adidas Group Q4 Sales up 21%; Reebok Backlog Down 22%

adidas Group sales increased 12% on a currency-neutral basis in 2005 and increased 13% in euro terms to €6.64 billion ($8.18 bn) in 2005 from €5.86 billion ($7.23 bn) in 2004.

Fourth quarter net sales for the Group increased 21% on a currency-neutral basis with double-digit improvements coming from all regions. In euro terms, sales grew 27% to €1.52 billion ($1.81 bn) in Q4 2005 from €1.20 billion ($1.55 bn) in the fourth quarter of 2004. Gross margin declined 60 basis points to 47.1% versus 47.6% in 2004 as a result of negative effects from TaylorMade-adidas Golf’s golf ball manufacturing contract buy out which more than compensated gross margin increases at brand adidas. Operating profit increased 74% in the fourth quarter of 2005 to €35 million ($41.6 mm) versus €20 million ($25.9 mm) in 2004.

The Group’s net income from continuing operations was down 64% in the fourth quarter, reaching €4 million ($5 mm) versus €10 million ($13 mm) in the prior year, reflecting one-time effects on financial expenses including the cost for options related to the hedging of the Reebok purchase price (payable in US dollars), a loss from other financial assets as well as the new interpretation of IFRS relating to minorities with put options and unrealized losses from short-term financial assets. Income from discontinued operations, net of tax, declined 189% to negative €7 million ($8 mm) in 2005 from €8 million ($10 mm) in the fourth quarter of 2004. Net income attributable to shareholders decreased 118% to negative €4 million ($5 mm) in the fourth quarter of 2005. The net loss per share from continuing and discontinued operations was €0.07 (8 cents) compared to earnings per share of €0.43 (56 cents) in the prior year, reflecting a decrease of 117%.

In the fourth quarter of 2005, currency-neutral sales for the Reebok Group declined 3%. In US dollars, Reebok sales decreased 5% to $930 million from $975 million in the prior year. Excluding Ralph Lauren Footwear revenues following the sale of this business, Reebok sales in the fourth quarter increased 1% in currency-neutral terms, or down one percent in US dollars).

Reebok gross margin increased 100 basis points to 39.5% in the fourth quarter of 2005 from 38.5% in 2004, mainly driven by hedging activities that allowed the Reebok Group to benefit from favorable currency movements. SG&A expenses were reduced by 3% to $310 million in the fourth quarter of 2005 from $320 million in the prior year. Net income was virtually stable at $47.4 million in the fourth quarter of 2005.

Excluding the impact of integration costs and the positive tax effects, diluted EPS for the quarter would have been 60 cents, in line with Reebok’s guidance of between 55 cents and 65 cents.

“2005 has been a great year for our Group. The acquisition of Reebok and the divestiture of Salomon clearly generated a lot of attention for us, and we also completed an impressive turnaround in our business in North America. With all these changes, we increased our focus on the Group’s core activities and delivered, once again, record financial results,” commented adidas-Salomon AG Chairman and CEO Herbert Hainer.

Sales growth in the Brand adidas segment set the pace for Group performance in 2005. Currency-neutral adidas revenues increased 12% in 2005. Drivers of this performance were strong double-digit growth in the Sport Heritage division as well as increases in virtually all Sport Performance categories.

Currency-neutral revenues in the TaylorMade-adidas Golf segment increased 11%, driven by significant growth in all major categories. adidas sales in euro terms were up 13% to €5.86 billion ($7.30 bn) in 2005 from €5.17 billion ($6.44 bn) in 2004. TaylorMade-adidas Golf sales in euro terms grew 12% to €709 million ($883 mm) in 2005 from €633 million ($787 mm) in 2004.

From a regional perspective, Group sales in Europe grew 3% in 2005 on a currency neutral basis with increases from Germany, Italy and France more than compensating declines in the UK and Iberia. In North America, currency-neutral sales grew 17% due to positive development in all major categories throughout the year. In Asia, currency-neutral sales increased 27% in 2005, mainly driven by strong performance in Japan and China. In Latin America, currency-neutral sales increased 32% in 2005, renewing its position as the fastest growing region within the Group.

In euro terms, sales in Europe increased 3% from the prior year’s level to €3.17 billion ($3.94 bn) from €3.07 billion ($ bn) in 2004. In North America, sales in euros increased 17% to €1.56 billion ($1.94 bn) in 2005 from €1.33 billion ($1.66 bn) in 2004. In euro terms, sales in Asia improved 28% to €1.52 billion ($1.90 bn) in 2005 from €1.19 billion ($1.48 bn) in 2004. In Latin America, sales in euro terms grew 43% to €319 million ($397 mm) in 2005 from €224 million ($279 mm) in 2004.

The Group’s gross margin grew 20 basis percentage points to 48.2% of sales in 2005. This represents the highest gross margin in the history of the Group and mainly reflects increased adidas own-retail activities.

Royalty and commission income increased 11% to €47 million in 2005 from €42 million in the prior year. Operating expenses, including selling, general and administrative expenses (SG&A) and depreciation and amortization (excluding goodwill) increased 13% to €2.54 billion, or 38.2% of sales, in 2005 from €2.24 billion, or 38.2% of sales in 2004. In 2005, no goodwill impairment was incurred. This compares to scheduled goodwill amortization from continuing operations of €36 million in 2004. As a result, the Group’s operating profit increased 21% to €707 million in 2005 from €584 million in 2004. This improvement was driven by higher sales and gross margin. Similarly, the operating margin grew 70 basis points to 10.7% of slaes in 2005 versus 10.0% os sales in 2004. On a comparable basis , the Group’s operating profit and margin would have increased 14% or 10 basis points respectively in 2005.

Net financial expenses decreased 11% to €52 million in 2005 from €59 million in 2004. As a result of the operating improvements and lower net financial expenses, the Group’s IBT increased 25% to €655 million in 2005 from €526 million in 2004. On a comparable basis, IBT would have increased 17% in 2005.

The Group’s net income from continuing operations increased 31% to €434 million in 2005 from €333 million in 2004. Strong sales increases, coupled with improving gross and operating margins, were the main drivers of this improvement. The Group’s minority interests increased 11% to €8 million in 2005 from €7 million in the prior year3. The tax rate declined 3.0 percentage points to 33.7% in 2005 from 36.7% in 20043. On a comparable basis, net income from the Group’s continuing operations would have increased 18% in 2005.

The Group’s net income attributabl