adidas-Salomon saw third quarter net sales dip 0.8% to 1.85 billion ($2.1 bn) from 1.87 billion ($1.84 bn) in the year-ago quarter. However, currency-neutral sales for the Group grew 6% in the third quarter. Group gross margin increased 120 basis points from 43.8% in 2002 to 45.0% in 2003. Net income increased 15% to 150 million ($169 million), or 2.89 ($2.84) per share, from 131 million ($128.9 million), or 3.31 ($3.73) per share in Q3 2002.
During the first nine months, sales increased 7% on a currency-neutral basis, but declined 2.0% in reported terms to 4.9 billion ($5.5 bn) from 5.0 billion ($4.6 bn) in the year-ago YTD period.
Herbert Hainer, Chairman and CEO of adidas-Salomon, stated: “We've faced a number of economic, political and market challenges in the first nine months of 2003, and overall have delivered excellent sales and earnings performances. Regionally, Europe and Asia have done particularly well and we are quickly moving to refocus our efforts in North America. adidas-Salomon is an organization with flexibility, imagination and tenacity – exactly the types of skills that it takes to win in our industry today.”
At brand adidas, sales increased 8% on a currency-neutral basis in the first nine months. In reported terms, this represents a decline of 0.8% from 4.05 billion ($4.5 bn) in 2002 to 4.02 billion ($3.8 bn) in 2003. Drivers of this development were solid underlying growth in the Sport Performance running and training categories as well as in the Sport Heritage division.
Revenues at TaylorMade-adidas Golf in the first nine months increased 9% on a currency-neutral basis. This represents a decline of 6% in reported terms, from 516 million ($478 mm) in 2002 to 487 million ($542 mm) in 2003. Excluding the 21 million ($19.5 mm) sales for Slazenger Golf in the first nine months of 2002 from a licensing arrangement that was not renewed in 2003, sales for TaylorMade-adidas Golf increased 14% in currency-neutral terms (-2% in Euro terms), making TaylorMade-adidas Golf the Groups fastest growing segment.
The underlying sales increase is attributable to growth in RAC irons as well as in adidas Golf footwear and apparel.
Salomon sales in the first nine months were down 2.0% on a currency-neutral basis. This represents a decline of 8.0% in reported terms from 424 million ($393 mm) to 390 million ($434 mm). Solid growth in cycling components and soft goods was offset by lower sales in the alpine, snowboard and inline skate categories due to difficult retail conditions.
DIVISIONAL BREAKDOWN
1st nine 1st nine Change y-o-y Change y-o-y
months 2002 months 2003 in euro currency-
euro in euro in terms neutral
millions millions in % in %
adidas 4,050 4,017 (1) 8
Salomon 424 390 (8) (2)
TaylorMade-adidas Golf 516 487 (6) 9
Total 5,012 4,913 (2) 7
North America sales for the Group in the first nine months of 2003 were stable in currency-neutral terms compared to the prior years level. In reported terms, sales declined 15.8% to 1.2 billion ($1.39 bn) versus 1.5 billion ($1.38 bn) in the prior year. This reflects a weakness in demand for certain adidas product lines and the difficult market conditions. Third quarter North America sales for the group fell 13.2% to 459 million ($517 mm), and dipped 0.6% in U.S. dollar terms.
Europe sales for adidas-Salomon increased 8% on a currency-neutral basis in the first nine months of 2003 and showed a 5.4% increase in reported terms to 2.7 billion ($3.0 bn) in this year-to-date compared to 2.5 billion ($2.4 bn) in YTD 2002. The main drivers of this underlying increase were particularly strong developments in Italy, France and the UK as well as in the emerging markets.
Asia Group sales increased 10% on a currency-neutral basis in the first nine months of 2003. In reported terms, this represents a decrease of 3% to 817 million ($909 mm) versus 841 million ($780 mm) in YTD 2002). Underlying growth was driven by vigorous increases in China, Japan and South Korea.
Latin America sales were up 37% in the first nine months of 2003 on a currency-neutral basis, making it the fastest growing region within the Group. This represents an increase of 8% in reported terms to 130 million ($145 mm) compared to 120 million ($111 mm) in 2002. Higher sales in Argentina and Brazil were the main drivers of this improvement.
REGIONAL BREAKDOWN
1st nine 1st nine Change y-o-y Change y-o-y
months 2002 months 2003 in euro currency-
euro in euro in terms neutral
millions millions in % in %
Europe 2,541 2,677 5 8
North America 1,483 1,249 (16) 0
Asia 841 817 (3) 10
Latin America 120 130 8 37
Total 5,012 4,913 (2) 7
Order Backlog
Order backlog for brand adidas declined 2% on a currency-neutral basis (-8% in euro) at the end of the third quarter of 2003. This development reflects tough comparisons with the prior year and continued weakness in North America.
Footwear backlogs declined 10% in currency-neutral terms (-16% in euro) driven by significantly lower orders in North America. Apparel orders increased 6% in currency-neutral terms, highlighting the brands activities to grow sales in this product category. In reported terms, orders were stable compared to the prior years levels.
In Europe, orders increased 7% on a currency-neutral basis (+4% in euro) supported by strong growth in apparel, where backlogs were up 13% (+9% in euro). Footwear backlogs were up 1% currency-neutral (-2% in euro). In Asia,, currency-neutral backlogs grew 11% (+2% in euro), with strong improvements coming from Japan and China. Footwear backlogs declined 1% currency-neutral (-8% in euro). On a currency-neutral basis, apparel orders increased 22% (+13% in euro).
In North America, order backlogs were down 23% on a currency-neutral basis, which is in line with the guidance adidas-Salomon provided for the market at the Investor Day on September 30. This represents a decline of 35% in reported terms. Currency-neutral footwear backlogs declined 29% (-40% in euro). Currency-neutral apparel orders decreased 16% (-28% in euro).
ORDER BACKLOG BREAKDOWN
Footwear Apparel Total
Change y-o-y
in % in euro currency- in euro currency- in euro currency-
neutral neutral neutral
Europe (2) 1 9 13 4 7
North America (40) (29) (28) (16) (35) (23)
Asia (8) (1) 13 22 2 11
Total (16) (10) 0 6 (8) (2)
Net Income
The gross margin improved 70 basis points to 44.1% versus 43.4% in the year-ago period. Currency effects, which are also captured in the headquarter function as a result of the Group's centralized hedging strategy, positively impacted the Group's gross margin by around 100 basis points. Net income for the Group increased 17% from 199 million ($184.5 mm) in the first nine months of 2002 to 234 million ($260.3 mm) in 2003. EPS was 5.14 ($5.72) in 2003 versus 4.40 ($4.08) in 2002.
Full Year Outlook
As a result of the Group's performance during the first nine months of 2003 and business expectations for the remainder of the year, adidas-Salomon confirms the sales and earnings guidance as provided with the 2002 full year results. Group revenues are expected to increase by at least 5% on a currency-neutral basis. Group gross margin is likely to exceed the target of 42% to 43% and operating margin is expected to improve by approximately 50 basis points. As a result of these developments, Group earnings for the full year are expected to grow between 10% and 15%.
Herbert Hainer stated: “We've delivered on our promised performances so far in 2003 and are set to make our sales, margin and earnings targets for the full year. Exciting new technologies, which we will showcase at some of the world's biggest sports events, will help us take the positive momentum into 2004.”
adidas-Salomon
CONSOLIDATED INCOME STATEMENT (IFRS)
3rd QUARTER 2003
EURO IN MILLIONS 2003 2002 Change
2003/2002
NET SALES 1,853 1,868 (0.8)%
COST OF SALES 1,018 1,050 (3.0)%
GROSS PROFIT 835 819 1.9%
(% OF NET SALES) 45.0% 43.8% 1.2 PP
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 540 552 (2.3)%
(% OF NET SALES) 29.1% 29.6% (0.4) PP
DEPRECIATION AND AMORTIZATION
(EXCL. GOODWILL) 25 23 5.8%
OPERATING PROFIT 270 243 11.2%
(% OF NET SALES) 14.6% 13.0% 1.6 PP
GOODWILL AMORTIZATION 11 12 (3.2)%
ROYALTY AND COMMISSION INCOME 11 12 (5.8)%
FINANCIAL EXPENSES, NET 17 23 (29.0)%
INCOME BEFORE TAXES AND
MINORITY INTERESTS 254 220 15.3%
(% OF NET SALES) 13.7% 11.8% 1.9 PP
INCOME TAXES 96 82 17.4%
(% OF INCOME BEFORE TAXES
AND MINORITY INTERESTS) 37.9% 37.2% 0.7 PP
MINORITY INTERESTS (7) (7) 4.4%
NET INCOME 150 131 14.5%
(% OF NET SALES) 8.1% 7.0% 1.1 PP
BASIC EARNINGS PER SHARE
(IN EUROS) 3.31 2.89 14.3%
DILUTED EARNINGS PER SHARE
(IN EUROS) 3.31 --
NET SALES
EUROS IN MILLIONS 2003 2002 Change
2003/2002
adidas 1,475 1,496 (1.4)%
Salomon 199 230 (13.6)%
TaylorMade-adidas Golf 176 137 28.4%
EUROPE 1,020 988 3.2%
NORTH AMERICA 459 529 (13.3)%
ASIA 308 302 1.9%
LATIN AMERICA 52 43 22.6%
ROUNDING DIFFERENCES MAY ARISE IN PERCENTAGES AND TOTALS FOR FIGURES
PRESENTED IN MILLIONS AS CALCULATION IS ALWAYS BASED ON THE FIGURES STATED
IN THOUSANDS.
adidas-Salomon
CONSOLIDATED INCOME STATEMENT (IFRS)
NINE MONTHS ENDED SEPTEMBER 30, 2003
EUROS IN MILLIONS 2003 2002 Change
2003/2002
NET SALES 4,913 5,012 (2.0)%
COST OF SALES 2,747 2,835 (3.1)%
GROSS PROFIT 2,166 2,177 (0.5)%
(% OF NET SALES) 44.1% 43.4% 0.7 PP
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,646 1,697 (3.0)%
(% OF NET SALES) 33.5% 33.9% (0.4) PP
DEPRECIATION AND AMORTIZATION
(EXCL. GOODWILL) 72 70 4.1%
OPERATING PROFIT 448 410 9.2%
(% OF NET SALES) 9.1% 8.2% 0.9 PP
GOODWILL AMORTIZATION 34 34 (0.9)%
ROYALTY AND COMMISSION INCOME 31 34 (8.0)%
FINANCIAL EXPENSES, NET 44 69 (36.2)%
INCOME BEFORE TAXES AND
MINORITY INTERESTS 401 341 17.6%
(% OF NET SALES) 8.2% 6.8% 1.4 PP
INCOME TAXES 155 130 18.8%
(% OF INCOME BEFORE TAXES AND
MINORITY INTERESTS) 38.6% 38.2% 0.4 PP
MINORITY INTERESTS (13) (11) 14.6%
NET INCOME 234 199 17.1%
(% OF NET SALES) 4.8% 4.0% 0.8 PP
BASIC EARNINGS PER SHARE (IN EUROS) 5.14 4.40 16.8%
DILUTED EARNINGS PER SHARE
(IN EUROS) 5.14 -- --
NET SALES
EUROS IN MILLIONS 2003 2002 Change
2003/2002
adidas 4,017 4,050 (0.8)%
Salomon 390 424 (8.0)%
TaylorMade-adidas Golf 487 516 (5.7)%
EUROPE 2,677 2,541 5.4%
NORTH AMERICA 1,249 1,483 (15.7)%
ASIA 817 841 (2.8)%
LATIN AMERICA 130 120 8.3%
ROUNDING DIFFERENCES MAY ARISE IN PERCENTAGE AND TOTALS FOR FIGURES
PRESENTED IN MILLIONS AS CALCULATION IS ALWAYS BASED ON THE FIGURES STATED
IN THOUSANDS.
