Group revenues up 5%, EPS in line with full year expectations
Herzogenaurach, May 2, 2002 - adidas-Salomon today reported first quarter 2002 financial results. For the first quarter ended March 31, 2002, adidas-Salomon net sales increased 5% to reach € 1,638 million, compared to € 1,558 million in the year-ago period. On a currency-neutral basis, sales grew 4%. Gross margin in the first quarter improved to 41.8% despite higher sourcing costs associated with the weak euro. Higher spending related to three previously announced strategic initiatives (the 2002 FIFA World Cup™, the expansion of adidas own-retail activities and the buyout of adidas Italy) led to a 7% decline in first quarter net income to € 43 million, or € 0.95 per share, compared to € 46 million or € 1.02 per share in the year-ago period.
Sales increase in all product segments
Net sales for adidas-Salomon increased by 5% to reach € 1,638 million in the first quarter of 2002. All product segments developed positively. Apparel sales grew most significantly, increasing 8% to € 592 million. This was driven largely by strong demand associated with the upcoming 2002 FIFA World CupTM football champion-ship. Footwear sales increased 3% to € 768 million in the first quarter. The strongest improvement came from basketball where sales were up nearly 50%. Hardware sales grew 6% to € 278 million driven by new sales from the Maxfli and Slazenger Golf brands.
Growth at all brands
adidas sales increased 4% in the first quarter of 2002 to € 1,330 million, compared to € 1,277 million in the 2001 first quarter. At TaylorMade-adidas Golf, sales in the first quarter grew 14% from € 154 million to € 176 million. Maxfli and Slazenger Golf sales contributed € 25 million to this development. Salomon sales reached € 123 million, representing an increase of 2% compared to € 121 million in the prior year.
North American recovery and World Cup momentum in Asia
Group net sales in North America increased 7% from € 445 million to € 475 million, or- 2% on a currency-neutral basis. adidas brand sales grew 7%, delivering positive underlying sales development for the first time in 10 quarters. In Asia, sales grew 22% in the first quarter to reach € 260 million compared to € 213 million in the year-ago period. This increase was 25% on a currency-neutral basis and was largely the result of early World Cup momentum which drove 24% sales growth at brand adidas in the region. In Europe, Group sales were maintained at € 851 million in the first quarter of 2002.
Strong adidas top-line outlook supported by solid backlog gains
Order backlogs at brand adidas accelerated in the first quarter with improvements coming from all regions. At the end of March, order backlogs increased 7% versus the prior year or 6% on a currency-neutral basis. In North America, backlogs grew 10% (9% currency-neutral) supported by 18% growth in footwear and a 1% decline in apparel. In Asia, total backlogs grew 12% (15% currency-neutral). Footwear backlogs increased 19% and apparel grew 4%. In Europe, backlogs increased 3% (also 3% currency-neutral) supported by strong growth in footwear which increased 11%. Apparel backlogs in the region declined 5%.
Herbert Hainer, Chairman and CEO of adidas-Salomon, stated, "Our order backlogs are excellent. On a currency-neutral basis, they are at their highest level in over three years, making us confident about our ability to improve both top- and bottom-line performance throughout the year."
Gross margin improves despite weak euro
The gross margin in the first quarter improved 0.1 percentage points over last year from 41.7% to 41.8%, despite higher sourcing costs associated with the weak euro. This resulted from improving adidas gross margins in North America, increased high-margin own-retail activities and superior inventory management throughout the Group.
Operating expenses reflect strategic initiatives
Operating expenses as a percent of sales were up 2.1 percentage points to 35.8% in the first quarter of 2002, compared to 33.7% in the first quarter of 2001. This increase was expected and reflected higher spending for three key initiatives: the 2002 FIFA World CupTM, the expansion of adidas own-retail activities and start-up expenses associated with the buyout of adidas Italy. Operating profit was € 98 million, representing a decline of 21% compared to € 124 million in the same period of the previous year.
Financial expenses reduced, EPS develops in line with full year expectations
Financial expenses were € 19 million in the first quarter, representing a reduction of 44% compared to € 33 million in the year-ago period. Income before taxes declined 13% to € 79 million versus € 92 million in the prior year. The tax rate was down 0.8 percentage points from 42.8% to 41.9%. Minority interest costs decreased 51% to € 3 million, compared to € 6 million in the same period of the previous year as a result of the Group's buyout of adidas Italy. Net income and earnings per share for the first three months were in line with full year expectations. Net income was € 43 million, down 7% compared to € 46 million in the year-ago period, and EPS was € 0.95 (first quarter 2001: € 1.02).
Herbert Hainer said, "Operating expenses are up this quarter, but that was expected due to the World Cup, the buyout of adidas Italy and the expansion of adidas own-retail activities. We are on track and I am pleased with the quarter. 2002 is unique because we have the world's two largest sporting events in the Winter Olympics and the World Cup, as well as two new adidas product technologies in a³ and ClimaCool™ coming to market. We, therefore, have taken the decision to strategically invest in the adidas brand this year in a conscious effort to create a strong global sports platform for future growth."
Inventory improvements lead working capital development
At the end of March, inventories for the Group were reduced 4% year-over-year. Receivables increased 12% at the end of March versus the previous year, largely in line with higher sales particularly at TaylorMade-adidas Golf and in Asia. Net borrowings at the end of the first quarter increased 1% to € 1.9 billion, remaining nearly stable despite acquisition expenditures for adidas Italy and Arc'Teryx. This development highlights Management's commitment to maximizing its operational cash flow.
Group sales and earnings growth targets confirmed
As a result of adidas backlogs, retailer feedback for Salomon and TaylorMade-adidas Golf as well as the ongoing macroeconomic environment, adidas-Salomon is maintaining its 2002 sales growth target of at least 5%. The net income growth target for the Group also remains unchanged with earnings growth expected to improve throughout the year.
Herbert Hainer continued, "New products, major sporting events and a North America turnaround means that 2002 will be an exciting year. Our performance in the first quarter is an important step towards our full year earnings target. We remain confident that we can deliver 5 to 10% earnings growth for the year."