adidas Group increased its guidance for the year on better-than-expected gains at both brand adidas and TaylorMade-adidas Golf in the second quarter. The company also increased guidance on its full year brand adidas outlook despite footwear backlog declines in Europe.

adidas Group revenues, including the Reebok business acquired in January of this year, increased 60.2% in the second quarter to €2.43 billion ($3.05 bn) from €1.52 billion ($1.91 bn) in the year-ago period. Currency-neutral sales grew 59% for the period.

Excluding the Reebok business, net revenues grew 19.5% for the second quarter to €1.81 billion ($2.28 bn), with both brand adidas and TaylorMade-adidas Golf posting “higher-than-anticipated” double-digit gains for the period. Sales for the adidas Group excluding Reebok increased 20% on a currency-neutral basis, with double-digit sales gains coming from all regions.

Net income was up 23.9% to €83 million ($104 mm), or €0.39 (49 cents) per diluted share, versus €65 million ($85 mm), or €0.34 ($43 cents) per diluted share in Q2 2005. However, net income from continuing operations, which excludes the negative impact of Salomon’s second quarter last year, decreased 11.7% from €94 million ($119 mm), or €0.48 (61 cents) per diluted share, in the year-ago period.

For the first half, currency-neutral sales for the Group, which included five months of the Reebok business this year, increased 49% and grew 53.2% to €4.89 billion ($6.01 bn) in Euro terms from €3.19 billion ($4.10 bn) in the first half of 2005. Sales for the adidas Group excluding Reebok increased 19.1% for the half to €3.80 billion ($4.67 bn) and grew 16% on a currency-neutral basis, driven by “higher sales in all regions.”

From a regional standpoint in Q2, total Group sales in Europe increased 36.1% to €936 million versus €688 million in the year-ago period, reflecting the addition of the Reebok business as well as gains in the brand adidas business that was attributed to the FIFA World Cup. Excluding the Reebok effect, first half sales in Europe grew 8% on a currency-neutral basis.

For the first half, Group sales in North America excluding Reebok, which posted €616 million ($757 mm) in sales for the last five months of the period, increased 18% in currency-neutral terms. Brand adidas sales were up 16% on a currency-neutral basis, reflecting strong growth in both the Sport Performance and Sport Heritage divisions, with particular strength noted in the basketball, football, and training categories. TM-aG currency-neutral sales in H1 jumped 40% on strong double-digit gains in “nearly all major categories.”

Asia/Pacific saw sales jump 38% in Euro terms to €490 million from €355 million in Q2 last year. For the first half, Group sales increased 34% on a currency-neutral basis and still posted a solid 21% increase for the period when excluding the Reebok business. Latin America sales increased 71.6% to €115 million versus €67 million in the year-ago period. For the first half, currency-neutral sales increased 62% and grew 41% when excluding the impact of Reebok this year, again making it the fastest growing region for the first half.

For the second quarter, brand adidas sales increased 17.3% to €1.53 billion from €1.30 billion in Q2 2005. Brand adidas sales in Europe increased 13.1% to €744 million ($935 mm) from €658 million ($829 mm) in the year-ago period. Sales in North America were up 14.1% to €316 million ($397 mm) from €277 million ($349 mm) in Q2 2005, and increased approximately 13.7% when measured in U.S. dollars.

Asia/Pacific sales jumped 21.8% to €369 million ($464 mm) from €303 million ($382 mm) in Q2 last year. Latin America sales were up more than 50% for the quarter to €98 million ($123 mm).

Sport Performance division sales grew 12.5% to €1.17 billion ($1.47 bn) from €1.04 billion ($1.31 bn) in Q2 last year, delivering most of the brand adidas gain for the period. The Sports Performance business increased 12% on a currency-neutral basis, about triple the gain seen in the first half last year, driven by “strong increases in nearly all major categories.”

Sport Heritage sales increased 32.5% in Q2 to €351 million ($441 mm) from €265 million ($334 mm) in the year-ago period, driven by double-digit growth in both footwear and apparel. For the first half, sales improved 22% on a currency-neutral basis. Sport Style sales roughly doubled to €2 million ($2.5 mm) in the second quarter from €1 million ($1.3 mm) in Q2 last year and grew 39% on a currency-neutral basis for the first half.

Owned-Retail sales for brand adidas were up 38.9% in Euro terms to €257 million ($323 mm) from €185 million ($233 mm) in Q2 2005. Excluding Owned-Retail, brand adidas sales increased 13.7% to €1.27 billion ($1.41 bn) in the second quarter.

adidas Group
Second Quarter Results
(in $ millions) 2006 US $** 2005 US $** € Chg US $**
Total Sales € 2,428 $3,051 € 1,516 $1,911 60.2% 59.6%
adidas € 1,532 $1,925 € 1,304 $1,644 17.5% 17.1%
Reebok € 595 $748 € 646 $814 -7.9% -8.2%
TM-aG € 264 $332 € 202 $255 30.7% 30.3%
Gross Margin 44.60% 48.50% -380 bps
Net Income €83 $104  €67 $84  +23.9% n/a
Diluted EPS €0.39 49¢  €0.34 43¢ +14.7% n/a
*  Currency-Neutral Change.  **  Expressed in US $ terms at average
conversion for period.
 

Brand adidas gross margin improved 250 basis points in Q2 to 46.3% of sales from 43.8% of sales in the year-ago period.

Footwear order backlog for brand adidas reflected strength in tennis and training in Sports Performance as well as Sports Heritage, while the apparel backlog gain was driven by football (soccer), running, tennis, and Sports Heritage. Hardgoods orders were up in double-digits, primarily due to the soccer category.

Based on the “strong first half performance” for the adidas brand, as well as strength in the order backlog and “vigorous growth in the owned-retail sector,” the company now expects brand adidas sales to increase in low-double-digits for the year on a currency-neutral basis. Previous guidance called for high-single-digit growth.

Reebok division revenues were down 12% in the first half on a currency-neutral basis due primarily to weaker sales to key accounts in North America and Europe, which more than offset strong increases in Asia, and “lower sales of Reebok’s lifestyle product offering.”

Reebok brand sales were €849 million for the first half, or a 16% decrease on a currency-neutral basis. Rockport brand revenues were €129 million for the half, or a 3% increase in currency-neutral terms, driven by “good sell-through” of Rockport’s World Tour and Washables Collections. The Hockey Company, which includes the CCM, JOFA, and KOHO brands, saw sales increase 28% on a currency-neutral basis to €72 million, thanks to the NHL being back in business this year.

Reebok segment gross margins were down significantly in the first half on the accounting effects of €49 million related to the purchase price allocation for the acquisition. Reported GM was 35.7% of sales, down 210 basis points from the first quarter, but the H1 margins would have been 38.2% of sales excluding the accounting effects.

Reebok brand backlogs were impacted by “changing order patterns” in the licensed apparel business and the transfer of the NBA and Liverpool deals to brand adidas. The transfer was said to have accounted for roughly three percent of the Reebok backlog decline and two points of the brand adidas increase.

The company now expects Reebok brand sales to decline in mid-single-digits for the year.

Brand adidas Backlog*
  Footwear