Exactly one month after the final of the football World Cup, the excitement of the competition is still reverberating in Adidas’ quarterly results. Buoyant sales of balls and jerseys strongly contributed to a 13 percent jump in the European sales of three-striped products for the second quarter, despite the roughness of the British market.

The football craze was felt in other regions as well, helping to lift Adidas’ brand sales by an impressive 17.5 percent to €1.532 billion for the quarter. The entire Adidas group’s sales for the quarter increased by 60.1 percent to €2.428 billion, up 59 percent in constant currencies, largely due to the acquisition of Reebok. Even leaving this American-based business aside, the company’s sales jumped by 19.5 percent to €1.812 billion.

 

 

Furthermore, order backlogs for the Adidas brand at the end of the 2nd quarter showed a gain of 9 percent in constant currencies – although about 2 percentage points of the growth must be attributed to the transfer of Reebok’s NBA and Liverpool apparel business to Adidas.

The rise in Adidas’ orders was led by a 24 percent increase in Asia, along with increases of 7 percent in North America and 3 percent in Europe. Apparel led the way with a backlog increase of 13 percent in constant currencies, against 3 percent for footwear. Accordingly, he company raised its sales expectations, indicating that the group excluding Reebok should lift its sales between 10 and 12 percent for the full year.

On the other hand, sales of the Reebok business continued to decline by about 10 percent on a comparable basis in the latest quarter, with a 13 percent fall for the Reebok brand itself. The drop was chiefly caused by sagging orders from large accounts in the USA and the UK, mostly in the basketball and music categories. The main consolation is that the fall is smaller than the 20 percent drop reported for the 1st quarter.

Order backlogs for the Reebok brand were down by 13 percent at the end of the quarter, with a decline of 16 percent in euros. While the brand is struggling to regain shelf space, Adidas executives point out that 3 percentage points of the decline was due to the transfer of the NBA license and the Liverpool business. This contributed to a 16 percent drop in Reebok’s apparel orders, compared with a fall of 12 percent for footwear. On a comparable basis, Adidas executives estimate that the fall in Reebok orders reached about 10 percent at the end of the quarter, far less discouraging that a few months back. The Asian backlog figure even turned positive this quarter.

As for TaylorMade Adidas Golf, the division continued to ride high in the second quarter, with a sales increase of 30.6 percent to €264 million – although the score was inflated by the inclusion of the Greg Norman business. Europe was the only region where the golf business suffered, exclusively due to problems on the UK market.

In apparent effort to solve them, TaylorMade has appointed a 33-year-old executive, Ben Sharpe, as vice president and managing director of its European operations, based in the UK. He will fill the void left by the departure of Rollen Jones some months ago. Sharpe will leave later this month his current position of manager of worldwide business affairs for Lyle & Scott, which includes the Sunderland and Bobby Jones golf apparel brands. The appointment of Sharpe comes soon after the departure of Richard Palmer Jones (previously Adidas golf brand director) and Neil Heslop (previously TaylorMade UK Sales Manager) who have left to set up their own company, PJH Golf Consultancy.

As expected, the Reebok acquisition sharply reduced the Adidas group’s margins in the short term, due to the weight of its business in the tight U.S. market and one-off accounting hits. The group’s gross margin for the quarter was down by 4.3 percentage points to 44.6 percent and its operating profits margin fell by 2.9 percentage points to 7.1 percent. Given the higher sales turnover, net profit was still up by 24.3 percent to €83 million for the quarter.

The picture is much the same for the first half, where group sales jumped by 53 percent to €4.887 billion, up 49 percent in constant currencies. Yet again the result was largely inflated by Reebok. Excluding the American-based business, group sales were up by 19 percent to €3.8 billion, an increase of 16 percent in constant currencies.

Buoyed by the football World Cup, sales of the Adidas brand rose by 17 percent to €3.308 billion for the six months period, up 15 percent in constant currencies. While football took center-stage, nearly all other sports performance categories contributed to the increase, and Sports Heritage and Sports Style continued to report double-digit sales growth.

Including its secondary brands, Reebok’s sales were down by 9 percent to €1.050 million, a 12 percent slide in constant currencies. However, the fall was entirely due to the Reebok brand itself, which saw its sales drop by 16 percent in constant currencies to €849 million. Rockport’s sales were up by 3 percent to €129 million and The Hockey Company enjoyed a sales rise of 28 percent to €72 million for the period, partly due to the fact that it had been hit by an NHL strike last year.

Greg Norman contributed €37 million for the half-year, and TaylorMade shone with a sales increase of 32 percent to €464 million, up 28 percent in currency-neutral terms.

In Europe, the Adidas group’s sales went up by 28 percent to just over €2 billion for the first half, up 27 percent in constant currencies – even though the UK troubles pushed TaylorMade’s half-year sales down by 6 percent in the region. Excluding Reebok, which reported European sales of €305 million from February to June, the group’s European turnover increased by 8 percent in constant currencies.

The Adidas brand performed strongly in North America, where it achieved a 22 percent increase for the six months. TaylorMade raced ahead with a 48 percent sales rise there. Including Reebok, total group sales for the region shot up by 110 percent €1.592 billion.

Asia continued to bring much joy to the Adidas group as a whole, with sales rising by 36 percent to €964 million. Excluding Reebok, which had sales of €100 million in Asia, the increase would have been 21 percent, with a 22 percent jump for Adidas and a 21 percent increase at TaylorMade.

Reebok’s acquisition deflated gross margins to 44.8 percent for the first half, down by 3.7 percentage points. Adidas itself pushed its gross margins up by 0.9 percentage points to 46.5 percent owing to higher clearance sales margins and more direct retail revenues, which rose by 39 percent for the quarter and appear on track to exceed €1 billion this year. On the other hand, Reebok’s gross margins came in at just 33.6 percent for the half-year, partly due to accounting effects.

The group’s gross margin was further impacted by the collaboration agreement with Amer Sports, the Finnish group that acquired Salomon last year, and the decline of TaylorMade’s margins. They dipped by 2.5 percentage points to 44.1 percent, due to the brand’s aggressive campaign to boost its metalwoods sales. Excluding Reebok, gross margins were off by just 0.5 percentage points to 48 percent.

Partly for the same reasons the group’s operating margin declined by 2.6 percentage points to 8.6 percent of sales. However, the impact of World Cup investments was much lighter than analysts had predicted, involving a decline of just 0.6 percentage points to 10.6 percent for the group excluding Reebok. The company ended the six months with net profit from continuing operations up by 4 percent to €234 million.