Powered by North America and China, Adidas reported yet another quarter and year of strong sales and profit growth. Adidas executives offered an upbeat look at the coming year and increased its 2020 profit estimate.

Adidas said it now expects net income from continuing operations to increase between 22 percent and 24 percent on average per year from 2015-2020, up from 20 percent to 22 percent. The company continues to expect revenues to to grow between 10 percent and 12 percent on average per year between 2015 and 2020.

In the fourth quarter ended December 30:

  • Sales rose 12.4 percent to €5.06 billion and grew 19 percent on a currency-neutral basis The currency-neutral gains were driven by a 22 percent increased at Brand Adidas. Reebok declined 1 percent on a currency-neutral basis.
  • Gross margins improved 220 basis points to 51.7 percent, mainly due to the positive effects from a better pricing and channel mix.
  • Operating expenses were up 13 percent to €2.6 billion, reflecting a significant increase in marketing expenditure as well as higher operating overhead expenditure. As a percent of sales, operating expenses increased 0.3 percentage points to 50.6 percent.
  • Operating profit more than tripled to €132 million from €41 million in 2016, representing an operating margin increase of 1.7 percentage points to 2.6 percent.
  • Excluding the negative one-time tax impact of €76 million, net income from continuing operations increased to €72 million from €4 million and basic EPS from continuing operations increased to €35 cents from €2 cents in 2016.
  • Losses from discontinued operations (TaylorMade, CCM Hockey) amounted to €38 million in the latest period against €14 million a year ago.
  • Net income attributable to shareholders, excluding the negative one-time tax impact but including losses from discontinued operations, grew to €34 million, or 17 cents, from a net loss of €10 million, or €5 cents.
  • With the charge, the reported net loss in the quarter was €41 million, o r€20 cents a share, against €10 million, or €3 cents, a year ago.

In the full year, sales increased 14.8 percent to €21.2 billion with currency-neutral revenues increasing 16 percent.

Excluding the negative one-time tax impact and the impact of discontinued operations, net income from continuing operations increased 32 percent to €1.43 billion, or €7.05 a share. With the tax impact, net reported earnings grew 7.8 percent to €1.1 billion from €1.02 billion.

Brand Adidas revenues grew 15.4 percent in the quarter to €4.56 billion and expanded 21.9 percent on a currency-neutral basis. The gain reflected strong double-digit sales growth in the running, football and outdoor categories as well as at Adidas Originals and Adidas Neo. In addition, a mid-single-digit sales increase in the training category also contributed to the gain. Currency-neutral sales for Brand Adidas grew 18.1 percent to €19.0 billion for the year.

Revenues at the Reebok brand declined 6.0 percent on a reported basis to €435 million and was off 0.7 percent on a currency-neutral basis. Double-digit increases in the running category as well as in Classics were more than offset by declines in the training category. Currency-neutral sales gained 4.4 percent to €1.84 billion for the year.

Among regions, sales in North America grew 21.3 percent in the quarter to €1.18 billion and expanded 30.8 percent on a currency-neutral basis. Currency-neutral sales in the year expanded 27.4 percent to €4.28 billion.

In Western Europe, sales gained 16.1 percent in the quarter to €1.28 billion and grew 16.6 percent on a currency-neutral basis. Currency-neutral sales gained 12.6 percent in the year to €5.88 billion.

Greater China’s revenues reached €922 million against €741 million, up 24.4 on a reported basis and 31.7 percent on a currency-neutral basis. Currency-neutral sales in the year jumped 29.5 percent to €3.79 billion.

In the Russia/CIS region, sales dropped 16.2 percent to €146 million and were down 13.9 percent on a currency-neutral basis. Currency-neutral sales were down 12.8 percent in the year to Russia/CIS to €660 million.

Latin America’s sales were up 8.3 percent in the quarter to €510 million and gained 18.6 percent currency-neutral. Currency-neutral sales gained 12.3 percent in the year to €1.9 billion.

In Japan, sales were down 7.3 percent in the quarter to €251 million but gained 4.3 percent on a currency-neutral basis. Currency-neutral sales were up 9.9 percent in the year to €1.6 billion.

In the MEAA region, sales of €616 million were down 0.4 percent on a reported basis in the quarter but grew 6.9 percent currency-neutral. Currency-neutral sales grew 10.1 percent in the year to €2.9 billion.

The outlook for the current year calls for:

  • Sales to increase at a rate of around 10 percent on a currency-neutral basis. Currency-neutral revenues are projected to grow at double-digit rates in North America and Asia/Pacific, while currency-neutral sales in Western Europe and Latin America are forecast to improve at a mid-single-digit rate each. In addition, currency-neutral revenues in Emerging Markets are expected to grow at a low-single-digit rate. Currency-neutral sales in Russia/CIS are projected to be around the prior year level.
  • Gross margin is expected to increase up to 0.3 percentage points to a level of up to 50.7 percent.
  • Operating expenses are expected to decline.
  • Operating profits are expected to climb between 9 percent and 13 percent.
  • Operating margin expected to improve to increase between 0.5 and 0.7 percentage points to a level between 10.3 percent and 10.5 percent, up r (2017: 9.8 percent).
  • Net income from continuing operations is projected to increase to a level between €1.62 billion and €1.68 billion, translating to an increase of between 13 percent and 17 percent compared to the prior year level of €1.43 billion, excluding the negative one-time tax impact.

Photo courtesy Adidas