The Adidas Group reported last week a 20 percent increase in net income to €1,709 million from continuing operations for 2018. Excluding losses from discontinued operations – which, as a result of last year's divestiture of Rockport, declined last year to €5 million from €254 million the year before – the net profit attributable to shareholders grew by 45 percent.

The gross margin improved by 1.4 percentage points to 51.8 percent and the operating margin (Ebit) rose by 1.1 percentage points to a historically record level of 10.88 percent. Reebok generated a slight profit for the first time in many years, raising its gross margin by 3.0 percentage points to 43.7 percent, after improving its overall profitability by €150 million since 2016.

The gross margin was boosted by better pricing, better channel and product mix and lower input costs, which more than offset significantly adverse currency effects. Ebitda went up by 15 percent to €2,882 million.

Last year's good bottom line figures were achieved in spite of an increase in marketing expenditures of 0.9 percentage points to 13.7 percent globally, with proportionately higher budgets being allocated to Western Europe and North America, as well as the football World Cup. More than 90 percent of the advertising is now flowing through digital channels.

In spite of better-than-expected margins for the year, Adidas' share price slid by about 3 percent at the day's close as investors were disappointed by the disclosure of supply chain issues, the most recent sales trends and a mitigated guidance given for 2019, fearing that the group's ambitious goals may be thwarted by Nike's regained strength in Europe and North America.

In fact, the group's consolidated sales grew last year by only 3 percent to €21.91 billion, largely because of adverse currency effects. In terms of local currencies, they went up by 8 percent, with a 9 percent increase for the Adidas brand more than offsetting a 3 percent decline at Reebok.

With its ongoing focus on profitability in all the aspects of its business, the management is projecting a further increase in net income of between 10 and 14 percent for this year. The target for the operating margin is a ratio of between 11.3 and 11.5 percent of sales. Here again, the sales outlook is less positive, as it calls for a currency-neutral increase of between 5 and 8 percent in 2019. It is predicting low single-digit growth in Latin America and Russia, high single-digit growth in North America and Emerging Markets, and double-digit growth in Asia-Pacific.

The lower-than-expected sales outlook for this year is largely related to an unspecified supply chain problem that has made it difficult for the company to respond to a strong increase in demand for medium-priced apparel, especially in North America. The issue is expected to cut the overall growth rate by between one and two percentage points this year. Declining to comment on speculation that the problem may have led to the recent departure of the former chief operating officer, Gil Steyaert, the management said it was budgeting a global sales increase of between 3 and 4 percent in the first half of 2019, followed by a sequential acceleration during the balance of the year.

Going forward, the group's management sees a strong upside for itself in North America through the wholesale channel, where it can position itself as a good alternative to Nike as the market leader is emphasizing the direct-to-consumer channel. It hopes to raise its lead over Under Armour as the number two player in the market.