adidas Q4 Net Declines 26% on GM Decline, Growth Investment

adidas-Salomon reported that sales grew 3% in Euro terms for the full year 2004 to reach €6.48 billion in 2004 compared to €6.27 billion in 2003. Currency-neutral sales for the adidas-Salomon Group grew 7%.

“2004 was an outstanding year for adidas-Salomon,” commented adidas-Salomon Chairman and CEO Herbert Hainer. “Our teams, athletes and products took center stage at the year’s most exciting sporting events and our Group delivered impressive sales growth as well as record gross margin and earnings.”

Brand adidas was the driver of the Group’s sales growth. Revenues increased 8% on a currency-neutral basis, mainly due to improvements in the Sport Performance division, in football and all major apparel categories. Salomon sales grew 2% on a currency-neutral basis with increases coming from both the winter and summer sports categories. The apparel, cycling and nordic categories delivered a particularly strong performance. TaylorMade-adidas Golf sales grew by 5% on a currency-neutral basis, driven by double-digit increases in the metalwood and apparel categories as well as solid growth in footwear. Currency effects from a strong euro, especially versus the US dollar, negatively impacted sales in euro terms. adidas sales in euro terms increased by 5% to € 5.174 billion from € 4.950 billion in 2003. Salomon revenues declined 1% to € 653 million in euro terms versus € 658 million in 2003. TaylorMade-adidas Golf sales in euro terms were down 1% to € 633 million in 2004 versus € 637 million in 2003.

adidas-Salomon sales by brand in
2004, “Total” includes HQ/Consolidation

On a regional basis, currency-neutral sales for adidas-Salomon in Europe grew 3% primarily as a result of solid growth in the UK, France and Iberia as well as particularly strong performance in the region’s emerging markets. In North America, sales for the Group increased 4% on a currency-neutral basis supported by higher revenues at all brands. In Asia, Group sales grew 17% on a currency-neutral basis, with double-digit increases in many of the region’s countries including the most important markets, Japan and China. Currency-neutral sales in Latin America were up 34%. The main drivers of this growth were strong double-digit increases in Brazil, Mexico and Argentina. Currency effects impacted sales development in euro terms. Sales in Europe increased 3% in euro terms to € 3.470 billion in 2004 from € 3.365 billion in 2003. In North America, sales in euros declined 5% to € 1.486 billion versus € 1.562 billion in the prior year. In Asia, revenues in euros grew 12% to € 1.251 billion in 2004 from € 1.116 billion in 2003. Sales in Latin America increased 26% in euro terms to reach € 224 million in 2004 versus € 179 million in 2003.

adidas-Salomon sales by
region in 2004, Total includes HQ/Consolidation

The adidas-Salomon gross margin grew 2.3 percentage points to 47.2% in 2004 from 44.9% in 2003, representing the highest gross margin in the Group’s history. Favorable currency effects, lower clearance sales combined with higher clearance margins, an improving product mix as well as increased own-retail activities were the major factors behind this increase. As a result of this development and the Group’s sales growth, gross profit increased 9% to € 3.058 billion in 2004 from € 2.814 billion in the prior year.

Operating expenses, including selling, general and administrative expenses (SG&A) and depreciation and amortization (excluding goodwill), increased by 7% to € 2.478 billion in 2004 versus € 2.324 billion in 2003. As a percentage of sales, operating expenses increased 1.2 percentage points to 38.3% in 2004 (2003: 37.1%). This development reflects increased marketing expenditures for the European Football Championships and the Olympic Games. In addition, operating expenses were also negatively impacted by the continued expansion of adidas own-retail activities, the investment in strategic initiative