Adidas assuaged the worst fears about the integration of Reebok International by confirming that the American company had ended the first quarter of this year with a small increase in its order backlog. Including Reebok CCM Hockey and other operations, the Reebok group’s sales declined for the three opening months of the year and they should continue to do so in the second quarter, but they now look certain to pick up thereafter.

The Reebok brand’s order backlog at the end of March was down by 3 percent in euros but up by 3 percent in constant currencies, driven by a 16 percent jump in apparel orders. The brand’s apparel business previously concentrated strongly on licensed apparel, but the new owners have been adding technical ranges for categories like running, and striving to more thoroughly exploit the licensed business.

On the other hand, Reebok’s footwear orders declined by 9 percent, giving a measure of the efforts still to be made for the brand’s full recovery. Due to the longer lead times for footwear, improvements will take more time to come through in this category. The first full Reebok shoe ranges developed under Adidas’ ownership will only hit the market in the Spring of 2008.

In regional terms, the picture was mixed. Reebok’s order backlogs increased by more than 50 percent in Asia/Pacific, driven by China where the brand has bought back its distribution rights from the beginning of this year. Aside from the Indian market, its presence has been relatively weak throughout Asia over the last years. Order backlogs improved slightly in North America in dollars, but while apparel was up, footwear orders dropped by 13 percent in dollars.

In Europe, Reebok’s order backlogs remained flat, as robust growth in Russia and other emerging markets (see separate story) just about offset tougher situations on the other side of the continent, especially in the UK. The Reebok brand took a major hit last year as it cleaned up its UK distribution, particularly in lower-priced segments, and this is going to continue to affect Reebok’s UK sales on a smaller scale this year.

Among the encouraging signs for the brand, Intersport has agreed to take up Reebok’s soccer boots for the 2008 European Championships, while it usually promotes only Adidas, Nike and Puma in this category. The company is talking to Karstadt, the German retailer, to set up women-specific Reebok corners. And the “Run Easy” campaign launched earlier this year has received positive consumer reactions.

For the first quarter of this year, the Reebok division’s sales increased by 15 percent to €524 million, up 22 percent in local currencies, but the figure is distorted by the fact that January was not consolidated last year. Comparing for the full three months, and excluding the effect of the transfer of Reebok’s endorsement deals with the National Basketball Association (NBA) and the Liverpool football club to Adidas, Reebok’s sales actually declined by 5 percent.

The ongoing slide could be blamed entirely on North America, as comparable sales for the Reebok group inched up in all other regions. The Reebok brand itself saw its sales decline in all major sports categories and in lifestyle products on a comparable basis. Rockport and Reebok CCM Hockey, the new name of products sold by the former Hockey Company, both saw their sales drop due to the lack of product launches.



The reassuring aspects of the Reebok backlogs overshadowed the vigorous performance of the Adidas brand, which saw its sales rise by 7 percent in local currencies for the quarter, up by 2 percent in euros to €1,819 billion. Even in Europe, Adidas managed a sales rise of 6 percent in local currencies, mixing sales declines in the UK and Germany with sharp increases in Iberia, Russia and Turkey.

In spite of the fact that Adidas benefited strongly from the football World Cup last year, its order backlog was also up by 7 percent in local currencies, including a 4 percent rise in Europe. Actual sales are unlikely to increase to that extent, though, given the high level of at-once orders and replenishment enjoyed in the second quarter last year.

As for North America, the picture was not as depressing as order levels would suggest. The Adidas brand’s sales in the region were up by 1 percent in dollars and down by 8 percent in euros. Current backlogs are again positive in local currencies, up by 2 percent. The brand has been gaining ground with performance products for basketball, football and running. The Three Stripes enjoyed a particularly fine moment at the NBA All Star Game, as its contract with the NBA dictated that all players should appear on the court in Adidas shirts, and four of the players wore the brand.

More surprisingly, the breathless expansion of Adidas in the Asia-Pacific region has slowed down a little, with sales up by 11 percent for the quarter in local currencies. All Asian markets reported double-digit growth except for Japan. Adidas was quick to add that its highly ambitious targets for the region remained unchanged. With Adidas’ brand sales up by 32 percent in local currencies, Latin America continues to enjoy the growth rates that are common in other emerging markets.

As for TaylorMade-adidas Golf, sales declined by 10 percent to €180 million in euros and were down by 4 percent in local currencies, but that was entirely due to the disposal of the Greg Norman Collection. Excluding this, divisional sales rose by 5 percent, even though the two new drivers it introduced in the quarter had to fight for exposure amid a flurry of competing launches.

The Adidas group ended the quarter with a 3.2 percent sales increase to €2,538 billion, up by 9 percent in local currencies. However, a more significant figure would be a sales rise of 4 percent, calculated in local currencies on the basis of the three months for Reebok and without Greg Norman.

The group gross margin improved by 1.8 percentage points to 46.8 percent, mainly due to the impact that Reebok’s acquisition had had on this item a year ago. Adidas’ gross margin was up by 0.6 percentage points to 47.2 percent, also on the back of expanded own retail activities and synergy effects. Reebok’s gross margin improved by 1.1 percentage points to 36.8 percent.

Still, the group’s operating profit declined by 7.6 percent to €229 million for the three months, due to high operating costs at Reebok in January. Other factors were the launch of a costly new “Impossible is Nothing” campaign, along with the product launches at TaylorMade. Net income attributable to shareholders dropped by 10.9 percent to €128 million, marking the least painful end of the 10-20 percent income decline that had been predicted by the management for the quarter. All the targets previously stated for the rest of the year have been confirmed.

Investors evidently felt that Reebok’s toughest months are now over in giving a 7.3 percent lift to Adidas’ shares to nearly €45.4. The increase will add to the capital gains of Mike Ashley, who recently purchased a 3.14 percent share package in Adidas. If he actually bought it at the market price on the day it was disclosed, it has already earned him around €30 million.

Herbert Hainer; chief executive of the Adidas Group, says this private investment would not interfere with existing distribution agreements in the UK, where Adidas has been cutting back its sales to Sports World, the leading chain controlled by that maverick investor. Hainer declined to comment on rumors, denied by Apax Partners, that the fund intended to take a 25 percent stake in Adidas.