adidas-Salomon reported sales for the first quarter ending March 31, 2003 increased 2% to 1.67 billion ($1.8 billion). On a currency-neutral basis, sales grew 12%. Gross margin grew 70 basis points to 42.5% in 2003 from 41.8% in 2002. The Group’s net income increased 19% to 51 million ($55 million) in 2003. This represents basic earnings per share of 1.13 ($1.22) versus 0.95 ($0.83)in the prior year.
adidas Brand Leads Group Growth
adidas revenues increased by 6% from 1.33 billion ($1.16 billion) in the first three months of 2002 to 1.41 billion ($1.52 billion)in 2003. On a currency-neutral basis, this increase was 16% and represents the brand’s highest gain in more than four years. Drivers of this growth were strong developments in running, football and basketball.
Salomon sales grew 1% (+7% currency-neutral) from 123 million ($107 million) to 124 million ($134 million). This improvement reflects solid double-digit growth in apparel, bicycle components and alpine skis in the otherwise challenging winter market sector.
TaylorMade-adidas Golf figures were affected by the change in the timing of product introductions and the non-renewal of the Slazenger Golf license. This was reflected in a decline of 24% (-11% currency-neutral) from 176 million ($153.2 million) to 134 million ($145 million) for TaylorMade-adidas Golf in the first quarter.
Europe and Asia Drives Regional Sales Improvement
- Sales for adidas-Salomon in Europe increased 10% from 851 million ($740.5 million) in the first quarter of 2002 to euro 933 million ($1.0 billion)in 2003. On a currency-neutral basis, this increase was 12%, representing the strongest growth in the region in seven quarters.
- Asia was again the fastest growing region for the Group in the first quarter. Sales increased 8% to reach 281 million ($303.5 million)in 2003. On a currency-neutral basis, this increase was 21%.
- In North America, 2003 first quarter sales for the Group declined 15% to 405 million ($437.4 million), but actually increased 4% on a currency-neutral basis.
- In Latin America, sales declined 8% in the first quarter of 2003 to 36 million ($38.9 million). On a currency-neutral basis, sales grew 45%.
Currency-neutral adidas Backlogs Up 9%
At the end of the first quarter of 2003, order backlogs for brand adidas declined 2%. On a currency-neutral basis, this equates to an increase of 9%.
- Footwear backlogs declined 1% but were up 11% on a currency-neutral basis. Apparel orders were down 3%, however in currency-neutral terms this represents an increase of 6%.
- In Europe, orders increased 8% (+12% currency- neutral) supported by strong footwear which increased 14% (+19% currency- neutral). Apparel backlogs grew 3%. On a currency-neutral basis, this is a 7% increase.
- In Asia, backlogs grew 7% (+22% currency-neutral). Footwear backlogs declined 2% (+12% currency-neutral), while apparel orders grew 21% (+38% currency-neutral).
- In North America, order backlogs decreased 22% (-3% currency-neutral). Footwear backlogs declined 20% (+0% currency-neutral). Apparel orders declined 27% (-9% currency-neutral). However, this reduction reflects improvements in the Group’s global supply chain, which have shortened the order window for customers by one full month starting in the first quarter of 2003. On a like-for-like basis, currency-neutral apparel orders increased at mid-single-digit rates.
adidas-Salomon gross profit grew 4% in the first three months of 2003 to reach 708 million ($764 million)versus euro 684 million in 2002.
Operating expenses, including selling, general and administrative expenses (SG&A) and depreciation and amortization (excluding goodwill), grew 1% to 592 million ($639 million)in 2003. As a percentage of net sales this equates to 35.5% which is 0.3 percentage points lower than the 2002 level of 35.8%. Operating profit for the Group increased 18% to 116 million ($125 million) in 2003.
Herbert Hainer, Chairman and CEO of adidas-Salomon, stated, “adidas-Salomon has started 2003 strongly, with sales for the Group up 12% on a currency-neutral basis. All of our operating measurements moved visibly in the right direction. Our 19% earnings increase is the highest first quarter improvement in six years. But we still have work ahead of us for the remainder of the year, in particular when we look at our adidas order backlog development in North America. Our North American organization is already moving on several initiatives to re-ignite the success of the previous quarters.”
At the end of March, inventories were reduced by 8% to 1.1 billion ($1.2 billion)in 2003. On a currency-neutral basis, inventories increased 2%, which is considerably below sales growth expectations for the second quarter. Receivables decreased by 3% year-over-year to 1.4 billion ($1.5 billion) in 2003. On a currency-neutral basis, receivables increased by 9%. This rate is below the Group’s first quarter currency-neutral sales growth and reflects strict discipline in the Group’s trade terms management.
As a result of adidas backlogs, retailer feedback and the anticipated macroeconomic environment, adidas-Salomon is maintaining its 2003 sales growth target of around 5% on a currency-neutral basis. The net income growth target for the Group also remains unchanged with earnings expected to grow between 10 and 15%.
Herbert Hainer continued, “I am pleased to confirm that our Group’s financial and operational targets for 2003 remain unchanged, with further sales increases, a stable high gross margin and an improving operating margin. Regional market developments are subject to rapid changes, but we have proven over the last three years that we are strong enough and fast enough to deliver, despite the ever-changing conditions on the fields on which we compete.”
adidas-Salomon CONSOLIDATED INCOME STATEMENT (IFRS) 1ST QUARTER 2003 EUROS IN MILLIONS 2003 2002 Change 2003/2002 NET SALES 1,669 1,638 1.9% COST OF SALES 960 954 0.7% GROSS PROFIT 708 684 3.6% (% OF NET SALES) 42.5% 41.8% 0.7 PP SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 567 563 0.8% (% OF NET SALES) 34.0% 34.4% (0.4) PP DEPRECIATION AND AMORTIZATION (EXCL. GOODWILL) 25 23 10.3% OPERATING PROFIT 116 98 17.9% (% OF NET SALES) 7.0% 6.0% 0.9 PP GOODWILL AMORTIZATION 11 11 1.4% ROYALTY AND COMMISSION INCOME 11 11 (1.2)% FINANCIAL EXPENSES, NET 18 19 (5.3)% INCOME BEFORE TAXES AND MINORITY INTERESTS 98 79 23.2% (% OF NET SALES) 5.8% 4.8% 1.0 PP INCOME TAXES 40 33 20.5% (% OF INCOME BEFORE TAXES AND MINORITY INTERESTS) 41.0% 41.9% (0.9) PP MINORITY INTERESTS (6) (3) 109.1% NET INCOME 51 43 19.1% (% OF NET SALES) 3.1% 2.6% 0.4 PP BASIC EARNINGS PER SHARE (IN EUROS) 1.13 0.95 18.9% DILUTED EARNINGS PER SHARE (IN EUROS) 1.13 -- NET SALES (EUROS IN MILLIONS) 2003 2002 Change 2003/2002 adidas 1,405 1,330 5.6% Salomon 124 123 0.8% TaylorMade-adidas Golf 134 176 (23.9)% EUROPE 933 851 9.6% NORTH AMERICA 405 475 (14.7)% ASIA 281 260 7.9% LATIN AMERICA 36 39 (7.5)%