adidas Group records strong top-line momentum

In the fourth quarter of 2014, Group revenues grew 6% on a currency-neutral basis. Currency-neutral sales in Retail and Wholesale increased 20% and 5%, respectively. Sales in Other Businesses decreased 16% on a currency-neutral basis, due to a double-digit decline at TaylorMade-adidas Golf. Currency-neutral revenues in Western Europe increased 13%, due to double-digit growth at adidas and Reebok. In European Emerging Markets, currency-neutral sales were up 16% as a result of double-digit revenue growth at both adidas and Reebok. Group sales in North America declined 4% on a currency-neutral basis, as mid-single-digit growth at adidas was more than offset by declines at TaylorMade-adidas Golf and Reebok. 

In Greater China, Group sales were up 11% on a currency-neutral basis, due to double-digit increases at adidas. Currency-neutral revenues in Other Asian Markets remained stable, as high-single-digit growth at adidas was offset by double-digit declines at TaylorMade-adidas Golf. Revenues at Reebok remained at the prior year level. In Latin America, adidas Group sales were up 12% on a currency-neutral basis as a result of double-digit growth at adidas and Reebok. Currency translation effects had a slightly positive impact on Group sales in euro terms. Group revenues grew 6% to € 3.610 billion in the fourth quarter of 2014 from € 3.391 billion in 2013.

From a brand perspective, fourth quarter sales at adidas increased 11% on a currency-neutral basis, driven by double-digit sales growth in the Sport Performance training and running categories as well as at adidas Originals and adidas NEO. Sales at Reebok grew 1% on a currency-neutral basis. Double-digit sales increases in the fitness training, walking and studio categories were partly offset by decreases in the fitness running category and in Classics. Revenues at TaylorMade-adidas Golf declined 24% on a currency-neutral basis, as a result of TaylorMade-adidas Golf’s ongoing efforts to clean retail inventories and the timing of new product introductions compared to the prior year period. Sales at Reebok-CCM Hockey increased 2% on a currency-neutral basis as a result of strong sales growth in sticks.

Fourth quarter operating margin excluding goodwill impairment declines 1.4 percentage points. The Group’s gross profit increased 1% to € 1.621 billion (2013: € 1.610 billion) in the fourth quarter. Gross margin decreased 2.6 percentage points to 44.9% (2013: 47.5%), mainly due to negative currency effects as well as higher input costs. In addition, lower product margins at TaylorMade-adidas Golf also contributed to the gross margin decline. Other operating expenses grew 3% to € 1.642 billion, mainly as a result of the Group’s expansion of own-retail activities as well as higher marketing working budget expenditure. However, as a percentage of sales, other operating expenses declined 1.3 percentage points to 45.5% (2013: 46.8%). In the fourth quarter of 2014, the Group recorded a loss from operating activities of € 40 million (2013: operating profit of € 32 million). This was due to goodwill impairment losses of € 78 million.

Excluding goodwill impairment losses, operating profit amounted to € 38 million in the fourth quarter of 2014 compared to € 85 million in the prior year. Operating margin excluding goodwill impairment losses declined 1.4 percentage points to 1.1%. As a result, net income from continuing operations, excluding goodwill impairment losses, decreased to € 10 million from € 32 million in 2013. Including losses from discontinued operations of € 71 million related to the planned Rockport divestiture, the Group recorded a net loss attributable to shareholders excluding goodwill impairment losses of € 62 million in the fourth quarter of 2014 versus net income attributable to shareholders of € 42 million in 2013. 

adidas Group currency-neutral sales increase 6% in 2014. In 2014, Group revenues increased 6% on a currency-neutral basis, driven by a double-digit sales increase at brand adidas and mid-single-digit growth at Reebok. Currency translation effects had a negative impact on Group sales in euro terms. Group revenues grew 2% to € 14.534 billion in 2014 from € 14.203 billion in 2013.

Group sales increase driven by strong growth in Wholesale and Retail. In 2014, currency-neutral Wholesale revenues increased 6%. While sales at adidas grew strongly, revenues at Reebok remained stable compared to the prior year. Currency-neutral Retail sales were up 21% versus the prior year as a result of double-digit sales increases at adidas and Reebok. Revenues in Other Businesses were down 19% on a currency-neutral basis, due to double-digit sales declines at TaylorMade-adidas Golf. Currency translation effects had a negative impact on segmental sales in euro terms.

• 2014 net sales development by segment. Rounding differences may arise in totals. 

Currency-neutral sales grow in nearly all regions. In 2014, currency-neutral adidas Group sales grew in all regions except North America. Revenues in Western Europe increased 8% on a currency-neutral basis, driven by double-digit sales growth in Germany and Spain as well as high-single-digit increases in the UK and France. In European Emerging Markets, Group sales were up 19% on a currency-neutral basis, with double-digit sales increases in all of the region’s major markets. Currency-neutral sales for the adidas Group in North America decreased 6%, due to sales declines in the USA. Sales in Greater Chinaincreased 10% on a currency-neutral basis. Currency-neutral revenues in Other Asian Markets grew 2%, driven by sales increases in South Korea and India. In Latin America, sales grew 19% on a currency-neutral basis with double-digit increases in most markets, in particular Argentina, Mexico and Brazil. Currency translation effects had a mixed impact on regional sales in euro terms.

• 2014 net sales development by region. Rounding differences may arise in totals. 

Group gross margin down 1.7 percentage points. In 2014, gross profit for the adidas Group decreased 1% to € 6.924 billion versus € 7.001 billion in the prior year. The gross margin of the adidas Group decreased 1.7 percentage points to 47.6% in 2014 (2013: 49.3%). This development was mainly due to negative currency effects as well as higher input costs. In addition, increased clearance activities particularly in Russia/CIS as well as lower product margins at TaylorMade-adidas Golf contributed to the gross margin decline.  

Goodwill impairment in an amount of € 78 million. As a result of the annual impairment test, the adidas Group has impaired goodwill and recorded a € 78 million pre-tax charge as at December 31, 2014 (2013: € 52 million). This charge was related to the Retail cash-generating unit Russia/CIS. As a result, the goodwill of this cash-generating unit is completely impaired. The impairment losses were mainly caused by the significant deterioration of the Russian rouble. The impairment losses were non-cash in nature and thus did not affect the adidas Group’s liquidity.  

Operating margin excluding goodwill impairment declines to 6.6%. Group operating profit declined 25% to € 883 million in 2014 versus € 1.181 billion in 2013. The operating margin of the adidas Group decreased 2.2 percentage points to 6.1% (2013: 8.3%). Excluding the goodwill impairment losses, operating profit was down 22% to € 961 million from € 1.233 billion last year, representing an operating margin of 6.6%, down 2.1 percentage points (2013: 8.7%). This development was primarily due to the negative effects from the lower gross margin as well as higher other operating expenses as a percentage of sales.  

Financial income down 27%. Financial income declined 27% to € 19 million in 2014 from € 26 million in the prior year, due to a decrease in interest income.  

Financial expenses down 28%. Financial expenses decreased 28% to € 67 million in 2014 (2013: € 94 million). This development was the result of a decrease in both negative exchange rate effects as well as interest expenses.  

Net income from continuing operations excluding goodwill impairment declines 22%. The Group’s net income from continuing operations decreased 27% to € 564 million in 2014 from € 773 million in 2013. Excluding the goodwill impairment losses, net income from continuing operations was down 22% to € 642 million (2013: € 825 million). The Group’s tax rate increased 1.9 percentage points to 32.5% in 2014 (2013: 30.5%), mainly due to a less favourable earnings mix. Excluding the goodwill impairment losses, the effective tax rate grew 0.5 percentage points to 29.7% from 29.2% in 2013. 

In 2014, the Group incurred losses from discontinued operations of € 68 million, net of tax, related to the Rockport operating segment, which is planned to be divested during the course of 2015 (2013: gains from discontinued operations of € 17 million). These losses were mainly due to the book loss in the amount of € 82 million and were partly offset by income from Rockport’s operating activities of € 14 million.

Net income attributable to shareholders excluding goodwill impairment down 32%The Group’s net income attributable to shareholders, which in addition to net income from continuing operations includes net income from discontinued operations, decreased to € 490 million in 2014 from € 787 million in 2013. This represents a decline of 38% versus the prior year level. Excluding the goodwill impairment losses, net income attributable to shareholders decreased 32% to € 568 million (2013: € 839 million). Adjusted for the book loss of € 82 million resulting from the planned Rockport divestiture, net income attributable to shareholders excluding goodwill impairment amounted to € 650 million, thus reaching the guidance updated over the year.

Earnings per share from continuing operations excluding goodwill impairment reach € 3.05. Basic and diluted earnings per share (EPS) from continuing operations declined 27% to € 2.67 in 2014 (2013: € 3.68). Excluding the goodwill impairment losses, basic and diluted EPS from continuing operations decreased 22% to € 3.05 from € 3.93 in 2013. The Group’s basic and diluted EPS from continuing and discontinued operations amounted to € 2.35 (2013: € 3.76), representing a decrease of 37%. Excluding goodwill impairment losses, basic and diluted EPS from continuing and discontinued operations were down 32% to € 2.72 (2013: € 4.01). The weighted average number of shares used in the calculation was 208,776,457 (2013: 209,216,186).

Group inventories down 4%. Group inventories decreased 4% to € 2.526 billion at the end of December 2014 versus € 2.634 billion in 2013. On a currency-neutral basis, inventories decreased 1%, mainly as a result of the transfer of Rockport inventories to assets classified as held for sale. Inventories from continuing operations decreased 1% (+2% currency-neutral), reflecting the Group’s focus on inventory management.

Accounts receivable increase. Group receivables increased 8% to € 1.946 billion at the end of December 2014 (2013:€ 1.809 billion). On a currency-neutral basis, receivables were up 2%. Receivables from continuing operations increased 10% (+5% currency-neutral), reflecting the growth of the Group’s business during the fourth quarter of 2014.

Net debt position of € 185 million. The Group ended the year with a net debt position of € 185 million, compared to a net cash position of € 295 million at the end of the prior year, representing a decrease of € 479 million. Higher capital expenditure than originally planned, mainly related to investments in the Group’s logistics infrastructure, negatively influenced this development. In addition, during 2014 the Group utilised cash for the first tranche of the share buyback programme in an amount of € 300 million, which contributed to the net debt position.

adidas Group currency-neutral sales to increase at a mid-single-digit rate in 2015. adidas Group sales are expected 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 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 the Group’s top-line development in reported terms, given the recent strengthening of major currencies such as the US dollar and the Chinese renminbi versus the euro.

Net income from continuing operations to increase at a rate of 7% to 10%. In 2015, the adidas Group gross margin is forecasted to be at a level between 47.5% and 48.5% (2014: 47.6%). Higher product margins at TaylorMade-adidas Golf as a result of lower levels of clearance activity as well as a more favourable pricing and product mix at both adidas and Reebok are expected to positively influence the Group’s gross margin development. However, adverse currency movements in emerging markets, in particular in Russia/CIS, are expected to negatively impact the Group’s gross margin development. The wider than usual target corridor reflects the currently persisting high degree of uncertainty regarding future currency movements.

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 Group 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.

In 2015, Management expects the adidas Group’s operating margin to be significantly impacted by currency effects and to be at a level between 6.5% and 7.0% (2014 excluding goodwill impairment losses: 6.6%). 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 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: € 642 million).