It seems like little to no attention was paid to the adidas-Salomon Q2 results after the blockbuster deal to acquire Reebok International was announced last week, but the company continues to make progress against the North America market with brand adidas, while Asia Pacific soars and Europe stagnates. TaylorMade-adidas Golf had a tough quarter in Europe and Asia, but the North America region more than offset the weakness elsewhere.

adidas-Salomon Group sales, including the Salomon business that has been divested to Amer Sports, increased by 8.2% in the second quarter to €1.52 billion from €1.40 billion in the year-ago period. Currency-neutral sales grew 9% for the period. Net income was up 48.5% to €67 million, or €1.37 ($1.73) per diluted share, versus €45 million, or €0.96 ($1.16) per diluted share in Q2 2004. However, net income from continuing operations, which excludes the negative impact of Salomon’s second quarter, increased 33.3% to €94 million ($118.5 mm), or €1.91 ($2.41) per diluted share, compared to €70 million ($84.3 mm), or €1.51 ($1.82) per diluted share in Q2 last year.

For the first half, currency-neutral sales for the Group increased 11%, while growing 3.2% to €3.19 billion in Euro terms from €3.09 billion in the first half of 2004. Currency-neutral sales for continuing operations for the first half rose 11%, with Europe growing 1%, North America increasing 18%, Asia up 30%, and Latin America leading the way with a 36% jump for the period.

From a regional standpoint in Q2, total Group sales in Europe declined 1.4% to €688 million versus €698 million in the year-ago period. The company said strong double-digit gains in the region’s emerging markets and “solid increases” in the U.K. and Scandinavia in the first half were offset by declines in France and Iberia.

North America sales were up a strong 10.5% to €401 million in the second quarter from €363 million in Q2 last year, and were up 15.6% when measured in U.S. dollars. In the first half, brand adidas sales were up 14% on a currency-neutral basis, reflecting double-digit growth in both the Sport Performance and Sport Heritage divisions. TM-aG currency neutral sales in H1 jumped 31% on the strength of double-digit increases in metalwoods, apparel, and irons.

Asia/Pacific saw sales jump 26.0% in Euro terms to €354 million from €281 million in Q2 last year, or a 28% increase in currency-neutral terms. The increase comes on top of a 26.2% gain in the year-ago period. In the first half, the sales increase was driven by a 36% currency-neutral gain from brand adidas, driven by strong growth in China, where sales “more than doubled” in H1. Japan, India, and many other countries also posted “strong” increases. First half revenues for TM-aG in the region inched up 1% on a currency-neutral basis on the strength of sales in Japan and Australia that more than offset declines in Korea.

Latin America led all regions in Q2 as sales increased 34.0% to €67 million versus €50 million in the year-ago period, or a 26% gain in currency-neutral terms. Brand adidas sales in H1 increased 36% on a currency-neutral basis, while TM-aG posted a 50% currency-neutral gain off of a very low base. Brazil, Mexico, and Argentina all posted double-digit increases in the 2005 first half.

For the second quarter, brand adidas sales increased 8.0% to €1.30 billion from €1.21 billion in Q2 2004. Brand adidas sales in Europe declined 1.1% to €658 million ($829 mm) from €665 million ($801 mm) in the year-ago period. Sales in North America were up 4.9% to €277 million ($349 mm) from €264 million ($318 mm) in Q2 2004, but increased 9.8% when measured in U.S. dollars. Asia/Pacific sales jumped 35.3% to €303 million ($382 mm) from €224 million ($270 mm) in Q2 last year. Latin America sales were up by a third for the quarter to €64 million ($81 mm) from €48 million ($58 mm) in the year-ago period.

Sport Performance division sales grew 3.4% to €1.03 billion ($1.30 bn). First half currency-neutral sales increased 4% on double-digit growth in tennis as well as “significant increases” in running, training, and outdoor. The gains here were partly offset by declines in the football (soccer) category, which was up against strong sales last year surrounding the Euro 2004 Championships. Sport Heritage sales increased 36.9% in Q2 to €271 million ($342 mm) from €198 million ($239 mm) in the year-ago period. Sport Style sales declined 50% to €1 million ($1.3 mm) in the second quarter from €2 million ($2.4 mm) in Q2 last year.

Owned-retail sales for brand adidas jumped 58.1% in Euro terms to €215 million ($271 mm) from €136 million ($163 mm) in Q2 2004. Excluding Owned-retail, brand adidas sales increased 2.1% in Q2.

Brand adidas operating profit dipped 1.1% for the Q2 period to €92 million ($116 mm), compared to €93 million ($112 mm) in the year-ago period. Gross margin improved 30 basis points in Q2 to 43.8% of sales.

Based on the solid second quarter for the brand and strength in the order backlog, the company expects brand adidas sales for the year to increase in mid- to high-single-digits on a currency-neutral basis.

Salomon sales were up 2.9% to €70 million in Q2 from €68 million in the year-ago period. Gross margins improved 50 basis points to 37.2% of sales and the operating loss for the division narrowed to €28 million from €31 million in second quarter last year.

The sale of the Salomon group to Amer Sports is expected to close in September.

TalylorMade-adidas Golf increased 8.6% for the quarter to €202 million ($255 mm), compared to €186 million ($224 mm) in the 2004 second quarter. In U.S. Dollar terms, TM-aG sales grew 13.7% for the period while currency-neutral sales increased 12%. In Europe, TM-aG sales declined 12.2% in U.S dollar terms to roughly $33 million (€26 mm) from $37 million (€31 mm) in the year-ago period. Sales in the North America region jumped 31% for the period to $156 million (€124 mm) from $119 million (€99 mm) in Q2 last year, and saw a 25% increase when measured in Euros. Asia/Pacific sales declined 4.7% in U.S. dollar terms to $64 million (€51 mm) from $68 million (€56 mm) in the year-ago period. TM-aG said first half sales were driven by strong double-digit growth across all categories except putters.

Gross margins for TM-aG in the second quarter were up 10 basis points to 49.5% of sales. Operating profit for the quarter was up 16.3% to $38 million (€30 mm) from $33 million (€27 mm) in Q2 last year.

The company expects to see TM-aG sales moderate in the back half of the year due to the lack of any meaningful product introductions for the balance of the year, but full year sales growth should be in the mid- to high-single-digit range.

For the Group, adidas-Salomon continues to see mid- to high-single-digit growth for continuing operations for 2005 on a currency-neutral basis. The outlook is based on the stronger brand adidas outlook as well as “high expectations” in the owned-retail business. The growth is also based on a forecast of double-digit growth in Asia and Latin America, high-single-digit sales growth in North America, and mid-single-digit gains in Europe.

The increased importance of owned-retail, along with an improving product mix, is also expected to lift gross margins higher for the year. Group GM is now seen in the neighborhood of 48% of sales for the year.

Despite an estimated €30 million loss for the year from the divesture of Salomon, the company is still confirming double-digit net income growth for the year. Net income is expected to reach €375 million for the year, including the discontinued Salomon business, compared to €314 million in fiscal 2004.


>>> Dumping the seasonal issues with Salomon and replacing it with a much larger business that is throwing off cash should lead to a very nice 2006…

adidas-Salomon AG
Second Quarter Results 
In $ millions Second Quarter  adidas  Backlog*
2005** 2004** € Chg C-N Chg* FW APP Total
Total Sales $1,911 $1,687 8.2% 10.0% 11% 8% 9%
Europe $867 $841 -1.4% -1.0% 9% -3% 2%
N. America $506 $437 10.5% 15.0% 8% 9% 9%
Asia/Pacific $446 $338 21.5% 28.0% 19% 36% 29%
L. America $84.5 $60.2 32.0% 28.0%      
adidas $1,644 $1,454 8.0% 9.0%      

About The Author

Teresa Hartford

Teresa Hartford Editorial & Creative Director | SGB Media teresa@sgbonline.com | 704.651.5741

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