Adidas Group has hired an investment bank to consider options for its flagging TaylorMade-adidas Golf business, where a 26 percent sales decline in the second quarter weighed on otherwise encouraging results.

The news comes days after Adidas sold its Rockport comfort shoe business as part of a plan to focus on its core athletic business.

Adidas reported currency-neutral sales increased 5 percent in the second quarter as its Adidas and Reebok brands gained momentum despite tough comps against last year's World Cup and nagging underperformance at its TaylorMade-Adidas Golf unit. 

The German company reported sales at Adidas and Reebok grew 8 and 6 percent respectively in currency-neutral terms, easily offsetting a double-digit sales decline at TaylorMade-Adidas Golf. Adidas announced it had initiated a major turnaround plan for the unit to reverse lower product margins that dragged Adidas Group's gross margin down 90 basis points to 48.3 percent during the quarter. The group reported net income from continuing operations increased 2 percent to €146 million ($161 mm).

In euro terms, Group revenues grew 15 percent during the second quarter to €3.91 billion ($4.32 bn) in 2015 from €3.40 billion in the prior year.

Currency-neutral Adidas revenues grew 8 percent, driven by double-digit sales increases at Adidas Originals and Adidas NEO as well as mid-single-digit growth in the training category. Currency-neutral Reebok sales were up 6 percent versus the prior year as a result of double-digit sales increases in the training, running and studio categories as well as mid-single-digit growth in Classics. Revenues at TaylorMade-Adidas Golf declined 26 percent currency- neutral, due to sales decreases in most categories, in particular metalwoods and irons.

“We have said all along that our new strategy ‘Creating the New’ will already show first positive results this year. The second quarter is proof positive for that,” commented Herbert Hainer, Adidas Group CEO. “I am pleased to see how well Adidas and Reebok are resonating with their respective consumers.”

Double-digit growth in market segments Western Europe, Greater China and MEAA
From a segmental perspective, combined currency-neutral sales of the Adidas and Reebok brands in the second quarter of 2015 grew particularly strongly in Western Europe, Greater China and MEAA, with revenues up at double-digit rates each.

Revenues in Western Europe increased 12 percent on a currency-neutral basis, due to double-digit sales growth at Adidas and high-single-digit growth at Reebok. Currency- neutral sales in North America remained stable, as sales growth at Adidas was offset by declines at Reebok.

Revenues in Greater China were up 19 percent on a currency-neutral basis, reflecting double-digit top-line growth at Adidas and Reebok. Currency-neutral sales in Russia/CIS decreased 14 percent due to declines at both Adidas and Reebok. Further store closures contributed to this development.

In Latin America, revenues grew 9 percent on a currency-neutral basis with double-digit sales growth at Reebok as well as high- single-digit increases at Adidas.

In Japan, sales were down 6 percent on a currency-neutral basis as sales growth at Reebok was more than offset by declines at Adidas which were mainly related to the non-recurrence of last year’s World Cup related revenues.

Sales in MEAA grew 16 percent on a currency-neutral basis, reflecting double-digit top-line growth at both Adidas and Reebok.

Revenues in Other Businesses were down 14 percent on a currency-neutral basis in the second quarter, as double-digit sales growth at Reebok-CCM Hockey and Other centrally managed businesses was more than offset by the significant decline at TaylorMade-Adidas Golf.

Adidas Group initiates turnaround plan at TaylorMade-Adidas Golf
As a reaction to the persisting challenges at TaylorMade-Adidas Golf, the Adidas Group has initiated a major turnaround plan for its golf business. The set of measures is aimed at enhancing the company’s pricing, promotion and trade patterns, as well  as optimising the supply chain and product costs. Furthermore, the Group targets a re- prioritisation of the global marketing spend and significant operating overhead savings at TaylorMade-Adidas Golf. In addition, the Adidas Group has engaged with an investment bank for the purpose of analysing future options for the company’s golf business, in particular the Adams and Ashworth brands.

Second quarter operating margin declines 0.4 percentage points
The Group’s gross profit increased 13 percent to € 1.889 billion (2014: € 1.673 billion) in the second quarter. Gross margin decreased 0.9 percentage points to 48.3 percent (2014: 49.2 percent), as the positive effects from a more favourable pricing and channel mix at Adidas and Reebok were more than offset by higher input costs, negative currency effects as well as lower product margins at TaylorMade-Adidas Golf.

Other operating expenses grew 13 percent to € 1.720 billion, reflecting an increase in sales and marketing working budget investments as well as higher operating overhead costs. However, as a percentage of sales, other operating expenses declined 0.6 percentage points to 44.0 percent (2014: 44.6 percent). In the second quarter of 2015, Group operating profit increased 8 percent to € 234 million (2014: € 217 million), representing an operating margin of 6.0 percent, down 0.4 percentage points from the prior year level (2014: 6.4 percent). This development was primarily due to the decline in gross margin, which more than offset the positive effect from lower other operating expenses as a percentage of sales. Net income from continuing operations increased 2 percent to € 146 million from € 144 million in 2014. Net income attributable to shareholders, which in addition to net income from continuing operations includes net income from discontinued operations, increased 1 percent to € 146 million from € 144 million in 2014.


Group inventories from continuing operations increased 3 percent currency neutral
Group inventories increased 1 percent to € 2.927 billion at the end of June 2015 versus € 2.896 billion in 2014. On a currency-neutral basis, inventories remained virtually unchanged. Inventories from continuing operations increased 5 percent (+3 percent currency- neutral), reflecting the Group’s growth expectations. The Group’s accounts receivable increased 10 percent to € 2.271 billion at the end of June 2015 (2014: € 2.070 billion). On a currency-neutral basis, receivables increased 1 percent. Receivables from continuing operations rose 11 percent (+3 percent currency-neutral).

Net borrowings increase to € 957 million
Net borrowings at June 30, 2015 amounted to € 957 million, compared to net borrowings of € 454 million in 2014, representing an increase of € 502 million. This development is mainly a result of the utilisation of cash for the share buyback programme in an amount of € 601 million. Currency translation had a positive effect of
€ 15 million on net borrowings. The Group’s ratio of net borrowings over EBITDA amounted to 0.6 at the end of June 2015 (2014: 0.4).

Adidas Group confirms guidance for the full year 2015
The Adidas Group expects sales to increase at a mid-single-digit rate on a currency- neutral basis in 2015. The Group’s top-line development will be driven by the ongoing robust momentum at both Adidas and Reebok, in particular in Western Europe, Greater China and MEAA, where revenues are now expected to grow at a double-digit rate each. This, as well as the further expansion and improvement of the Group’s controlled space initiatives, will more than offset the non-recurrence of sales related to the 2014 FIFA World Cup™ as well as the continued weakness at TaylorMade-Adidas Golf, where currency-neutral revenues are now forecasted to decrease versus the prior year level.

The Adidas Group gross margin is forecasted to be at a level between 47.5 percent and 48.5 percent (2014: 47.6 percent). The more favourable pricing and product mix at both Adidas and Reebok together with the more favourable channel mix as a result of the further expansion and improvement of controlled space initiatives are expected to positively influence the Group’s gross margin development. However, adverse currency movements in emerging markets, in particular in Russia/CIS as well as lower product margins at TaylorMade-Adidas Golf are projected to negatively impact the Group’s gross margin development.

In 2015, the Group’s other operating expenses as a percentage of sales are expected to be around the prior year level (2014: 42.7 percent). While sales and marketing working budget investments as a percentage of sales are projected to increase versus the prior year, operating overhead expenditure as a percentage of sales is forecasted to be around the level recorded in 2014.

The operating margin excluding goodwill impairment for the Adidas Group is forecasted to be at a level between 6.5 percent and 7.0 percent (2014 excluding goodwill impairment losses: 6.6 percent). This development will be strongly influenced by currency movements. The Group’s tax rate is expected to be at a level of around 30.0 percent in 2015 and thus above the prior year level (2014: 29.7 percent). Net income from continuing operations excluding goodwill impairment is projected to increase at a rate of 7 percent to 10 percent, thus outpacing the Group’s expected top-line development (2014: net income from continuing operations excluding goodwill impairment losses of € 642 million).

“2015 will be a successful year for the Adidas Group,” said Hainer. “With a strong order book on hand, we are very confident that the robust momentum of our core brands Adidas and Reebok will continue throughout the second half of the year and fuel the targeted top- and bottom-line growth.”