Adidas’ ramped-up investments in the U.S. are already starting to pay off.

Combined sales of the Adidas and Reebok brands in the North America region rose 6.7 percent on a currency-neutral basis in the first quarter, representing a turnaround from a decline of 4.2 percent seen in the fourth quarter. In 2014, sales in currency-neutral terms in the North America region fell 6.3 percent.

When announcing fourth-quarter results, Herbert Hainer, Adidas’ chairman and CEO, singled out turning around North America as a priority, noting that finding growth in the region had proving to be “elusive up to now” with other regions seeing strong growth for its flagship Adidas brand.

The North America gains were led by Adidas brand, which grew 9 percent on a currency-neutral basis versus the prior year, driven by double-digit sales increases in the football (soccer) category, as well as at Adidas Originals and Adidas NEO. That marked an acceleration from the mid-single gain seen in the fourth quarter.

Reebok revenues in North America decreased 3 percent, reflecting a further streamlining the brand's factory outlet business that resulted in a 5 percent reduction of Reebok's North American store base during the quarter. In the fourth quarter, Reebok had seen a double-digit decline in the region.

The gains for the Adidas brand came at a cost with expenses tied to a significant ramp-up in marketing and organizational rightsizing efforts to improve the “visibility” of the Adidas brand in the U.S. As a result of these investments, sales and marketing budgets in the region surged by more than 50 percent in the quarter while sales administration and sales forces were up 30 percent year-over-year.

“While these investments weigh on North America's profitability in the short term, there's absolutely no question they build the foundation for an increased brand desire, and ultimately also, for profitability improvements in the long run,” said Robin Stalker, Adidas’ CFO, on a conference call with analysts. ”And we already expect profitability in North America to turn positive during the second quarter.”

As detailed in its annual analyst meeting, the turnaround strategy in North America includes establishing the “largest brand investment ever” for the Adidas brand with a particular focus on deepening connections with consumers in New York, Los Angeles, Chicago, Miami and Atlanta. It includes adding 55 new locations over the next 30 months, a sharp increase sponsorships of professional players across sports leagues, and the opening a Brooklyn-based studio – Adidas’s first American design outpost outside U.S. headquarters in Portland, OR – to help the brand create more relevant products for the urban set.

In the Q&A session, Hainer noted that while Adidas has regained some traction in the North America market, he cautioned, “This is not a sprint, this is a marathon, because this is the most competitive market for us.”

The pickup comes as the executive has faced calls over the last year for his dismissal by investors partly because the brand has lost ground in the U.S. to Nike and Under Armour.

Echoing Stalker’s sentiments, Hainer said more important than sales, is the positive feedback the company is getting from its campaigns designed to “build brand desirability,” such as the “There Will Be Haters” football campaign or “Sport 15” video campaign for Adidas, or “Be More Human” campaign in support of Reebok.

Hainer added, “Of course, we want to see the growth as well and we are happy that we got it as we started fairly good in the first quarter. But as I said, America is definitely not a sprint; it's a marathon for us. But I am definitely looking forward positively, also having in mind the backlogs which we have for the two main brands already.”

Overall, Adidas reported what was seen as a solid first-quarter following string of profit warnings last year – largely tied to a downturn in the TaylorMade golf unit and challenges in Russia – that caused management to admit they wouldn’t meet its financial targets for 2015.

Sales in the latest quarter grew 17.3 percent to €4.08 billion ($4.6 billion) and increased 9 percent on a currency-neutral basis. Earnings rose 8.1 percent to €223 million ($251.6 mm), or €1.08 ($1.22) a share.

Adidas’ gross margin remained stable at 49.2 percent, despite significant pressure from currency and input costs. Operating margin increased 10 basis points to 8.9 percent, and net income from continuing operations improved 22 percent.

ADIDAS BRAND SEES DOUBLE-DIGIT GLOBAL GROWTH

For the Adidas brand, sales grew 10.9 percent globally (18.6 percent reported), to €3.35 billion ($3.78 bn). The gains were driven by growth in the double-digit rates in Western Europe, China and Middle East, Africa and Asia. By category, double-digit sales increases were seen in running, Adidas Originals and Adidas NEO as well as a high-single-digit increase in training.

Hainer said that while both footwear and apparel sales improved double digit, the 13 percent hike in running for the Adidas brand was driven by Ultra Boost and the response to the overall Boost franchise.

Football (soccer) for the Adidas brand was down 7 percent in the quarter due to challenging apparel comparisons against World Cup sales last year. Footwear revenues were up 16 percent, reflecting strong sales of the new F50, as well as the redesigned Predator and the 11 Pro boots, which are all featured in its successful “There Will Be Haters” campaign. Football footwear grew at a double-digit rate in North America and also saw strong momentum in Western Europe.

Training increased 8 percent for Adidas brand with double-digit growth rates in Greater China, Latin America and Middle East, Africa and Asia. Hainer said its new Stella sport offering “is resonating extremely well with consumers and retailers,” and the double-digit increase seen in training apparel “is clear evidence that focusing on this part of the business is also paying off.”

Basketball sales increased 1 percent in the quarter, driven by increases in apparel. Hainer noted that at this point, basketball for the Adidas brand is “not so much about the pure sales growth; it's more about increasing brand desire.”

He noted that Adidas decided not to extend its sponsorship of the NBA in the quarter because it “didn't help us to build our brand with our consumers.”

He still pointed to the awareness Adidas gained through the 2015 NBA All-Star Game in New York City, one of its six key cities laid out it its new “Creating the New” strategic business plan. Hainer also pointed to “promising” launches from its Damian Lillard and John Wall signature shoes, and applauded newer Adidas athlete, Andrew Wiggins, for winning the NBA’s Rookie of the Year.

Hainer said Adidas plans to place a “much higher emphasis” on footwear to drive its success in basketball.

“To achieve this, we now have a new team in place, based in the US, which will take a lead role when it comes to design future and brand communication,” said Hainer. “Focusing on building our brand and connecting with the target consumer will be the ultimate catalyst to get the young U.S. athlete to wear Adidas basketball footwear and for the long-term success of this category.”

In the lifestyle sector, Adidas Originals grew 29 percent globally, with strong double-digit increases in all markets, except Russia. The line benefited from successful collaborations with Pharrell Williams and Kanye West. Adidas NEO grew 18 percent, driven by double-digit growth in North America, Greater China, Latin America and Middle East, Africa and Asia, as well as continued strength in Western Europe.

REEBOK’S TURNAROUND CONTINUES

Reebok brand sales rose 9.0 percent on a currency-neutral basis (14.9 percent reported) to €411 million ($463.7 mm) as a result of double-digit sales increases in training and studio categories as well as mid-single-digit sales growth in classics. The ZPump launch in March was “well above expectations.”

The brand marked its eighth consecutive quarter of growth as it’s re-embraced a fitness positioning and grew in every market except North America. The gains included double-digit growth in Western Europe and Latin America as well as gains in Russia/CIS, despite the challenging market conditions.

Hainer said Reebok's “Be More Human” campaign, aired for the first time during the NFL Super Bowl pregame coverage, has been particularly well received. Said Hainer, “As athletes realize that Reebok shares their passion, understands their motivation and supports them in their ultimate goal to be more human, the feedback we have received has exceeded our expectations so far.”

TAYLORMADE SEES PROMISING RESPONSES TO NEW PRODUCT LAUNCHES

TaylorMade-Adidas Golf was down 8.6 percent in the quarter on a currency-neutral basis (up 6.2 reported), to €280 million ($315.9 mm). The drop was mainly due to sales declines in metal woods and irons, which more than offset a double-digit increase in golf apparel.

Hainer noted that TaylorMade saw sequential improvement over previous quarters and a positive response to its first major product launches in over a year. These include the R15 and the AeroBurner drivers, the AeroBurner irons, and introducing golf shoes with Boost technology. Said Hainer, “There is no doubt that our strong product lineup, as well as our cleaner market environment, puts us up for growth, going forward.”

Hainer said the company plans to “very closely monitor the industry” as it introduces product to avoid excess inventories like recent years. The opening of the first stand-alone TaylorMade-Adidas Golf outlet store at the end of the quarter will also help manage any necessary liquidations. But he expects the TaylorMade to benefit from an overall healthier retail channel and the extensive restructuring program put in place at the brand last year.

Said Hainer, “Building on these significantly better foundations, and thanks to the promising product launches, TaylorMade-Adidas Golf is back on track for growth and profitability this year.”

Overall sales in its Other Business segment (including TaylorMade-Adidas Golf, Reebok-CCM Hockey and other centrally managed businesses,) slid 1.0 percent in currency-neutral terms to €377 million ($425.4 mm) although they rose 13.1 percent on a reported basis. Reebok-CCM Hockey advanced 8.8 percent on a currency-neutral basis (21.9 reported), to €39 million ($44 mm). On the positive side, Other Business segmental operating margin improved 4.9 percentage points due to lower marketing expenses at TaylorMade.

WESTERN EUROPE, CHINA AND MEAA LEAD ADIDAS BRAND GROWTH

In other regions outside North America, combined sales of Adidas and Reebok brands in Western Europe rose 11.5 percent on a currency-neutral basis (13.1 percent reported) to €1.14 billion ($1.29 bn). The gains were due to double-digit sales growth at both Adidas and Reebok. The UK, Italy, France and Spain all grew at double-digit rates. Stalker said, “The fact that Western Europe has become one organization under one leadership team, together with a strong product assortment and improved point-of-sale execution, will ensure we continue to dominate the marketplace in the future.”

In Greater China, combined sales of Adidas and Reebok brands jumped 21.4 percent (44.3 percent reported) to €597 million ($673.6 mm). Adidas grew 21 percent mainly due to strong double-digit sales increases in training and running, as well as at Adidas Originals and Adidas NEO. Reebok sales vaulted 58 percent driven by classics, where revenues more than doubled. Stalker said Adidas is aiming to become number one in China by 2020, “and our first quarter performance gives us every confidence that we have everything it takes to achieve this goal.”

In the Russia/CIS region, combined sales of Adidas and Reebok brands were down 3.4 percent in currency-neutral terms (off 33.6 percent reported), to €162 million ($182.8 mm). Stalker described the region’s performance as “solid” given the challenging economic conditions. Reebok sales increased at mid-single-digit rate while Adidas sales declined. The devaluation of the Russian ruble led to a gross margin decline of 9.9 percentage points to 51.3 percent. Operating expenses were slashed 36 percent in the quarter, due to a sharp decline in operating overhead costs, which also reflects the net closing of 30 stores. Expense controls will continue to be a focus in the region.

In Latin America, combined sales of Adidas and Reebok brands expanded 6.0 percent on a currency-neutral basis (13.0 percent reported), to €423 million ($477.3 mm). The gain came despite tough comparisons against a prior year period when revenues jumped 19 percent due to the World Cup. With the exception of Brazil, all major markets grew, led by double-digit sales increases in Argentina and Peru. Adidas grew 5 percent with double-digit growth in training, running, basketball and Adidas Originals. Reebok was up 16 percent, led by double-digit sales increases in running and training.

In Japan, combined sales of Adidas and Reebok brands rose 6.5 percent on a currency-neutral basis (11.6 percent reported) to €155 million ($174.9 mm). Adidas grew 3 percent, supported by double-digit sales increases in running, as well as at Adidas Originals. Reebok, although small in the region, jumped 80 percent driven by classics, where sales more than doubled.

In MEAA (Middle East, Africa and other Asian markets), combined sales of Adidas and Reebok brands rose 9.6 percent in currency-neutral terms (26.4 percent reported), to €635 million ($716.5 mm). The main contributors were United Arab Emirates, South Korea and Turkey. Adidas grew 10 percent due to double-digit sales increases in training, running and Adidas Originals. Reebok advanced 3 percent, mainly as a result of double-digit sales increases in classics.

GLOBAL RETAIL SEES MID-SINGLE DIGIT COMP GAIN

Global retail revenues increased 14 percent on a currency-neutral basis as a result of double-digit sales growth at Adidas and high-single-digit revenue increases at Reebok. Currency-neutral comparable store sales increased 4 percent versus the prior year, due to sales growth across all store formats and most markets. E-commerce grew 56 percent on a currency-neutral basis. On a reported basis, sales grew 12.7 percent to €895 million ($1 bn).

Looking ahead, Adidas confirmed its guidance for the full year calling for sales to increase on a currency-neutral basis at a mid-single-digit rate. Sales are expected to benefit from significantly improved top-line development at TaylorMade as well as ongoing robust momentum at both Adidas and Reebok. Retail expansion is also expected to support growth and offset the non-recurrence of sales related to the 2014 FIFA World Cup.

Gross margin is forecasted to range between 47.5 percent and 48.5 percent in 2015 compared to 47.6 percent in 2014. Higher product margins at TaylorMade as a result of lower levels of clearance activity as well as a more favorable pricing and product mix at both Adidas and Reebok are expected to offset adverse currency movements in emerging markets, particularly in Russia/CIS.

Net income from continuing operations excluding goodwill impairment is projected to increase at a rate of 7 percent to 10 percent.