Golf and currency swings impact revenue growth at Adidas

Thursday, 05 March 2015
REPORT Adidas Group currency-neutral sales and revenues increased 6 percent in the fourth quarter. Currency neutral sales in retail and wholesale increased 20 percent and 5 percent, respectively. Sales in Other businesses decreased 16 percent on a currency-neutral basis, due to a double-digit  decline at TaylorMade-adidas Golf. In 2014, currency-neutral Adidas Group sales grew in all regions except North America. Revenues in Western Europe increased 8 percent on a currency-neutral basis, driven by double-digit. Currency translation effects had a negative impact on Group sales in euro terms. Group revenues grew 2 percent to 14.534 billion euros (16.040 billion dollars) in 2014.

“2014 was a year with ups and downs for the Adidas Group. But we tackled the challenges resolutely and achieved our adjusted top- and bottom-line targets,” commented Herbert Hainer, adidas Group CEO, adding, “In the fourth quarter, we grew at double-digit rates in Western Europe, Greater China, European Emerging Markets and Latin America. This shows that the momentum at Adidas and Reebok is fully intact.”

Currency-neutral revenues in Western Europe during the fourth quarter increased 13 percent, due to double-digit growth at Adidas and Reebok. In European Emerging Markets, currency-neutral sales were up 16 percent as a result of double-digit revenue growth at both Adidas and Reebok. Group sales in North America declined 4 percent 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 percent 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 percent on a currency-neutral basis as a result of double-digit growth at Adidas and Reebok. From a brand perspective, fourth quarter sales at Adidas increased 11 percent 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 percent 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 percent 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 percent as a result of strong sales growth in sticks.

The Group’s gross profit increased 1 percent in the fourth quarter. Gross margin decreased 2.6 percentage points to 44.9 percent 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. In the fourth quarter of 2014, the Group recorded a loss from operating activities of 40 million euros (44.1 million dollars). Operating margin excluding goodwill impairment losses declined 1.4 percentage points to 1.1 percent. As a result, net income from continuing operations, excluding goodwill impairment losses, decreased to 10 million euros (11 million dollars) from 32 million dollars (35.3 million dollars) in 2013.

Sales growth was witnessed in Germany and Spain during the fiscal 2014 as well as high-single-digit increases in the UK and France. In European Emerging Markets, Group sales were up 19 percent on a currency-neutral basis, with double-digit sales increases in all of the region’s major markets. For the Adidas Group in North America decreased 6 percent, due to sales declines in the USA. Sales in Greater China increased 10 percent and 2 percent in Other Asian Markets, driven by sales increases in South Korea and India. In Latin America, sales grew 19 percent with double-digit increases in most markets, in particular Argentina, Mexico and Brazil.

In 2014, gross profit for the Adidas Group decreased 1 percent to 6.924 billion dollars (7.641 billion dollars). The gross margin of the Adidas Group decreased 1.7 percentage points to 47.6 percent in 2014. Increased clearance activities particularly in Russia/CIS as well as lower product margins at TaylorMade-adidas Golf contributed to the gross margin decline.

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 group expects positive sales development will be supported by rising consumer confidence in most geographical areas. Net income from continuing operations is expected to increase at a rate of 7 percent to 10 percent and gross margin is forecasted to be at a level between 47.5 percent and 48.5 percent.

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