In the first quarter of 2012, Group revenues increased 14 percent on a currency-neutral basis as a result of double-digit sales increases in Wholesale, Retail and Other Businesses. Currency translation effects had a positive impact on sales in euro terms. Group revenues grew 17 percent to €3.82 billion ($5.01 bn) in the first quarter of 2012 from €3.27 billion ($4.47 bn) in 2011.
“We are off to a fast start in 2012 and there is still plenty to come as Adidas takes center-stage at the UEFA EURO 2012 and the London 2012 Olympics,” commented Herbert Hainer, Adidas Group CEO. “We have worked hard to keep inventories at industry-low levels. With the backdrop of clean markets, you will see us push forward with a whole host of new innovative product and brand experiences that will continue to excite consumers and customers around the world.”
Group sales increase driven by double-digit sales growth in all segments
In the first quarter of 2012, currency-neutral Wholesale revenues increased 10 percent due to double-digit sales growth at Adidas. Currency-neutral Retail sales increased 16 percent versus the prior year, driven by 9 percent comparable store sales growth. Revenues in Other Businesses were up 32 percent on a currency-neutral basis, driven by strong double-digit sales increases at TaylorMade-Adidas Golf and Reebok-CCM Hockey.
Currency translation effects had a positive impact on segmental sales in euro terms. Wholesale revenues increased 13 percent to €2.61 billion ($3.43 bn) from €2.32 billion ($3.17 bn) in 2011. Retail sales rose 20 percent to €693 million ($909 mm) versus €577 million ($789 mm) in the prior year. Sales in Other Businesses grew 37 percent to €517 million ($678 mm).
Currency-neutral sales increase in all regions
In the first quarter of 2012, currency-neutral Adidas Group sales grew in all regions. Revenues in Western Europe increased 7 percent on a currency-neutral basis, primarily as a result of sales growth in the UK, Italy, Poland, Spain and Germany. In European Emerging Markets, Group sales increased 15 percent on a currency-neutral basis due to double-digit growth in most of the region’s markets. Sales for the Adidas Group in North America grew 11 percent on a currency-neutral basis due to strong increases in the USA. Sales in Greater China increased 26 percent on a currency-neutral basis. Currency-neutral revenues in Other Asian Markets grew 26 percent, driven by strong double-digit increases in Japan and South Korea. In Latin America, sales grew 14 percent on a currency-neutral basis, with double-digit increases in most of the region’s major markets. In most regions, currency translation effects had a positive impact on sales in euro terms.
Group gross margin decreases 0.7 percentage points
The gross margin of the Adidas Group decreased 0.7 percentage points to 47.7 percent in the first quarter of 2012 (2011: 48.5 percent). The increase in input costs more than offset the positive impact from a more favorable product and regional sales mix as well as a larger share of higher-margin Retail sales.
Operating margin improves 1.1 percentage points
Group operating profit increased 30 percent to €409 million ($536 mm) in the first quarter of 2012 versus €313 million ($428 mm) in 2011. As a percentage of sales, the operating margin of the Adidas Group was up 1.1 percentage points to 10.7 percent (2011: 9.6 percent). This was primarily due to the positive effects from lower other operating expenses as a percentage of sales, which more than offset the decrease in gross margin. Higher royalty and commission income as well as higher other operating income also contributed to this development. Other operating expenses as a percentage of sales decreased 1.6 percentage points to 38.4 percent from 40.0 percent in 2011. In euro terms, other operating expenses increased 12 percent to €1.47 billion (2011: €1.31 billion), as a result of higher marketing expenditure as well as the expansion of the Group’s own-retail activities. Thereof, sales and marketing working budget expenditures amounted to €426 million, which represents an increase of 2 percent versus the prior year level (2011: €417 million).
Financial income grows 78 percent
Financial income increased 78 percent to €8 million in the first quarter of 2012 from €5 million in the prior year, mainly due to an increase in interest income.
Financial expenses decrease 16 percent
Financial expenses decreased 16 percent to €28 million in the first quarter of 2012 (2011: €33 million). The decrease in negative exchange rate effects contributed to the decline.
Income before taxes as a percentage of sales increases 1.5 percentage points
Income before taxes (IBT) for the Adidas Group increased 36 percent to €389 million ($510 mm) from €285 million ($390 mm) in 2011. IBT as a percentage of sales improved 1.5percentage points to 10.2 percent in the first quarter of 2012 from 8.7 percent in 2011. This was a result of the Group’s operating margin increase and lower net financial expenses.
Net income attributable to shareholders up 38 percent
The Group’s net income attributable to shareholders increased to €289 million ($379 mm) in the first quarter of 2012 from €209 million in 2011. This represents an increase of 38 percent versus the prior year level. Higher IBT was the primary reason for this development. The Group’s tax rate decreased 1.0percentage points to 25.5 percent (2011: 26.5 percent), mainly due to a more favorable earnings mix.
Basic and diluted earnings per share reach €1.38
In the first quarter of 2012, basic and diluted earnings per share amounted to €1.38 ($1.38), representing an increase of 38 percent. The weighted average number of shares used in the calculation of both basic and diluted earnings per share was 209,216,186 (2011 average: 209,216,186) as there were no potential dilutive shares in the quarter.
Group inventories up 13 percent currency-neutral
Group inventories increased 17 percent to €2.38 billion ($3.17 bn) at the end of March 2012 versus €2.03 billion ($2.87 bn) in 2011. On a currency-neutral basis, inventories grew 13 percent, reflecting input cost increases as well as expectations for continued growth in the coming quarters.
Accounts receivable increase 8 percent currency-neutral
At the end of March 2012, Group receivables increased 10 percent to €2.37 billion ($3.16 bn) as a result of the Group sales growth. On a currency-neutral basis, receivables were up 8 percent. This growth is lower than the 13 percent currency-neutral wholesale-related sales increase in the first quarter of 2012 and mirrors strict discipline in the Group’s trade terms management and concerted collection efforts.
Net borrowings decrease €274 million
Net borrowings at March 31, 2012 amounted to €640 million, which represents a decrease of €274 million, or 30 percent, versus €914 million at the end of March 2011. The decrease was driven by the strong operating cash flow development over the past 12 months. Currency translation had a positive effect in an amount of €71 million. The Group’s ratio of net borrowings over 12-month rolling EBITDA decreased to 0.5 at the end of March 2012 versus 0.8 in the prior year.
Adidas Group increases guidance for the full year 2012
The exceptional start to 2012 has set the Adidas Group up for another strong year of financial performance. Management now forecasts Adidas Group sales to increase at a rate approaching 10 percent on a currency-neutral basis in 2012 (previously: mid- to high-single-digit rate). Despite the high degree of uncertainty regarding the global economic outlook and consumer spending, Group sales development will be favorably impacted by its high exposure to fast-growing emerging markets as well as the further expansion of Retail. In addition, this year’s major sporting events will provide positive stimulus to Group sales. Currency-neutral Wholesale segment revenues are now projected to increase at a mid- to high-single-digit rate compared to the prior year (previously: mid-single-digit rate). Adidas Group currency-neutral Retail segment sales are projected to grow at a low-teens rate in 2012. Expansion of the Group’s own-retail store base and comparable store sales are expected to contribute at a similar rate to the revenue growth. Revenues of Other Businesses are now expected to increase at a low-teens rate (previously: low- to mid-single-digit rate) on a currency-neutral basis.
In 2012, the Adidas Group gross margin is forecasted to be around 47.5 percent (2011: 47.5 percent). While gross margin in the Retail segment as well as Other Businesses is expected to improve, gross margin in the Wholesale segment is forecasted to decline. As in the prior year, gross margin development will be negatively impacted by increasing input and labor costs year-over-year, particularly in the first half of 2012. However, these negative influences will be largely offset by positive regional mix effects, as growth rates in high-margin emerging markets are projected to be above growth rates in more mature markets.
The Adidas Group’s other operating expenses as a percentage of sales are expected to decrease modestly (2011: 41.4 percent), despite negative one-time charges of up to €70 million related to the potential restructuring and changes to commercial activities in India. Sales and marketing working budget expenses as a percentage of sales are projected to be at a similar level compared to the prior year. Marketing investments will be centered around key sporting events such as the UEFA EURO 2012 and the London 2012 Olympic Games to leverage the outstanding visibility of the Adidas brand during these events. Further, the Group will continue to support Reebok’s growth strategy in the men’s and women’s fitness category and will also invest in growing the Group’s key attack markets North America, Greater China and Russia/CIS. Operating overhead expenditure as a percentage of sales is forecasted to decline in 2012. Higher administrative and personnel expenses in the Retail segment due to the planned expansion of the Group’s store base will be offset by leverage in the Group’s non-allocated central costs.
In 2012, the operating margin for the Adidas Group is expected to increase to a level approaching 8.0 percent (2011: 7.6 percent). Lower other operating expenses as a percentage of sales are expected to be the primary driver of the improvement.
As a result, net income attributable to shareholders is now projected to increase at a rate of 12 percent to 17 percent to a level between €750 million and €785 million. This equates to basic earnings per share between €3.58 and €3.75 (previously: increase at a rate of 10 percent to 15 percent to a level between €3.52 and €3.68; 2011: €3.20). Top-line improvement and an increased operating margin will be the primary drivers of this positive development. In addition, the Group expects lower interest rate expenses in 2012 as a result of a lower average level of gross borrowings. The Group tax rate is expected to be slightly less favorable compared to the prior year, at a level around 28.5 percent (2011: 27.7 percent).
Herbert Hainer stated: “We have set ourselves ambitious, yet realistic growth and profit targets with our strategic business plan Route 2015. We are making great progress as we implement this plan which will secure long-term quality growth and enduring success for our Group.”