adidas-Salomon posted what most see as a pretty positive year as sales grew 3.4% in Euro terms to 6.48 billion in 2004 compared to 6.27 billion in 2003 and net income increased 20.8% to 314.0 million from 260.0 million in the prior year. Currency-neutral sales for the Group grew 7%.
The gains were due in large part to a resurgent business in North America for brand adidas, continued strength at the Taylormade-adidas Golf division, and a growing owned-retail business for brand adidas. However, looking beneath the top-line and bottom-line numbers for the year reveals a fourth quarter that saw sales and profits decline sharply at Salomon and tighter margins and a heavy investment in the U.S business at brand adidas helped fuel additional sales growth in the region.
Fourth quarter net sales for the Group increased 10% on a currency-neutral basis, and grew 5.9% in Euro terms to 1.43 billion ($1.86 bn) from 1.35 billion ($1.61 bn) in Q4 2003. Net income declined 26% to 20 million ($25.9 mm), or 0.43 per share in Q4, versus 27 million ($32.0 mm), or 0.58 per share, in the year-ago period. Total group gross margin declined 120 basis points to 46.6% of sale sin the period from 47.8% in the prior year quarter.
Apparel sales increased 16.5% to 585 million in the fourth quarter from 502 million in the 2003 period. Apparel sales were up 13.4% for the year to 2.52 billion ($3.13 bn), the only category with positive growth in 2004 when measured in Euro terms. Currency-neutral Apparel sales were up 17%, driven by “positive” currency-neutral growth in all major adidas Sport Performance categories, as well as “significant” increases in adidas Sport Heritage product, Salomon, and adidas Golf product. Apparel represented roughly 39% of total group sales in 2004 versus 35.5% of the total in 2003.
Footwear sales were up 6.1% in the fourth quarter to 473 million ($614 mm), reversing a downward trend through the first nine months of the year. Still, the Q4 gain wasnt enough to move footwear into positive territory for the year when measured in Euro terms, as sales declined 2.4% to 2.70 billion ($3.36 bn) from 2.77 billion ($3.13 bn) in the prior year. Currency-neutral sales inched up 1.0% for the year.
The currency-neutral growth was said to be due primarily to the adidas Sport Performance Football (Soccer) category, while other Sport Performance categories showed declines for the year. Sport Heritage product also registered strong growth” for the year. Footwear was reduced to roughly 42% of total group sales in 2004 from approximately 44% of the total in 2003.
Hardlines sales were down 7.4% in the fourth quarter to 376 million ($488 mm) from 406 million ($483 mm) in Q4 last year.
For the year, Hardlines sales dipped 1.5% to 1.26 billion ($1.57 bn), but rose about 2.0% in 2004 when measured in currency-neutral terms. Salomons alpine business was a key cuplrit here for the quarter and the year and TaylorMades business in irons, putters, and golf balls was also cited as a drag on the years results. Brand adidas Football sales and Taylormades metalwords category were called out as key upside performers, as were Salomons Nordic and Cycling categories.
From a regional standpoint, fourth quarter Group sales in Europe grew 2.2% to 703 million versus 688 million in the year-ago period, driven by gains at Brand adidas and TaylorMade-adidas Golf. North America sales were up 3.8% to 325 million ($ mm) in the fourth quarter from 422 million ($373 mm) in Q4 last year, but were up more than 13% when measured in U.S. dollars. Asia/Pacific saw sales jump 13.4% in Euro terms to 339 million from 299 million in Q4 LY, and Latin America sales in Q4 were up more than 22% to 60 million versus 49 million in Q4 last year.
Brand adidas sales increased 9.3% to 1.02 billion in fourth quarter from 933 million in Q4 2003. Owned-retail revenues jumped more than 34% in the quarter to 153 million ($198.5 mm) from approximately 114 million ($136 mm) in Q4 2003.
Excluding owned-retail, wholesale sales at Brand adidas rose 5.9% for the period. For the year, owned-retail sales increased 24.2% to 555 million ($690 mm), or 11% of total brand sales, compared to 447 million ($506 mm), or 9% of sales, in 2003. Currency-neutral sales in the owned-retail sector increased 30% for the year and comps rose in double-digits. adidas expects to open about 100 more concept stores over the next year.
Brand adidas sales in Europe increased 3.5% to 502 million ($651 mm) in the fourth quarter from 485 million ($578 mm) in the year-ago period. Sales in North America rose 5.5% to 211 million ($274 mm) from 200 million ($238 mm) in Q4 2003, but increased nearly 15% when measured in U.S. dollars. Asia/Pacific sales jumped 26.6% to 266 million ($319 mm) from 229 million ($237 mm) in Q4 last year. Latin America sales were up 23.5% for the quarter to 63 million ($77) from 51 million ($56 mm) in Q4 last year.
Gross margins at Brand adidas declined 280 basis points in Q4 to 40.7% of sales versus 43.5% of sales in the year-ago period. The operating loss at adidas declined more than 90% to 2.0 million versus 26.0 million in Q4 last year.
For the year, adidas Sports Performance category sales grew 2.9% to 4.23 billion ($5.25 bn), or 82% of total Brand adidas sales, from 4.10 billion ($4.64 bn) in 2003. Currency-neutral sales increased 6% for the year, driven by a 20% increase in Football to over 900 million for the year.
Sport Heritage made up 18% of Brand adidas sales, increasing 11.2% to 907 million ($1.13 bn) from 816 million ($924 mm) in the prior year.
Sport Heritage currency-neutral sales grew 15% for the year, reflecting increasing momentum in the back half of the year that was primarily driven by apparel. SH apparel sales doubled for the year on a currency-neutral basis, or a 96% increase in Euro terms to 135 million ($168 mm) from 69 million ($78 mm) in 2003. Currency-neutral footwear sales increased 7% for the year, a 3.8% gain in Euro terms to 760 million ($945 mm) from 732 million ($829 mm) in the prior year.
Sport Style sales grew 24% on a currency-neutral basis for the year and increased 27% in Euro terms to 19 million ($24 mm), compared to 15 million ($17 mm) in 2003. Sales were evenly divided between footwear and apparel.
Salomon sales declined roughly 5.0% to approximately 253 million ($328 mm) in Q4 compared to 268 million ($319 mm) in the year-ago period. Sales in Europe declined nearly 3.0% to in Q4 to about 176 million ($228 mm) from 181 million ($216 mm) in the year-ago quarter. In North America, Salomon sales grew about 2.0% when measured in U.S. dollars, but declined approximately 6.0% in Euro terms to 45 million ($58 mm) from 48 million ($57 mm) in Q4 last year. Asia/Pacific sales fell about 14% in Q4 to 32 million ($42x mm) from 37 million ($44 mm) in the year-ago period and Latin America sales were flat at 1.0 million ($1.3 mm) in the quarter.
Gross margins at Salomon improved 230 basis points in Q4 to 41.5% of sales versus 39.2% of sales in the year-ago period. Fourth quarter operating profit for Salomon fell nearly 58% in the quarter to 16 million from 38 million in the year-ago period.
TaylorMade-adidas Golf sales were up just north of 3.0% to 155 million ($201 mm) in the fourth quarter, but increased 12.6% when measured in U.S. Dollar terms from 150 million ($179 mm) in Q4 last year. In Europe, TM-aG sales increased 23.8% in U.S dollar terms to roughly $32 million (25 mm) from $26 million (22 mm) in the year-ago period. Sales in the North America region increased 17.4% for the period to $90 million (69 mm) from $76 million (64 mm). Asia/Pacific sales increased 7.2% in U.S. dollar terms to $79 million (61 mm) from $74 million (62 mm) in the year-ago period. Latin America sales were insignificant in the period.
Gross margin for TM-aG improved 450 basis points to 45.8% of sales versus 41.3% of sales in the year-ago period, due primarily to strength in apparel and metalwoods. Operating profit jumped 180% in U.S. dollar terms to $23 million (18 mm) from $8.0 million (7 mm) in the year-ago period and increased 157% in Euro terms.