HERZOGENAURACH, Germany, April 30 /PRNewswire-FirstCall/ –
adidas-Salomon today reported first quarter 2003 financial results. For thefirst quarter ending March 31, 2003, net sales increased 2% from euro 1,638million in 2002 to euro 1,669 million in 2003. On a currency-neutral basis,sales grew 12%. Gross margin grew 0.7 percentage points to 42.5% in 2003 from41.8% in 2002. This was achieved despite difficult retail conditions in allmajor markets. The Group’s net income increased 19% from euro 43 million in2002 to euro 51 million in 2003. This represents basic earnings per share ofeuro 1.13 versus euro 0.95 in the prior year.
adidas brand leads Group growth
adidas revenues increased by 6% from euro 1,330 million in the first threemonths of 2002 to euro 1,405 million in 2003. On a currency-neutral basis,this increase was 16% and represents the brand’s highest gain in more thanfour years. Drivers of this growth were strong developments in running,football and basketball. Salomon sales grew 1% (+7% currency-neutral) fromeuro 123 million to euro 124 million. This improvement reflects soliddouble-digit growth in apparel, bicycle components and alpine skis in theotherwise challenging winter market sector. TaylorMade-adidas Golf figureswere affected by the change in the timing of product introductions and thenon-renewal of the Slazenger Golf license. This was reflected in a decline of24% (-11% currency-neutral) from euro 176 million to euro 134 million forTaylorMade-adidas Golf in the first quarter.
Strong growth in Europe and Asia drives net sales improvement
Sales for adidas-Salomon in Europe increased 10% from euro 851 million in thefirst quarter of 2002 to euro 933 million in 2003. On a currency-neutralbasis, this increase was 12%, representing the strongest growth in the regionin seven quarters. Asia was again the fastest growing region for the Group inthe first quarter. Sales increased 8% to reach euro 281 million in 2003(2002: euro 260 million). On a currency-neutral basis, this increase was 21%.In North America, 2003 first quarter sales for the Group declined 15% to euro405 million versus euro 475 million in the prior year. On a currency-neutralbasis, however, sales increased 4%. In Latin America, sales declined 8% inthe first quarter of 2003 to euro 36 million (2002: euro 39 million). On acurrency-neutral basis, sales grew 45%.
Currency-neutral adidas backlogs up 9%
Despite an increasingly difficult marketplace, underlying backlog growth forbrand adidas represents the seventh consecutive quarter of positivedevelopment. At the end of the first quarter of 2003, order backlogs forbrand adidas declined 2%. On a currency-neutral basis, this equates to anincrease of 9%. Footwear backlogs declined 1% but were up 11% on acurrency-neutral basis. Apparel orders were down 3%, however incurrency-neutral terms this represents an increase of 6%. In Europe, ordersincreased 8% (+12% currency- neutral) supported by strong footwear whichincreased 14% (+19% currency- neutral). Apparel backlogs grew 3%. On acurrency-neutral basis, this is a 7% increase. In Asia, backlogs grew 7%(+22% currency-neutral). Footwear backlogs declined 2% (+12%currency-neutral), while apparel orders grew 21% (+38% currency-neutral). InNorth America, order backlogs decreased 22% (-3% currency-neutral). Footwearbacklogs declined 20% (+0% currency-neutral). Apparel orders declined 27%(-9% currency-neutral). However, this reduction reflects improvements in theGroup’s global supply chain, which have shortened the order window forcustomers by one full month starting in the first quarter of 2003. On alike-for-like basis, currency-neutral apparel orders increased atmid-single-digit rates.
Gross margin improves
adidas-Salomon gross profit grew 4% in the first three months of 2003 toreach euro 708 million versus euro 684 million in 2002. In addition topositive top-line development, this increase was driven by a 0.7 percentagepooint gross margin improvement to 42.5% (2002: 41.8%).
Operating profit up 18%
Operating expenses, including selling, general and administrative expenses(SG&A) and depreciation and amortization (excluding goodwill), grew 1% fromeuro 585 million in the first quarter of 2002 to euro 592 million in 2003. Asa percentage of net sales this equates to 35.5% which is 0.3 percentagepoints lower than the 2002 level of 35.8%. Operating profit for the Groupincreased 18% from euro 98 million in 2002 to euro 116 million in 2003.
Earnings grow 19%
Financial expenses declined 5% from euro 19 million in the first quarter of2002 to euro 18 million in 2003. The reduction was positively impacted by theGroup’s lower average borrowings. Income before taxes increased 23% from euro79 million to euro 98 million in 2003. The Group tax rate improved by 0.9percentage points from 41.9% in the first quarter of 2002 to 41.0% in 2003.Minority interests doubled to euro 6 million (2002: euro 3 million) due tostrong results from adidas South Korea. As a result of the Group’s strongoperational performance, net income increased 19% from euro 43 million in thefirst quarter of 2002 to euro 51 million in 2003, and EPS was euro 1.13 in2003 versus euro 0.95 in 2002.
Herbert Hainer, Chairman and CEO of adidas-Salomon, stated, “adidas-Salomonhas started 2003 strongly, with sales for the Group up 12% on acurrency-neutral basis. All of our operating measurements moved visibly inthe right direction. Our 19% earnings increase is the highest first quarterimprovement in six years. But we still have work ahead of us for theremainder of the year, in particular when we look at our adidas order backlogdevelopment in North America. Our North American organization is alreadymoving on several initiatives to re-ignite the success of the previousquarters.”
Solid working capital improvement and debt reduction
At the end of March, inventories were reduced by 8% from euro 1.2 billion in2002 to euro 1.1 billion in 2003. On a currency-neutral basis, inventoriesincreased 2%, which is considerably below sales growth expectations for thesecond quarter. Receivables decreased by 3% year-over-year to euro 1.4billion in 2003 versus euro 1.4 billion in 2002. On a currency-neutral basis,receivables increased by 9%. This rate is below the Group’s first quartercurrency-neutral sales growth and reflects strict discipline in the Group’strade terms management. Net borrowings at March 31, 2003 were euro 1.6billion, down 15% or euro 285 million versus euro 1.9 billion in the prioryear.
Group sales and earnings growth targets confirmed
As a result of adidas backlogs, retailer feedback and the anticipatedmacroeconomic environment, adidas-Salomon is maintaining its 2003 salesgrowth target of around 5% on a currency-neutral basis. The net income growthtarget for the Group also remains unchanged with earnings expected to growbetween 10 and 15%.
Herbert Hainer continued, “I am pleased to confirm that our Group’s financialand operational targets for 2003 remain unchanged, with further salesincreases, a stable high gross margin and an improving operating margin.Regional market developments are subject to rapid changes, but we have provenover the last three years that we are strong enough and fast enough todeliver, despite the ever-changing conditions on the fields on which wecompete.”
Please visit our corporate website: www.adidas-Salomon.com