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%. 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.
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 sales in the period from 47.8% in the prior year quarter.
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 culprit here for Q4 and the year.
Salomon division 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 about 176 million ($228 mm) in Q4 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 ($42 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.
For the year, winter sports product sales dipped 1.4% to 434 million ($540 mm), compared to 440 million ($498 mm) in 2003. Sales increased roughly 1% in currency-neutral terms, due largely to “strong growth in the nordic category,” offset by a decline in alpine product sales. Summer sports categories inched up 0.5% in Euro terms to 219 million ($272 mm) from 218 million ($247 mm) in the prior year. Sales grew 2% in currency-neutral terms, due primarily to growth in apparel and cycling, which more than offset declines in the in-line skate business.
Salomon operating profit was down more than 74% for the year to just 9.0 million ($11 mm), compared to 35 million ($40 mm) in the prior year. Much of the operating decline for Salomon in the quarter and the year can be traced back to higher operating expenses, attributed to costs associated with moving hardlines production to Romania from France, and to a 40 basis point decline in GM to 39.6% of sales, due to the current “sourcing and production structure.” Management estimates that it will take 2 to 3 years before they see a full profitability impact of the production move.
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.
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.
