Adidas AG first quarter net income bounced back to €168 million ($234 million) from €5 million ($6 million) in the year-ago period as gross margins gained 350 basis points and revenue climbed 4% to €2.67 billion ($3.7 billion). Due to its World Cup exposure, success in emerging markets as well as improvements at Reebok; Adidas raised its outlook for 2010 and now expects group sales to increase at a mid-single digit rate on a currency-neutral basis versus a previous forecast of low- to mid-single digit growth.
Particularly strong performances came in the quarter from TaylorMade-Adidas Golf, Adidas Sports Style footwear, and Reebok's new Toning collections and ZigTech collections. Still, much of the growth came from its owned-retail stores, with revenues in its Retail segment (including only Adidas and Reebok stores) jumping 15% to €459 million ($638 million) for the quarter. Currency-neutral Retail sales increased 16% as a result of double-digit Adidas and Reebok growth. Comps advanced 7% for the period, “which is certainly much better than we had anticipated,” said Herbert Hainer, Adidas Group chairman and CEO, on a conference call with analysts.
On a brand basis, Adidas and Reebok retail store comps increased 5% and 15% respectively. North America and European emerging markets at Retail grew 15% and 26% respectively, and “were particularly strong as the consumer recovery in the U.S. and Russia gathered pace,” said Hainer. On a store format basis, comps at concept stores increased 12%, while factory outlet comps were flat. Other retail formats, which include concession shops and e-commerce, grew 43% with online sales almost doubling. The retail segment's gross margins grew 370 basis points to 58.2% of net sales, and operating margin expanded 760 basis points to 11.3% of net sales.
Wholesale revenues (only Adidas and Reebok) increased 1% to €1.90 billion ($2.6 billion) and increased 1% on a currency-neutral basis. Adidas Sports Style wholesale sales grew 22% on a currency-neutral basis, driven by the Style Essentials and Originals collections. Adidas Sports Performance wholesale sales were down 6% currency-neutral with declines in every category except Football (soccer). Reebok's currency-neutral wholesale sales slid 3% as declines in the Classics category offset gains in walking/toning.
By region, Group North American wholesale sales grew 16% on a currency-neutral basis due to double-digit growth in both the U.S. and Canada.
Group wholesale sales gained 4% in Western Europe and 16% in Latin America but declined in Greater China, down 22%; Other Asian markets were off 5% and European Emerging markets were down 17% for the period. The Wholesale segment's gross margins grew 570 basis points to 32.7% of sales and operating margin expanded 20 bps to 33.0%.
By brand across retail and wholesale, Adidas revenues grew 4% currency-neutral in Q1 while overall sales gained 4.2% to €1.92 billion ($2.7 bn), fueled in large part by the upcoming FIFA World Cup in South Africa. Gross margin expanded 70 basis points to 47.7% of sales. In the Football (soccer) category, sales grew 26% currency-neutral, leveraging its sponsorship of the World Cup and related new product launches.
In Running, Adidas' Supernova and Reponse family grew at strong double digit rates, with the Supernova Adapt and Response Trail 16 receiving Runner's World's Editor's Choice awards. In addition, strong marketing initiatives are leading to store placement for the new Adidas miCoach platform.
In Outdoor, Adidas brand sales grew 4% currency-neutral, with sales in a key category, Mountain Sports, up over 60%. In Basketball, international and performance product grew at double-digit rates.
Adidas in March extended its global partnership with the NBA, giving it exclusive rights to all NBA apparel in Europe, beginning with the 2010-2011 NBA season.
The Adidas Sports Style segment also grew 22% currency-neutral overall to over €0.5 billion ($695 million), representing the division's highest growth rate in nearly three years. It also came on top of 12% currency-neutral growth in the Q1 period last year. Hainer said new collections such as Star Wars and Originals by Originals continue to engage this consumer.
In the U.S., Adidas brand sales increased 21%, although some of the gain was supported by “favorable comparisons relating to product take-backs last year,” said Hainer. Nonetheless, Hainer said the Adidas brand's U.S. business is still growing at double-digit rates excluding the take-backs and he believes the brand is regaining market share, particularly with core chains like Dick's Sporting Goods and The Sports Authority. Hainer also added that they plan to increase revenues with “the mall guys,” including Foot Locker, The Finish Line, and “the volume guys.”
