The adidas Group reported its fourth-quarter earnings fell sharply amid continued sales declines but said it expects growth to resume this year on the strength of its marketing around the FIFA World Cup, momentum seen in its adidas Originals lifestyle collection, and sizeable growth expected from Reebokâ€s toning collections.

Fourth-quarter earnings tumbled 65% to €19 million ($25.9 mm). Sales dropped 4.5% to €2.46 billion ($3.4 billion), but on a currency-neutral basis sales were stable compared with a year earlier.  Operating profit fell to €42 million ($57 mm), reflecting higher marketing costs ahead of the 2010 soccer World Cup, as well as the support of Reebok’s growth strategy in North America. Write-downs on Reebok’s distribution rights in China and also had a negative impact on the company’s other operating expenses.
By brand, adidas sales slid 4.2% in the quarter to €1.74 billion ($2.37 bn) and were down 0.4% on a currency neutral basis. Adidas Sports Style revenues decreased 3% on a currency neutral basis. One bright spot was Adidas soccer, where sales were up 27% currency neutral in the quarter, helped by the launch of the Jabulani official World Cup match ball.
Reebokâ€s revenues slid 7.6% to €412 million ($561.5 mm) and were down 1.1% on currency neutral basis. Double-digit increases in women’s fitness were more than offset by declines in classics and men’s training. On the upside, Reebokâ€s sales, led by its EasyTone toning launch, grew in North America for the first time since its acquisition, rising 4% currency neutral.
Overall revenues in its wholesales segment (adidas/Reebok wholesale) slid 8% to €1.65 billion ($2.2 bn) and gave back 4.3% on a currency neutral basis. Gross margin in the wholesale segment improved by 1.1 percentage points in the quarter, mainly due to lower clearance sales compared to the prior year and the improvements at the adidas brand.
In its retail segment, revenues increased 7.1% to €497 million ($677.2 mm) and advanced 13.9% on a currency neutral basis. The gains were driven by store openings and by currency-neutral increases in all regions. Comps improved “considerably” with adidas comp store sales down only 2% while Reebok increased 12%, with a particularly strong performance from e-commerce. It added 328 stores last year and ended with 2,212. Gross margin in the retail segment declined 0.8 percentage points in the quarter, mainly due to currency devaluation effect related to the Russian ruble.

Revenues in its Other Businesses segment (TaylorMade-adidas Golf, Rockport, Reebok-CCM Hockey) dipped 3.2% to €308 million ($419.6 mm) but increased 2.2% on a currency-neutral basis. TaylorMade-adidas Golfâ€s revenues slid 0.2% to €198 million ($269.8 mm) but advanced 5.6% on a currency-neutral basis due to continued momentum in irons as well as a strong performance in golf balls.
 
Rockportâ€s sales slumped 14.2% to €53 6 million ($73 mm) with currency-neutral sales off 7.3%. Reebok-CCM Hockeyâ€s sales slid 6.8% to €50 million ($68.1 mm) and 4.7% on currency-neutral basis. Gross margin in the Other Business segment increased 3.4 percentage points due to improvements at TaylorMade-adidas Golf and Rockport
By region, currency-neutral revenues in Western Europe and European Emerging Markets increased 3% and 8% respectively, supported by strong growth in soccer. Currency-neutral Group sales in North America declined 7% as declines in adidas offset gains in Reebok. In Greater China, currency-neutral sales declined 22% due to the continued efforts to reduce inventories in the market. Sales in Other Asian Markets and in Latin America were up 2% and 20% on a currency-neutral basis, respectively.
Gross margins in the quarter decreased 0.2 percentage to 46.2% from 46.4% points as negative currency devaluation effects and higher sourcing costs were almost entirely offset by a positive impact from lower clearance sales compared to the prior year. Other operating expenses as a percentage of sales increased mainly due to higher marketing expenses as a percentage of sales related to the 2010 FIFA World Cup as well as the support of Reebok’s growth strategy in toning in North America. In addition, write-downs on Reebok’s distribution rights in China as well as on own-retail stores negatively impacted the Group’s other operating expenses.
For the full year, Group revenues decreased 6% on a currency-neutral basis, as a result of lower Wholesale and Other Businesses sales, which more than offset an increase in Retail revenues. Currency-neutral Wholesale revenues decreased 9%, impacted by declines in both adidas and Reebok sales. Currency-neutral Retail sales increased 7% as a result of higher adidas and Reebok sales. Revenues in Other Businesses declined 4% on a currency-neutral basis, primarily impacted by lower TaylorMade-adidas Golf and Rockport sales.
Currency-neutral adidas Group sales declined in all regions except Latin America in 2009. Revenues in Western Europe declined 5% primarily as a result of lower sales in France and Iberia. In European Emerging Markets, Group sales decreased 7% on a currency-neutral basis, primarily due to declines in Russia as a result of the devaluation of the Russian ruble against the functional currency, the US dollar, which could not be offset by price increases. Sales for the adidas Group in North America decreased 10% on a currency-neutral basis due to declines in the US and Canada. Sales in Greater China decreased 16% on a currency-neutral basis. Revenues in Other Asian Markets declined 3% primarily as a result of decreases in Japan. In Latin America, sales grew 19% on a currency-neutral basis, with double-digit increases in most of the region’s major markets, also supported by the consolidation of new companies in the region. Group revenues in euro terms decreased 4% to €10.381 billion ($14.2 bn).
Looking ahead, adidas Group expects sales to increase at a low- to mid-single-digit rate on a currency-neutral basis in 2010 as the positive impacts from the 2010 FIFA World Cup, the Group’s high exposure to fast-growing emerging markets as well as improvements at the Reebok brand offset an expected slow turnaround in consumer demand and continuing cautious retailer behavior.
On a conference call, chairman and CEO Herbert Hainer said twelve of adidas†teams at the World Cup, including host nation South Africa, will compete in the finals, providing the brand with “unmatched presence” at the event. The event will broadcast in over 190 countries with an estimated aggregated audience of 26.3 billion, and adidas has secured exclusive TV rights in various countries, including ESPN in North America.
The launch of the Jabulani World Cup ball, as well as home federation jerseys  and adiPURE, “continue to see high demand,” Hainer said. Additional launches around soccer are planned every month leading up to the event. This includes next installation of Air 50, “where I can tell you retail demand has been very strong,” said Hainer. Adidas expects to generate a new record level of over €1.3 billion in sales in the football category in 2010.
Hainer noted that adidas Sport Style revenue grew 9% on a currency-neutral basis last year to a record level of €1.7 billion. Adidas Originals, the centerpiece of the adidas Sport Style division, has more than 2.4 million fans on Facebook, which Hainer said was more than any sports brand in the world. To build on the momentum, adidas Originals will launch a new global campaign with a strong emphasis on its musicians, style icons, and athletes while also highlighting current originals products such as Star Wars and various originals original collections by designers such as Jeremy Scott, Kazuki, and James Bond.
Reebok is expanding its toning product offering beyond women’s and walking to include EasyTone for walking and casual wear, train tone for training exercises and the gym, run tone for running, and trim tone. Together, Reebokâ€s entire toning offering is expected to grow to more than five million pairs in 2010. Marketing will be increased significantly to support Reebokâ€s toning collection. At the start of the year, Reebok launched a new global marketing platform that uses a motto REE, standing for how Reebok is aiming to “REE-define sports and style.” In Germany, Reebok will be a big part of this year’s TV series German’s Next Top Model.
“Building on the huge success of EasyTone in 2010, we will significantly extend our product range, price point, and distribution coverage, as well as increase our marketing efforts for the category outside of the United States,” said Hainer.
A second major growth opportunity for Reebok is ZigTech, a new running and training shoe concept that is being supported by the biggest Reebok campaign since prior to the acquisition.
At retail, the company overall plans to open 150 stores and remodel 200 in 2010. It is also launching NBA in-store shops in 69 Champs Sports locations this month with plans for the concept to reach the remaining almost 500 Champs Sports stores by October.
Hainer concluded by saying that although 2009 was a challenging year, the company made “many game changing decisions” that will support its growth in the years to come.
“Our financial position is very healthy. Our brand concepts and campaigns are strong. The FIFA World Cup will give us an extra stimulus and the retail industry is finally beginning to show signs of life again as global trade strengthens and consumer confidence slowly begins to recover,” said Hainer. “Therefore, we will make the most out of the tremendous opportunities we have in 2010 to grow stronger by investing in marketing and key distribution channels. This will ensure that we continue to secure the highest possible return on our key assets, our brands and our products both in the current year but also important beyond.”