adidas shrugged off a number of questions about its planned acquisitions of rival Reebok International, instead focusing its attention last week on its continued positive trend in North America and a surging Asia/Pacific market. The company, which divested its Salomon business at the end of the third quarter, posted solid gains in its continuing adidas business, while TaylorMade-adidas Golf and Group sales in Europe stagnated.

adidas-Salomon Group sales, including the Salomon business that was sold to Amer Sports, increased 7.8% in the third quarter to €2.09 billion ($2.55 bn) from €1.94 billion ($2.37 bn) in the year-ago period. In euro terms, sales for the company’s continuing operations grew 9.4% to €1.92 billion ($2.35 bn) in Q3 2005 from €1.76 billion ($2.15 bn) in the year-ago period. Currency-neutral sales, excluding the Salomon business, grew 8% for the period.

Net income, including the Salomon business, was up 18.9% to €220 million, or €4.36 per diluted share, versus €185 million, or €3.92 per diluted share in Q3 2004. Net income from continuing operations, which excludes the negative impact of Salomon’s third quarter, increased 28.8% to €209 million ($255 mm), compared to €163 million ($199 mm) in the year-ago period.

For the nine-month YTD period, sales for the Group’s continuing operations increased 10% to €5.12 billion from €4.66 billion in the 2004 YTD period. Currency-neutral sales for continuing operations for the YTD period also rose 10%, with Europe showing flat growth.

North America YTD sales increased 17%, due to double-digit growth in both the Sport Performance and Sport Heritage divisions as well as at TaylorMade-adidas Golf. Asia was up 36% for the YTD period, driven by strong growth in China, where sales nearly doubled, as well as strong increases in Japan, India, and many other countries in the region. Latin America posted a 35% jump for the period, driven by double-digit sales increases in the region’s three biggest markets: Brazil, Mexico, and Argentina.

From a regional standpoint in Q3, Group sales in Europe dipped 0.1% to €968 million versus €967 million in the year-ago period.

For the YTD period, double-digit growth in Europe’s emerging markets and solid increases in Italy and Scandinavia were offset by declines in Iberia, France, and the UK. Brand adidas currency-neutral sales were up 10% for the YTD period, on double-digit growth in Sport Heritage sales and gains in “virtually all” Sports Performance categories. TM-aG currency-neutral sales increased 12% in Europe for the period.

North America sales accelerated further, growing a strong 15.8% to €446 million in the third quarter from €385 million in Q3 last year, and were up 15.6% when measured in U.S. dollars.

In the nine-month period, brand adidas sales were up 15% on a currency-neutral basis, reflecting double-digit growth in both the Sport Performance and Sport Heritage divisions. TM-aG currency neutral sales in the YTD period jumped 24% on the strength of double-digit increases in “all major categories.”

Asia/Pacific saw sales jump 21.5% in euro terms to €402 million from €331 million in Q3 last year, or a 20% increase in currency-neutral terms.

For the year-to-date period, the sales increase was driven by a 33% currency-neutral gain from brand adidas, driven by strong growth in China, where sales “more than doubled” in H1. Japan, India, and many other countries also posted “strong” increases. YTD revenues for TM-aG in the region declined 6% on a currency-neutral basis, due primarily to a decline in Korea that offset “solid sales growth” in Japan and Australia.

Latin America led all regions again in Q3, with sales increasing 46.2% to €95 million versus €65 million in the year-ago period, or a 33% gain in currency-neutral terms. Brand adidas YTD sales increased 35% on a currency-neutral basis, while TM-aG posted a 40% currency-neutral gain off of a very low base.

Brand adidas YTD sales increased 35% on a currency-neutral basis, while TM-aG posted a 40% currency-neutral gain off of a very low base.

For the third quarter, global brand adidas sales increased 10.1% to €1.73 billion from €1.57 billion in Q3 2004. Brand adidas sales in Europe declined 0.3% to €932 million ($1.14 mm) from €935 million ($1.14 mm) in the year-ago period. Sales in North America surged 16.1% to €347 million ($424 mm) from €299 million ($366 mm) in Q3 2004, and increased 15.8% when measured in U.S. dollars. Asia/Pacific sales jumped 30.5% to €347 million ($424 mm) from €266 million ($325 mm) in Q3 last year. Latin America sales increased 47.6% in the quarter to €93 million ($114 mm) from €63 million ($77 mm) in Q3 last year.

Sport Performance sales growth accelerated 5.2% to €1.35 billion ($1.64 bn) in the third quarter and grew 10% in currency-neutral terms for the nine-month YTD period, driven by gains in tennis, running, and training.

The gains were only partly offset by declines in the football (soccer) category, which had to anniversary the impact of the Euro 2004 Championships.

Sport Heritage sales increased 37.5% in Q3 to €385 million ($470 mm) from €280 million ($342 mm) in the year-ago period. Sport Style sales grew 28.6% to €9 million ($11 mm) in the third quarter from €7 million ($8.6 mm) in Q3 last year.

Owned-Retail sales for brand adidas jumped 39.4% in Euro terms to €216 million ($264 mm) from €155 million ($190 mm) in Q3 2004. Excluding Owned-Retail, brand adidas sales increased 6.9% in the third quarter.

Brand adidas operating profit increased 20.4% for the period to €324 million ($395 mm), compared to €269 million ($329 mm) in the year-ago period. Gross margin improved 10 basis points in Q3 to 48.5% of sales.

Based on the strengthening performance in the third quarter and strength in the order backlog, the company now expects brand adidas sales to increase in high-single-digits on a currency-neutral basis for the year, up from its previous guidance of mid- to high-single-digit growth.

TaylorMade-adidas Golf grew just 0.6% for the quarter to €177 million ($216 mm), compared to €176 million ($215 mm) in the 2004 quarter, thanks to flat sales in Europe and a decline in Asia/Pacific that nearly offset North America growth. In U.S. Dollar terms, TM-aG sales stagnated at 0.4% for the period while currency-neutral sales were flat. In Europe, TM-aG sales dipped 0.2% in U.S. dollar terms to roughly $29 million (€24 mm). Sales in the North America region increased 15% for the period to $121 million (€99 mm) from $105 million (€86 mm) in Q3 last year. Asia/Pacific sales fell 17% in U.S. dollar terms to $66 million (€54 mm) from $79 million (€65 mm) in the year-ago period.

TM-aG gross margins for the third quarter fell 400 basis points to 43.9% of sales. Operating profit for the quarter plunged 61% to $11 million (€9 mm) from $28 million (€23 mm) in Q3 last year.

TM-aG said nine-month YTD sales were driven by strong growth across all categories except putters.

The company had expected to see TM-aG sales moderate in the back half of the year due to the lack of any meaningful new product introductions during the time period. However, despite the weak quarter and lack of new product to boost sales, the company still sees full year sales growth in the mid- to high-single-digit range.

adidas Group has raised expectations for the year, now seeing high-single-digit growth for continuing operations for 2005 on a currency-neutral basis. The outlook is based on double-digit sales growth in North America, Asia, and Latin America, and mid-single-digit gains in Europe.

adidas Group
Third Quarter Results 
(Continuing Operations)
In $ millions Third Quarter  adidas  Backlog*
2005** 2004** € Chg CN Chg* FW APP Total
Total Sales $2,348 $2,150 9.4% 8.0% 10% 12% 12%
Europe $1,181 $1,183 0.1% flat 10% 6% 8%
N. America $544 $471 15.8% 15.0% 13% 15% 14%
Asia/Pacific $491 $405 21.5% 20.0% 7% 22% 12%
L. America $115.9 $79.5 46.2% 33.0%      
adidas $2,110 $1,920 10.1% 9.0%    

About The Author

Teresa Hartford

Teresa Hartford Editorial & Creative Director | SGB Media teresa@sgbonline.com | 704.651.5741

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