Economic Insights

adidas Group with strong start into 2015

Group sales increase 9% on a currency-neutral basis. Group confirms full year guidance.

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adidas Star Wars Kids. Click to buy

In the first quarter of 2015, Group revenues increased 9% on a currency-neutral basis, driven by a double-digit increase at adidas as well as high-single-digit growth at Reebok. Currency translation effects had a positive impact on sales in euro terms. Group revenues grew 17% to € 4.083 billion in the first quarter of 2015 from € 3.480 billion in 2014. Currency-neutral adidas revenues increased 11%. This development was driven by double-digit sales increases in running, at adidas Originals and adidas NEO as well as a high-single-digit increase in training.

Currency-neutral Reebok sales were up 9% versus the prior year as a result of double-digit sales increases in the training and studio categories as well as mid-single-digit sales growth in Classics. Revenues at TaylorMade-adidas Golf decreased 9% currency-neutral, mainly due to sales declines in the metalwoods and irons categories, which more than offset a double-digit increase in golf apparel. «We got off to a successful start to the year with our adidas and Reebok brands enjoying great momentum,» commented Herbert Hainer, adidas Group CEO. «With our innovative performance products, fashion-driven styles and highly engaging marketing campaigns, we have excited our consumers around the world.»

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adidas Originals. Click to buy

In the first quarter of 2015, on a currency-neutral basis the combined sales of the adidas and Reebok brands grew in all market segments except Russia/CIS. Revenues in Western Europe increased 11% on a currency-neutral basis, due to double-digit sales growth at both the adidas and Reebok brand. Currency-neutral sales in North America increased 7%, as a result of high-single-digit sales growth at adidas.

Revenues in Greater China were up 21% on a currency-neutral basis reflecting double-digit top-line growth at adidas and Reebok. Currency-neutral sales in Russia/CIS declined 3% as mid-single-digit growth at Reebok was more than offset by sales declines at adidas. In Latin America, revenues grew 6% on a currency-neutral basis with a double-digit improvement at Reebok and a mid-single-digit increase at adidas. In Japan, sales were up 7% on a currency-neutral basis due to strong double-digit sales increases at Reebok as well as low-single-digit sales growth at adidas. Sales in MEAA grew 10% on a currency-neutral basis, reflecting a double-digit top-line improvement at adidas.

Revenues in Other Businesses were down 1% on a currency-neutral basis. Double-digit sales increases in Other centrally managed businesses as well as high-single-digit growth at Reebok-CCM Hockey were more than offset by the sales decline at TaylorMade-adidas Golf.  With the exception of Russia/CIS, currency translation effects had a positive impact on segmental sales in euro terms.

In the first quarter of 2015, retail revenues increased 14% on a currency-neutral basis as a result of double-digit sales growth at adidas and high-single-digit revenue increases at Reebok. Concept stores, factory outlets and concession corners were all up versus the prior year. eCommerce grew 56% on a currency-neutral basis. Currency translation effects negatively impacted retail revenues in euro terms. Sales grew 13% to € 895 million from € 794 million in the prior year. Currency-neutral comparable store sales increased 4% versus the prior year, due to sales growth across all store formats and most markets. 

As a result of the change in the composition of the Group’s reportable segments and associated cash-generating units, respectively, the Group recorded goodwill impairment losses of € 18 million during the first three months ending March 31, 2015. This charge was related to the Latin America (€ 15 million) and Russia/CIS (€ 3 million) operating segments. Goodwill for these groups of cash-generating units is now completely impaired. The impairment losses were non-cash in nature and do not affect the adidas Group’s liquidity. 

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adidas Superstar Festival Pack. Click to buy

Group operating profit increased 12% to € 345 million in the first quarter of 2015 versus € 307 million in 2014. The operating margin of the adidas Group decreased 0.4 percentage points to 8.4% (2014: 8.8%). Excluding the goodwill impairment losses, operating profit grew 18% to € 363 million from € 307 billion last year, representing an operating margin of 8.9%, up 0.1 percentage points from the prior year level (2014: 8.8%). This development was primarily due to the positive effect from lower other operating expenses as a percentage of sales.  

adidas Group sales are forecasted to increase at a mid-single-digit rate on a currency-neutral basis in 2015. Despite a high degree of uncertainty regarding the economic outlook and consumer spending in Russia/CIS, the positive sales development will be supported by rising consumer confidence in most geographical areas. In particular, Group sales development will be favourably impacted by a significantly improved top-line development at TaylorMade-adidas Golf as well as ongoing robust momentum at both adidas and Reebok. This, as well as the further expansion and improvement of the Group’s controlled space initiatives, will more than offset the non-recurrence of sales related to the 2014 FIFA World Cup(TM). Currency translation is expected to positively impact top-line development in reported terms, given the strengthening of major currencies such as the US dollar and the Chinese renminbi versus the euro.

In 2015, the Group’s other operating expenses as a percentage of sales are expected to be around the prior year level (2014: 42.7%). Sales and marketing working budget as a percentage of sales is projected to increase versus the prior year. Given the robust momentum at adidas and Reebok, the company will step up marketing and point-of-sale investments in 2015 to secure and drive faster growth rates and market share gains, particularly in developed markets such as North America and Western Europe. As part of these marketing efforts, both adidas and Reebok launched major brand campaigns at the beginning of the year. Operating overhead expenditure as a percentage of sales is forecasted to be around the level recorded in 2014.

The operating margin excluding goodwill impairment for the adidas Group is forecasted to be at a level between 6.5% and 7.0% in 2015 (2014 excluding goodwill impairment losses: 6.6%). This development will be strongly influenced by currency movements. The Group’s tax rate is expected to be at a level of around 29.5% and thus more favourable compared to the 2014 effective tax rate excluding goodwill impairment losses of 29.7%. Net income from continuing operations excluding goodwill impairment is projected to increase at a rate of 7% to 10%, thus outpacing the Group’s expected top-line development (2014: net income from continuing operations excluding goodwill impairment losses of € 642 million). 

Herbert Hainer stated: «I am proud how fast we rebounded after a challenging 2014. Now, after getting off the starting block well this year, we are optimistic about our prospects for the full year. But we will not stop there. Our new strategy, ‘Creating the New’, will enable us to accelerate the adidas Group’s growth until 2020 and create sustainable value.»

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