The adidas Group expects sales to increase

In the second quarter of 2015, the adidas Group delivered a robust financial performance with strong top-line improvements despite difficult comparisons after record World Cup related sales in the prior year period. Group revenues grew 5% on a currency-neutral basis, driven by continued sales momentum at both adidas and Reebok. In euro terms, Group revenues grew 15% during the second quarter to € 3.907 billion in 2015 from € 3.400 billion in the prior year. Currency-neutral adidas revenues grew 8%, driven by double-digit sales increases at adidas Originals and adidas NEO as well as mid-single-digit growth in the training category. Currency-neutral Reebok sales were up 6% versus the prior year as a result of double-digit sales increases in the training, running and studio categories as well as mid-single-digit growth in Classics. Revenues at Taylor Made-adidas Golf declined 26% currency-neutral, due to sales decreases in most categories, in particular metalwoods and irons.

«We have said all along that our new strategy ‘Creating the New’ will already show first positive results this year. The second quarter is proof positive for that», commented Herbert Hainer, adidas Group CEO. «I am pleased to see how well adidas and Reebok are resonating with their respective consumers». 

From a segmental perspective, combined currency-neutral sales of the adidas and Reebok brands in the second quarter of 2015 grew particularly strongly in Western Europe, Greater China and MEAA, with revenues up at double-digit rates each. Revenues in Western Europe increased 12% on a currency-neutral basis, due to double-digit sales growth at adidas and high-single-digit growth at Reebok.

Currency-neutral sales in North America remained stable, as sales growth at adidas was offset by declines at Reebok. Revenues in Greater China were up 19% on a currency-neutral basis, reflecting double-digit top-line growth at adidas and Reebok. Currency-neutral sales in Russia/CIS decreased 14% due to declines at both adidas and Reebok. Further store closures contributed to this development. In Latin America, revenues grew 9% on a currency-neutral basis with double-digit sales growth at Reebok as well as high-single-digit increases at adidas.

In Japan, sales were down 6% on a currency-neutral basis as sales growth at Reebok was more than offset by declines at adidas which were mainly related to the non-recurrence of last year’s World Cup related revenues. Sales in MEAA grew 16% on a currency-neutral basis, reflecting double-digit top-line growth at both adidas and Reebok.  Revenues in Other Businesses were down 14% on a currency-neutral basis in the second quarter, as double-digit sales growth at Reebok-CCM Hockey and other centrally managed businesses was more than offset by the significant decline at TaylorMade-adidas Golf. 

 adidas Group initiates turnaround plan at TaylorMade-adidas Golf.

As a reaction to the persisting challenges at TaylorMade-adidas Golf, the adidas Group has initiated a major turnaround plan for its golf business. The set of measures is aimed at enhancing the company’s pricing, promotion and trade patterns, as well as optimising the supply chain and product costs. Furthermore, the Group targets a re-prioritisation of the global marketing spend and significant operating overhead savings at TaylorMade-adidas Golf. In addition, the adidas Group has engaged with an investment bank for the purpose of analysing future options for the company’s golf business, in particular the Adams and Ashworth brands. 

Second quarter operating margin declines 0.4 percentage points
The Group’s gross profit increased 13% to € 1.889 billion (2014: € 1.673 billion) in the second quarter. Gross margin decreased 0.9 percentage points to 48.3% (2014: 49.2%), as the positive effects from a more favourable pricing and channel mix at adidas and Reebok were more than offset by higher input costs, negative currency effects as well as lower product margins at TaylorMade-adidas Golf. Other operating expenses grew 13% to € 1.720 billion, reflecting an increase in sales and marketing working budget investments as well as higher operating overhead costs.

However, as a percentage of sales, other operating expenses declined 0.6 percentage points to 44.0% (2014: 44.6%). In the second quarter of 2015, Group operating profit increased 8% to € 234 million (2014: € 217 million), representing an operating margin of 6.0%, down 0.4 percentage points from the prior year level (2014: 6.4%). This development was primarily due to the decline in gross margin, which more than offset the positive effect from lower other operating expenses as a percentage of sales. Net income from continuing operations increased 2% to € 146 million from € 144 million in 2014. Net income attributable to shareholders, which in addition to net income from continuing operations includes net income from discontinued operations, increased 1% to € 146 million from € 144 million in 2014.

adidas Group currency-neutral sales increase 7% in the first half of 2015
In the first half of 2015, Group revenues increased 7% on a currency-neutral basis, due to double-digit growth at adidas as well as high-single-digit increases at Reebok. Currency translation effects had a positive impact on sales in euro terms. Group revenues grew 16% to € 7.990 billion in the first half of 2015 from € 6.880 billion in 2014. Currency-neutral adidas revenues grew 10%. This development was driven by double-digit sales increases at adidas Originals and adidas NEO as well as high-single-digit growth in the training and running categories. Currency-neutral Reebok sales were up 8% versus the prior year, mainly as a result of double-digit sales increases in the training and studio categories as well as high-single-digit sales growth in running. Revenues at TaylorMade-adidas Golf decreased 17% currency-neutral, due to sales declines in most categories, in particular metalwoods and irons.

adidas Group confirms guidance for the full year 2015
The adidas Group expects sales to increase at a mid-single-digit rate on a currency-neutral basis in 2015. The Group’s top-line development will be driven by the ongoing robust momentum at both adidas and Reebok, in particular in Western Europe, Greater China and MEAA, where revenues are now expected to grow at a double-digit rate each. 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) as well as the continued weakness at TaylorMade-adidas Golf, where currency-neutral revenues are now forecasted to decrease versus the prior year level.

The company  gross margin is forecasted to be at a level between 47.5% and 48.5% (2014: 47.6%). The more favourable pricing and product mix at both adidas and Reebok together with the more favourable channel mix as a result of the further expansion and improvement of controlled space initiatives are expected to positively influence the Group’s gross margin development. However, adverse currency movements in emerging markets, in particular in Russia/CIS as well as lower product margins at TaylorMade-adidas Golf are projected to negatively impact the Group’s gross margin development.

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%). While sales and marketing working budget investments as a percentage of sales are projected to increase versus the prior 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% (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 30.0% in 2015 and thus above the prior year level (2014: 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: «2015 will be a successful year for the adidas Group. With a strong order book on hand, we are very confident that the robust momentum of our core brands adidas and Reebok will continue throughout the second half of the year and fuel the targeted top- and bottom-line growth».

Disclosure: The author is not responsible for the views expressed in the article. The text has been written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.