Adidas AG Tuesday reported net profit jumped 32% to 169 million euros ($261.7 million) from 128 million euros a year earlier. Revenue rose 3.3% to 2.62 billion euros ($4.05 billion) from 2.54 billion euros. Group sales increased 10% on a currency-neutral basis, driven by double-digit sales growth in the adidas and TaylorMade-adidas Golf segments. Revenues in the Reebok segment, however, declined. Currency movements negatively impacted Group sales in euro terms.
The adidas and TaylorMade-adidas Golf segments set the pace for the Groups sales growth in the first quarter of 2008. Currency-neutral adidas segment revenues increased 14% during the first three months, driven by strong performance product sales in nearly all major categories. Currency-neutral sales in the Reebok segment declined 6% in the first quarter of 2008, mainly as a result of Reeboks repositioning efforts in the USA and the UK. At TaylorMade-adidas Golf, currency-neutral revenues increased 17%, due to the strong product offering in all major categories, helped by several new product launches. Currency translation effects negatively impacted sales in all segments in euro terms. adidas sales in euro terms increased 8% to 1.968 billion euros($3.04 billion). Sales at Reebok decreased 13% to reach 454 million euros ($704 million). TaylorMade-adidas Golf sales in euro terms increased 6% to 191 million euros ($295 million) in 2008.
The gross margin of the adidas Group increased by 2.3 percentage points to a new record level of 49.1% of sales in the first quarter of 2008 (2007: 46.8%), driven by improvements in all brand segments. This is related to an improving product and regional mix, increased own-retail activities as well as favorable currency movements. Cost synergies resulting from the Reebok integration into the adidas Group continued to have a positive impact. As a result of the Groups strong underlying top-line growth and gross margin improvement, gross profit for the adidas Group rose 8% in the first quarter of 2008 to reach 1.288 billion euros ($1.99 billion).
Operating margin increases by 1.7 percentage points The Groups operating margin increased 1.7 percentage points to 10.8% in the first quarter of 2008 (2007: 9.0%). A strong gross margin increase was partly offset by modestly higher operating expenses. Operating expenses as a percentage of sales increased 0.5 percentage points to 39.2% of sales (2007: 38.7%). This development was a result of higher operating overhead costs in the adidas and Reebok segments mainly due to increased infrastructure expenses in emerging markets. Operating profit for the adidas Group increased 23% in the first quarter of 2008 to reach 282 million euros ($436 million).
Income before taxes increases by 31%
As a result of the Groups operating margin increase as well as lower net financial expenses, income before taxes as a percentage of sales increased by 2.0 percentage points to 9.6% in 2008 from 7.5% in 2007. Income before taxes for the adidas Group increased 31% to 250 million euros ($386.7 million).
Net income attributable to shareholders up 32%
The Groups net income attributable to shareholders increased 32% to 169 million euros ($261.4 million) in the first quarter. This development is a result of the Groups strong operating margin improvement and lower net financial expenses. In addition, the Groups tax rate, which decreased by 0.4 percentage points to 32.0% in the first quarter of 2008 from 32.4% in the prior year, contributed to this development.
Basic and diluted earnings per share increase 33 and 32%
Basic earnings per share increased 33% to 0.84 euros in the first quarter of 2008 versus 0.63 euros in the prior year. Diluted earnings per share in 2008 grew 32% to 0.79 from 0.60 euros in the prior year.
Over 3.2 million shares repurchased in the first quarter
On January 29, 2008, adidas AG announced the launch of a share buyback program to repurchase up to 5% of the companys stock capital until November 2008. During the first quarter, the Group purchased over 3.2 million shares at an average price of 42.03 euros. The buyback volume amounted to 134.8 million euros in the first quarter. Over the entire buyback period, since January 30 to date, adidas AG bought back 5.5 million shares at an average price of 41.73 euros. The total buyback volume amounted to 229.9 million euros.
Group inventories grow in line with business expectations
Group inventories increased 3% to 1.578 billion euros ($2.44 billion) at the end of the first quarter of 2008 versus 1.536 billion euros in 2007. On a currency-neutral basis, this represents an increase of 13%. This increase is in line with the Groups business expectations. It mainly reflects business expansion in emerging markets as well as preparation for deliveries of UEFA EURO 2008 related products in the second quarter. Group receivables decreased 7% to 1.645 billion euros ($2.54 billion) at the end of the first quarter of 2008 versus 1.777 billion euros in the prior year. On a currency-neutral basis, receivables were stable.
Net borrowings reduced
Net borrowings at March 31, 2008 were 2.073 billion euros ($3.2 billion), down 18% versus 2.519 billion euros in the prior year. Strong bottom-line profitability and continued tight working capital management more than offset the financing of the adidas AG share buyback program. Currency effects also positively impacted this development.
adidas backlogs grow strongly
Backlogs for the adidas brand at the end of the first quarter of 2008 increased 13% versus the prior year on a currency-neutral basis. This improvement was supported by adidas strength in all major categories. In euro terms, adidas backlogs grew 5%. Footwear backlogs increased 14% in currency-neutral terms (+6% in euros). Double-digit growth in both Asia and Europe more than offset a decline in North America. Apparel backlogs grew 13% on a currency-neutral basis (+5% in euros), driven by strong double-digit increases in Asia and Europe. Hardware backlogs grew largely due to increases in the football category.
In 2008, adidas Group sales are expected to increase at a high-single-digit rate on a currency-neutral basis, driven by growth at all brands. The adidas segment is projected to achieve high-single-digit currency-neutral sales growth in 2008. Revenues in the Reebok segment are expected to grow at a mid- to high-single-digit rate on a currency-neutral basis. The target was raised in March versus initial guidance due to the announced joint venture of Reebok and Vulcabras S.A. in Brazil and Paraguay. Since April 1, 2008, the joint venture distributes Reebok footwear, apparel and accessories in these countries. Currency-neutral TaylorMade-adidas Golf sales are forecasted to grow at a mid-single-digit rate. The adidas Group gross margin is expected to increase modestly to a range of 47.5 to 48.0%, driven by improvements in all three brand segments. The operating margin for the adidas Group is projected to increase to at least 9.5%. Full year net income attributable to shareholders is projected to grow by at least 15% in 2008 versus the 2007 level of 551 million euros ($852.2 million.)
Hainer stated: “In 2008, we will reach new heights on both the top and bottom line. A summer of excitement is ahead of us. Our brands will be front and center at the two major sporting events, the UEFA EURO 2008 and the Olympic Games. Despite a challenging market environment, we are optimistic we will achieve all our targets.”