In line with the management's forecast, the Adidas Group accelerated on the sales front in the third quarter, posting a currency-neutral sales increase of 6 percent, compared with year-on-year increases of 4 percent in the first and second quarter, and the progress is expected to continue in the fourth quarter. The management is now forecasting growth of around 6.5 percent for the full financial year.
Sequential sales improvements were registered in Western Europe and North America. In Western Europe, sales went up by 3.5 percent in constant currencies during the quarter, aided in part by planned selective pricing adjustments, after year-on-year declines of 3.2 percent in the first quarter and 0.1 percent in the second. The approach of next year's Uefa football championship should add fuel to the growth in the next quarter, leading to positive figures for the full year, in spite of lower sales for Reebok.
In North America, the resolution of the company's former sourcing problems for apparel led it to post a currency-neutral increase of 10.4 percent, compared with gains of 3.3 percent in the first quarter and 5.8 percent in the second. In Russia and the other CIS countries, where the group's performance has been bumpier lately, sales were up by 13.2 percent in the latest quarter. Sales went up by only 7.7 percent in Asia-Pacific due to an increase of only 11 percent in Greater China, where sales had jumped by 26 percent in the same period a year ago.
Another interesting new element is that the performance segment grew more than the lifestyle segment in the latest quarter, for both the Adidas and the Reebok brands, in spite of the absence of a major international football tournament. One reason for this is that Adidas' sales had been inflated in the third quarter of last year by the successful launch, primarily over the internet, of a new series of Yeezy sneakers.
“We are a sports company,” commented the chief executive of the group, Kasper Rørsted, in response to one of our questions, stressing that running and football are “the heart of the company.” He noted that the lifestyle segment represents only about one-third of Adidas' revenues. He also said that the Boost concept, which was born out of Adidas' running business unit, has grown to an annual turnover of around €2.5 billion, with the Ultraboost franchise reaching growth of more than 20 percent.
In the latest quarter, the Adidas brand's 6.4 percent increase in local currencies was driven by an 8 percent gain in Sport Performance, led by training, running and outdoor, but football was down, as expected. On the other hand, the Sport-inspired segment grew by only 4 percent globally, driven by new apparel franchises, but both segments posted double-digit gains in North America, where the Adidas brand alone grew by 15 percent. Its sales rose by 5 percent in Europe and by 11 percent in Asia-Pacific.
At Reebok, where all the products now bear its venerable Vector logo, sales continued to progress overall with a currency-neutral increase of 2.0 percent, driven by growth in Sport. However, most of the growth was in North America, where Reebok went through a major clean-up of the distribution last year. The brand's sales declined by 8 percent in Europe and by 11 percent in the Asia-Pacific region, where a similar clean-up program is in the works.
In reported euros, the group's global sales went up by 9.1 percent to €6,410 million in the quarter, aided by favorable exchange rates. The growth in footwear decelerated to 4 percent, in spite of double-digit gains in training and outdoor. Sales of apparel went up by 17 percent, reaching €2.62 billion, led by training, outdoor and Originals. Hardware increased by 13 percent.
Revenues from e-commerce rose by 14 percent in the quarter, compared with an exceptional, Yeezy-driven 64 percent increase in the year-ago period, but the management expects them to post a gain of 30 to 40 percent for the full financial year. The integration of the Runtastic app into Adidas' digital ecosystem has been completed. It is now called Adidas by Runtastic.
As compared to one year ago, the gross margin improved by 0.3 percentage points to 52.1 percent, but excluding a foreign exchange benefit of 0.8 percentage points, it declined on an underlying basis by 0.3 percentage points due to higher air freight costs and a less favorable pricing mix, said the group. Reebok remained profitable overall, but its gross margin went down by 3.1 percentage points to 42.1 percent.
Regionally, the group improved its operating margin in Europe by 1.6 percentage points to 26.0 percent. It fell by 1.9 percentage points to 16.1 percent in North America. It dropped by 0.4 percentage points in Asia-Pacific, but remained high in the region at 35.1 percent of sales.
Across the group, the operating margin declined by 1.3 percentage points to 14.0 percent, although the still-high ratio of marketing and point-of-sale expenses was reduced by 0.4 percentage points to 11.7 percent. This was partly due to a planned shift in certain costs from the usually weak fourth quarter to the third one.
The group's net income from continuing operations fell by 2 percent to €646 million in the quarter. It was up by 7.5 percent to €1,737 million for the first nine months of the year, with a negative impact of two percentage points from the adoption of IFRS 16 accounting rules.
The outlook for the full financial year is an increase in net income of 8 to 12 percent, with slight increases in the gross margin to around 52.0 percent and in the operating margin to between 11.3 percent and 11.5 percent.
