The group’s dire projections for 2008 come after another quarter in which Adidas had to make up for dropping sales at Reebok.
As a whole, the company’s revenues climbed by 6 percent to €2.574 billion for the last three months of last year, up by 4 percent in constant currencies.
The expansion was driven by a sales rise of 10.2 percent to €1.817 billion for the Adidas brand in the quarter, up by 7 percent in constant currencies. On the other hand, the Reebok division’s sales slipped by 1 percent to €561 million for the quarter and TaylorMade-adidas Golf’s sales were up marginally to €198 million. The group continued to enjoy double-digit sales growth in Asia and Latin America, but its sales remained flat in Europe, and North American sales were down.
Still for the quarter, the Adidas group’s gross margin slipped by 0.2 percentage points to 46.4 percent. Yet again, Reebok was to blame as it cleared inventories with low-margin sales, so that its gross margin dipped by 4 full percentage points to 34.1 percent. TMAG’s gross margin even dropped by 5 percentage points to 41 percent as retail prices in the golf market were battered at the end of the year. On other hand, the Adidas brand’s gross margin was up by 0.6 percentage points to 47 percent for the quarter.
The Adidas group made a book profit of €21 million with the acquisition of Ashworth in the last quarter; then again it spent about €7 million on restructuring and other one-time costs for the golf brand. Its operating margin therefore increased by 1.7 percentage points to 4.2 percent for the quarter. And with the added benefit of a lower tax rate, Adidas could sharply raise its net profit to €54 million, up from €21 million for the last three months of 2007.
The remarkable performance of the Adidas brand throughout the year enabled the group to report a sales jump of 5 percent to €10.799 billion for 2008, up by 9 percent in constant currencies. The Adidas brand contributed an impressive sales rise of 10 percent in euros to €7.821 billion for the full year. Buoyed by double-digit growth in all of the Adidas brand’s performance categories, this amounted to a sales jump of 14 percent in constant currencies.
It was another smashing year for the Adidas brand’s football sales, aided by the 2008 European championships. Furthermore, Adidas was satisfied with the launch of AdiPure, a range of football apparel and footwear that generated sales of more than half a million pairs during its first year.
Running was singled out as another robust growth category, with reported gains in market share for the Adidas brand in Europe and emerging markets. Taken all together, sales of the Adidas Sports Performance division were up by 11 percent to €6.250 billion for the year, equivalent to a rise of 15 percent in constant currencies.
Meanwhile, the Sport Style division inflated its sales by 6 percent to €1.535 billion, an increase of 10 percent in constant currencies. Although it restricted its offering of the Superstar shoe, Adidas still grew its sales of Originals as well as fashion products under the Y-3 and Porsche Design labels. Furthermore, the division was boosted by the launch of Style Essentials.
Sales of the Adidas brand through the company’s own stores climbed by 17 percent to €1.432 billion. This was equivalent to a sales rise of 24 percent in constant currencies and made up 18 percent of the brand’s total sales in 2008, against a rate of 17 percent in 2007. The increase was attributed to the opening of 329 stores, chiefly in emerging markets, combined with a mid-single-digit rise in comparable store sales.
The largest store opening took place in Beijing, where Adidas opened its first brand center in the Sanlitun district. This spectacular store is spread on four floors, with products arranged by performance and style categories. It contains many snazzy interactive tools and cool areas such as a newly designed Adidas Originals corner where consumers may customize their own footwear while browsing through style books. It welcomes more than 4,000 customers per day on the weekends.
From a regional perspective, Europe contributed a sales rise of 13 percent in constant currencies for the Adidas brand, while emerging markets continued to report double-digit growth. In euros the brand’s European sales landed at €3.879 million for the full year, up by 10 percent.
Asian sales of the Adidas brand jumped by 24 percent in constant currencies and by 23 percent in euros to nearly €2.1 billion, with double-digit improvements in nearly all of the region’s largest markets. The same could be said in Latin America, where Adidas sales were up by 21 percent in constant currencies and by 16 percent in euros to €660 million. On the other hand, sales of the Adidas brand suffered in North America and ended the year at €1.149 billion, down by 3 percent in constant currencies and by 10 percent in euros.
The Adidas brand managed to lift its gross margin to 48.6 percent for the year, up by 1.2 percentage points. As in the last quarter, the score could be attributed to a better regional mix and sales of more value-added products. Even more impressively, with a stable rate of operating expenses, Adidas achieved an operating margin of 14 percent, up by 1.1 percentage points. The operating profit of the brand jumped by 19 percent to €1.098 billion.
Meanwhile, Paul Fireman must be congratulating himself every day on the timing of his divestment in Reebok, since this part of the Adidas group ended the year with another sales decline of 2 percent in constant currencies. While the Adidas group’s management had repeatedly stated that a sales increase should materialize at Reebok in the second half of last year, it again had to admit that the turnaround was taking longer than expected. In euros, the Reebok group’s sales dropped by 8 percent to €2.148 billion – contributing to a plunge of nearly 30 percent compared with sales of just under €3.1 billion in 2004, the last full year before Reebok’s acquisition was agreed.
Ongoing weakness in the British market was the leading factor behind a sales decline of 8 percent to €691 million for the Reebok group in Europe, equivalent to a drop of 3 percent in constant currencies. It could not be offset by strong growth in emerging markets, particularly Russia. One major factor for the decline in the U.K. was a decision last spring to stop working with JJB Sports at rock-bottom prices, combined with strong clearance activity.
North American sales shrank by 22 percent to €964 million, down by 16 percent in constant currencies. Even Asian sales slipped by 1 percent to €267 million, although they were up by 7 percent in constant currencies. A drop in Japan largely offset double-digit gains in China and India. Only Latin America posted a sales jump to €226 million, up from €84 million in 2007, after Reebok’s new companies in the region were consolidated in the second quarter of last year.
However, it should be pointed out that last year’s overall sales decline for the Reebok group was caused chiefly by brands other than Reebok itself. Encouragingly, the Reebok brand recorded an increase in sales of its running products, which are at the core of marketing investments for the brand. Sales of the Reebok brand alone decreased by 6 percent in euros to €1.717 billion last year but remained more or less unchanged in constant currencies. Then again, the Reebok brand would not have managed to stabilize its sales without the consolidation of its sales in three countries in Latin America. Other than in running, sales of Reebok-branded products declined in nearly all categories.
The Reebok group’s performance was worsened by a sales decrease of 11 percent to €188 million for Reebok CCM Hockey, down by 6 percent in constant currencies, while sales of Rockport footwear were off by 10 percent in constant currencies and by 17 percent in euros to €243 million.
Sales of the Reebok group generated through its own stores grew by 8 percent to €379 million, a rise of 17 percent in constant currencies. This was ascribed chiefly to the opening of 123 stores during the year, many of them in Russia. Sales of these company-owned stores made up 18 percent of the Reebok group’s sales during the year, and the proportion was substantially higher for Rockport alone.
In another disappointment, the Reebok group’s gross margin failed to progress as management had anticipated. It ended the year down by 1.7 percentage points to 37.0 percent, chiefly due to clearance sales in the British and American markets. The Reebok group’s operating margin fell by 5 percentage points, resulting in a negative operating margin of 0.3 percent, against a positive margin of 4.7 percent in 2007. It ended with an operating loss of €7 million, compared with an operating profit of €109 million in 2007.
Even though TMAG ended the year with a poor quarter, it lifted its sales by 7 percent in constant currencies for the full year. In euros, sales inched up by 1 percent to €812 million. This was attributed to stronger sales of apparel, footwear, putters and balls, which more than made up for a decline in sales of metalwoods. The acquisition of Ashworth did not add much to the tally, since it was only completed in November.
As reported earlier this year, the integration of the American golf apparel brand has gone ahead promptly. The Adidas group has eliminated double functions and come up with a new Ashworth logo that is already being used for marketing purposes.
The British market strongly contributed to a sales increase of 17 percent for TMAG in Europe, in constant currencies. In euros, European sales remained stable at €95 million for the year. In North America, sales were up by 3 percent in constant currencies but down by 4 percent in euros to €405 million. Double-digit growth in China, Japan and South Korea drove a sales rise of 10 percent in constant currencies for the golf unit in Asia, amounting to an increase of 8 percent in euros to €305 million.
Due to the intensifying pressure on prices toward the end of the year, TMAG’s gross margin was down by 0.5 percentage points to 44.3 percent for the year but its operating margin was up by 1.5 percentage points to 9.6 percent, owing to lower expenses. Its operating profit was up by 20 percent to €78 million, aided by a one-time book gain of €5 million for the sale of the Maxfli trademark to Dick’s Sporting Goods.
Mixing the Adidas, Reebok and TMAG units, the Adidas group’s European sales were up by 11 percent in constant currencies to €4.665 billion for the full year. Chinese growth drove a sales increase of 20 percent in Asia-Pacific to €2.662 billion. Latin America continued to ride high, with a sales rise of 42 percent in constant currencies to €893 million, partly due to the launch of Reebok’s own business in Brazil, Paraguay and Argentina. But the group’s poor performance in the United States depressed its North American sales by 8 percent in constant currencies, and by 14 percent in euros.
As indicated earlier, the group’s gross margin increased again by 1.3 percentage points to 48.7 percent, the highest level since the company was launched on the stock market in 1995. The rise could be attributed to a more favorable mix, in terms of regions and products, as well as increased sales through company-owned retail space.
The group’s operating margin was still way below the 11 percent targeted by the group, but it firmed up by 0.7 percentage points to 9.9 percent. Net income for last year ended 16 percent higher than the year before, at €642 million.
