals, up 27 percent and 28 percent, respectively.

Rorsted also highlighted momentum in China, where currency-neutral sales jumped 30 percent; and e-commerce, which catapulted 53 percent on a global basis. He also noted that the improvements in the quarter came despite severe FX headwinds.

But showing that he remains committed to ongoing improvement despite its recent wins, Rorsted pointed to a number of challenges the company is facing. In Russia, currency-neutral revenues were down 9.8 percent against the target of plus 10 percent. Said Rorsted, “What we are seeing in Russia is a severe impact of the sanctions, but we are also seeing that particularly in apparel lower price points are being shopped.”

Adidas closed 80 shops in Russia in the quarter to further reduce its exposure and the country now accounts for just 3 percent of its sales, but the company doesn’t expect to meet the 10 percent gain it had targeted for the region in 2017.

Same-store growth also slowed in Western Europe in addition to Russia. A decline was also seen in global football and basketball, which is particularly related to the license business. In basketball, it stems from Nike’s pending takeover of its NBA contract. In global football, the decline was partly due to Nike soon replacing Adidas as the kit sponsor of Chelsea.

But many aspects of the business are working for the Adidas Group. Overall, currency-neutral revenues ran up 16 percent in the first quarter. Net sales reached €5.67 billion ($6.22 billion), up 18.9 percent. With operating expenses reduced as a percent of sales, earnings jumped 29.7 percent to €456 million ($500.5 million), topping analysts’ consensus target of €421 million.

Adidas Brand’s sales rose 17.6 percent on a currency-neutral basis to €4.84 billion ($5.32 billion), driven by double-digit increases in the running and outdoor categories as well as at Adidas Originals and Adidas NEO.

Reebok Brand’s sales in the quarter climbed 13.3 percent on a currency-neutral basis to €492.4 million ($540.5 million). The major drivers of the top-line improvement at Reebok were strong double-digit sales increases in the training category and in classics. The gains were partly due to changes in its launch schedule, and Reebok still saw a decline in North America.

In the North America region, currency-neutral sales for the Adidas Brand and Reebok rose 30.6 percent to €988 million ($1.1 billion). The 36 percent gain by Adidas Brand came on top of a 31 percent gain in the same period a year ago.

“Double-digit growth in both the wholesale business, up 40 percent, and retail, up 28 percent, shows the heat of the brand with U.S. wholesales and of course consumers alike,” said Robin Stalker, CFO, on the call. Double-digit sales increases in its training and running categories, as well as Originals.

Revenues at Reebok declined 2 percent in North America, mainly reflecting the planned closure of Reebok factory outlets in the U.S. That led to sales declines in the training and running categories that weren’t fully offset by double-digit growth in classics.

North America also delivered strong profitability improvement in the quarter. While the gross margin increased 40 basis points to 38.1 percent, strong leverage from both its marketing investments and operating overhead pushed operating margin up 7.2 percentage points to 9.8 percent.

Rorsted stressed that the Adidas Brand would have to grow at a similar rate over the next few years to reach its goal of reaching €5 billion in revenues by 2020. Last year, sales for both Adidas and Reebok reached €3.4 billion.

“It’s important that we maintain the growth rate that we have,” he told analysts. “This certainly still stands. We are very happy with the progress and we are very unhappy with the state of where we are but we are making progress in trying to change the latter.”

Greater China’s sales for the Adidas Brand and Reebok reached €990 million ($1.09 billion), up 30.3 percent on a currency-neutral basis. The region’s gain came on top of 30 percent growth in the same period last year. Adidas Brand and Reebok grew 31 percent and 19 percent, respectively, driven by double-digit growth in key performance and lifestyle categories. Stalker said, “This underpins the favorable trends we have been talking about for many quarters, as the disposable income increases, the increase in sport and the growth in sports participation. And of course it reflects the high brand aspiration our brands enjoy within this growing market.”

Operating margin in Greater China increased again, up 90 basis points, to 39.9 percent due to improved pricing, product and channel mix, as well as lower input costs.

In Western Europe, sales for the Adidas Brand and Reebok totaled €1.52 billion ($1.67 billion), up 9.6 percent on a currency-neutral basis. Sales jumped 25 percent in the 2016 first quarter. The gains were driven by double-digit increases in the U.K., Spain, Italy and Poland and a high-single digit climb in Germany. Adidas Brand’s revenues grew 8 percent despite challenging comparisons against the sell-in of UEFA EURO 2016 related product in the prior period. The gains were led by double-digit gains for Originals and NEO. Reebok’s revenues in Western Europe jumped 25 percent, led by double-digit gains in training and classics. Operating margin nonetheless eroded 60 basis points to 21.6 percent due to currency headwinds.

In Latin America, sales for the Adidas Brand and Reebok picked up 8.7 percent on a currency-neutral basis to reach €454 million ($499 million). The gains came despite difficult prior year comparisons resulting from the sell-in of UEFA EURO 2016 and Copa América related product. Challenging economies also led to a slight sales decline in Argentina and Brazil, but double-digit growth was generated in Mexico. Peru and Chile. Adidas Brand was up 7 percent, driven again by Originals and NEO, while Reebok climbed 25 percent. Operating margin in the Latin America decreased 3.3 percentage points to 10.9 percent in Latin America as improved pricing and channel mix were more than offset by the negative currency effects.

In the Russia/CIS region, sales for the Adidas Brand and Reebok slumped 9.8 percent on a currency-neutral basis to €160 million ($176 million) as a result of the challenging consumer sentiment as well as additional store closures.

Japan’s currency-neutral sales were up 21.1 percent to €301 million ($331 million). In the MEAA (Middle East and West Asia) region, revenues climbed 15.3 percent currency-neutral to €833 million ($916 million).

Commenting specifically on the Adidas Brand, Rorsted indicated that the 17.6 percent global growth was boosted by “very strong growth” in women’s, up 28 percent. Women’s now represents a quarter of the Adidas Brand business, up one percentage point versus the year-ago quarter.

Sports performance increased 4 percent as an acceleration in growth within running and training was offset by a “mixed” performance in global football and basketball. Basketball, as previously mentioned, was impacted by its NBA contract exit. In global football, footwear is expanding but the apparel side is being hurt by its Chelsea exit and being a “non-event year.”

Originals grew 30 percent globally. Double-digit growth was generated in all markets, except Russia and China. The gains were led by 50 percent growth in its modern footwear franchises. The NMD, the Tubular and the Shadow and the EQT. Rorsted said the Adidas Brand is reaching its goal of “building a broader franchising landscape to ensure that when different franchises are in different stages of their lifecycle, we have shown that [some] over time will decline, we are certain that [others] over time will pick up and that means also the split between the ‘old and new franchises’ are now close to 50-50.”

Reebok’s 13 percent growth was driven by a couple of different events, including an accelerated effort to expand the brand in China with new stores and a shift to a different launch schedule in the past year. Despite the strong growth, particularly seen in training and classics, the CEO said the company remains “quite happy” seeing Reebok growth a 6 percent to 8 percent rate as its turnaround efforts are just starting. They include the closing of 50 stores in the U.S., of which 30 have already shuttered. Reebok is also bringing in a new design structure that should improve its overall cost of goods, defined new consumer touch-points in the creation process, and initiated some design changes that require a 12- to 18-month lag to become fully effective.

Said Rorsted, “What we need to do is we need to make sure that the quality of the top line is found on the bottom line rather than having a larger top line. So overall not a bad situation, but this is far too early to do any celebration when it comes to Reebok. We still have a long way ahead of us.”

In its Other Businesses segment (TaylorMade-Adidas Golf and CCM Hockey), sales on a currency-neutral basis improved 3.9 percent to €421 million ($463 million). The gain was driven by increases in Other centrally managed businesses as well as at TaylorMade.

TaylorMade’s sales on a currency-neutral basis grew 4.4 percent to €294 million ($323 million). Currency-neutral CCM Hockey sales were down 10.8 percent to €35 million ($38.5 million), reflecting sales declines in the licensed apparel business in light of the upcoming transition of the existing NHL partnership to the Adidas brand as well as lower revenues in the brand’s equipment business.

Rorsted said the company continues to look to sell the TaylorMade but had no update. He said, “We have not been happy with the progress that we made but we will report when an agreement has been made.”

Adidas Group also put its CCM Hockey business up for sale last quarter and Rorsted said the company is “making good progress on and are engaged in relation in discussions with interested parties.”

The company’s gross margin decreased 0.2 percentage points to 49.2 percent. Anticipated significant FX headwind in the quarter was almost completely offset by better pricing and product mix as well as lower input costs.

Other operating expenses as a percentage of sales decreased 1.3 percentage points to 39.1 percent, mainly as a result of operating leverage in expenditure for point-of-sale and marketing investments, reflecting the different phasing of the company’s marketing spend this year.

The company’s operating profit increased 29 percent to €632 million ($694 million). Net income from continuing operations is also projected to increase at a rate between 18 percent and 20 percent to a level between €1.2 billion and €1.225 billion

Photo courtesy Adidas