The Adidas Group reported a strong lift in third-quarter sales, which rose 17 percent on a currency-neutral basis, and the new management confirmed that it is on track to meet targets for a record year. In reported euros, group sales went up by 14 percent to €5,413 million.

Adidas brand sales rose by 20 percent on a currency-neutral basis during the quarter, dwarfing sales' increases of 7 percent at Reebok and 6 percent at TaylorMade-Adidas Golf. CCM was down because of the challenging hockey market in the U.S.

 
 

Adidas Group Net Sales

(Million Euros, Quarter ended Sept. 30)

 

2016

2015

Change
%

Change
(currency
neutral) %

Western Europe

1,557

1,404

10.9

14.5

North America

927

776

19.5

20.2

Greater China

822

691

19.0

25.3

Russia/CIS

195

195

0.0

7.4

Latin America

487

489

-0.4

15.8

Japan

264

186

41.9

21.1

MEAA*

794

674

17.8

19.1

Other Businesses

366

342

7.0

6.8

 

Adidas

4,640

4,007

15.8

19.5

Reebok

493

476

3.6

7.2

TaylorMade-adidas Golf

170

159

6.9

6.0

CCM Hockey

103

112

-8.0

-7.3

TOTAL NET SALES

5,412

4,757

13.8

10.3

MEAA- Middle East, Africa and other Asian markets

Particularly strong demand for the iconic Superstar and Stan Smith sneakers helped the Adidas brand to record a 41 percent increase for the Originals segment of the Lifestyle division. Other strong franchises were Tubular, NMD and Kanye West. The Neo brand gained 51 percent in the quarter.

Adidas Consolidated Income Statement
(Million Euros, Quarter ended Sept. 30)

 

2016

2015

Change
%

Net Sales

5,413

4,758

13.8

Cost of Sales

2,839

2,454

15.7

Royalty/Comm. Income

30

32

-6.3

Other Operating Income

17

14

21.4

Net Operating Expenses

2,058

1,845

11.5

Net Financial Expenses

18

10

80.0

Pre-Tax

563

505

11.5

Tax

159

158

0.6

NET

387

314

23.2

Minority Interest

1

3

-66.7

Euro/Share (Diluted)

1.88

1.67

12.6

The Performance segment grew at a nice rate of 13 percent, led by increases of 17 percent in running and 13 percent in training. Sales of football products rose at slower pace of 5 percent, with a 22 percent increase in footwear products offsetting a decline in football apparel as compared to the high levels of a year ago.

Double-digit sales increases were scored by the Adidas brand in every region except in Russia, where revenues grew by 4 percent. Reebok grew more strongly in Russia, as the sales of the whole Adidas Group went up by 7 percent on a currency-neutral level in the country.

The group's total revenues in Western Europe increased by 15 percent on a currency-neutral basis during the quarter, driven by double-digit growth in the U.K., Germany, France, Italy, Spain and Poland.

A pleasant piece of news was a 20 percent sales increase for the group in North America in terms of local currencies. Noting that the Adidas brand alone has risen by 29 percent there so far this year, the group's new chief executive, Kasper Rorsted, declared his intention to continue to build up on Adidas' momentum in the U.S., where the brand's market share has doubled to 10 percent. He wants it to reach a level of 15 percent in the medium term.

The group's business in Greater China remained buoyant, with a currency-neutral sales increase of 25 percent. In Latin America, revenues grew 16 percent on a currency-neutral basis, reflecting double-digit growth in Argentina, Peru and Colombia as well as high-single-digit growth in Mexico and Chile.

Sales were up 21 percent in the local currency in Japan. In the rest of Asia, the Middle East, Africa and Australia, they grew 19 percent in constant currencies, driven by double-digit growth in South Korea, Australia, the United Arab Emirates, South Africa, India and Thailand.

The gross margin of the group slid by 0.9 percentage points to 47.6 percent in the third quarter, mainly due to the impact of negative foreign currency movements, which offset more favorable pricing as well as higher product margins. Operating earnings moved up by 11 percent to €563 million, but as a percentage of sales they declined by 0.2 percentage points to 10.4 percent. The quarterly net profit was 24 percent higher than a year ago at €387 million.

For the first nine months of 2016, group revenues increased by 20 percent on a currency-neutral basis as all market segments posted double-digit growth across all regions except Russia, where revenues grew at a mid-single-digit rate. In euro terms, the nine-month revenues grew by 15 percent to €14.6 billion from €12.75 billion in the same period in 2015.

At 48.6 percent, the group's gross margin decreased 0.1 percentage points during the nine-month period. It is expected to decline to somewhere between 48 percent and 48.3 percent for the full financial year, as adverse currencies will offset the growing proportion of DTC at group level and a more favorable pricing, product and regional mix.

The operating margin is forecast to increase to a level of up to 7.5 percent for the year, up from 6.5 percent in the prior year. Net income from continuing operations should go up by between 35 and 39 percent to reach a level of between $975 million and one billion euros, excluding goodwill impairment charges.

The operating margin of the group improved by 1.4 percentage points to 10.0 percent for the nine months, due in part to an extraordinary gain from the early termination of its sponsorship of the Chelsea team, which has gone to Nike (see our previous issue).

Reiterating its outlook for 2016, Adidas said it expects revenues to increase at a rate in the high teens on a currency-neutral basis, supported by double-digit growth in all regions except Russia, where sales are forecast to grow at a mid-single-digit rate.

Turning to 2017, Rorsted said he does not expect Adidas to maintain the same level of revenue and profit growth of 2016, adding that the group performance will be more in line with the group's long-term strategic business plan.

Adidas plans to provide a detailed outlook for 2017 with the release of its full-year earnings on March 8 and at an investor day on March 14. It will also discuss next year new initiatives, notably in the digital field.