The Adidas Group continued to emphasize profit margins in the first quarter of 2018. Its net earnings from continuing operations went up by 16.5 percent to €631 million, and earnings per share actually leaped by 19 percent as the company continued its share buy-back program. Sales increased by only 6.1 percent to €5,883 million, with a decline in Western Europe.
The company's share price gained 7 percent as the results were above expectations. The gross margin shot up by 2.5 percentage points to 53.6 percent in the quarter, helped by a slightly faster growth in apparel than footwear, lower sourcing costs, higher retail sales and favorable currencies. The operating margin improved by only 1.4 percentage points to 14.9 percent of sales as a drop of 0.8 percentage points in marketing and point-of-sales expenditures to 12.0 percent of the turnover was offset by an increase of 1.8 percentage points in overhead expenses to 27.4 percent of sales.
The management is forecasting an increase of between 10 and 14 percent in the group's net earnings for the full financial year, taking them up to a level of €1,880 million to €1,950 million, short of the €2 billion mark. It continues to expect a rise of between 5 and 8 percent in the top line in constant currencies, with an acceleration in the second half – particularly in Europe and the U.S. – from an increase of 3 to 4 percent in the first half, after the solution of its recent supply chain problems for medium-priced apparel by the end of the year, especially in North America.
For the year, the gross margin is seen improving by 0.2 percentage points to 52.0 percent, and the operating margin should go up by between 0.5 and 0.7 percentage points, building up to a level of 11.3 and 11.5 percent.
In local currencies, the group's revenues were up by just about 4 percent in the first quarter, as a 5.3 percent increase by the Adidas brand was partly offset by a 5.7 percent decline at Reebok. In reported terms, the Adidas brand grew by 6.8 percent to €5,343 million and Reebok fell by 4.7 percent to €420 million.
Reebok's sales continued to decline in spite of double-digit increases in Classics and apparel, but its gross margin improved by 2.9 percentage points to 44.7 percent. The group's chief executive, Kasper Rorsted, expressed continued faith in the brand, predicting that it will return to profitable growth in 2020 after being “re-ignited” with the launch of more relevant products for consumers, with the support of its new “Muscle Up” campaign.
The Adidas brand's revenues went up by 6 percent in the Sport-Inspired segment and by 3 percent in Sport Performance. They recorded double-digit growth in training and running, which were partially offset by a decline in football due to the non-recurrence of last year's World Cup.
The group continued to invest heavily in its digitalization. A 40 percent increase in e-commerce, which is becoming more profitable, was closely related to new product launches. Representing about 9 percent of the total turnover, the progress of e-commerce contributed to an 18 percent increase in total direct-to-consumer revenues. The management is still confident that e-commerce will soon build up to annual sales of €4 billion, after doubling to €2 billion in two years' time.
