BERLIN — Due to strong first-quarter profits, Adidas-Salomon expects full-year net earnings to grow 10 to 15 percent in 2004.
For the period ended March 31, the company posted net income that soared 41.1 percent to 72 million euros from 51 million euros in the prior period, while sales dropped 3 percent to 1.62 billion euros from 1.67 billion euros. At the average exchange rate, net income jumped 64.2 percent to $90 million in the most recent quarter from $54.8 million in the prior year, while sales gained 13.2 percent to $2.03 billion from $1.79 billion.
The Herzogenaurach, Germany-based group attributed this performance to solid sales growth and improving gross and operating margins, supported by lower financial expenses.
The group reported sales growth, at constant, or currency neutral, exchange rates in all regions except North America, where group sales were down 19 percent in euros and down 7 percent on a constant exchange rate basis. Adidas said the decline was due to lower footwear sales in the Adidas Sport Performance division.
However, on a conference call, Adidas-Salomon chairman and chief executive officer Herbert Hainer said the company is making “measurable progress in North America.” Sales were down, “but still significantly higher than the year before.”
Adidas-Salomon now expects North American sales will show positive development in the second half of the year. Robin Stalker, chief financial officer, confirmed that regional sales would remain down in the first half of the year, “as expected. But we will definitely see an increase in the second half, and are expecting full-year top line sales will be slightly up with improving margins and profitability.”
Stalker said the primary goal for Adidas in North America is “getting back to profitability. That means making sure we have quality products in the shops,” he explained. “We need to work better with retailers and more properly differentiate product with the various retailers. We are also presenting our product better to the consumer through our own retail stores, and 15 new ones are planned over the next 12 to 18 months. And our new brand [ad] campaign ‘Impossible is Nothing’ is also a strong reminder of the brand. Obviously all this needs to come together, but the feedback has been very positive, and the second half of the year looks good,” Stalker concluded.
As part of a plan to pump up its sales in North America, Adidas recently signed a deal with hip-hop star Missy Elliott to launch a line of apparel under the name Respect M.E. The line, which will launch in the U.S. in September and roll out internationally starting in November, is expected to post multimillion-dollar sales in its first season.
In other regions, group sales in Europe grew 4 percent and 2 percent on a euro basis, buoyed by solid performance in France, Iberia and the U.K. as well as in emerging markets, especially Russia. Hainer said Europe generated record-breaking operating profit due to strong gross margins, but did not give figures.
In Asia, Japan, China and Australia, sales gained 6 percent while falling 2 percent on a euro exchange basis. In Latin America, sales rose 43 percent, and on a euro basis, were up 36 percent.
Adidas-Salomon is maintaining its sales projections for 2004, which call for a top line increase of between 3 and 5 percent. Gross margin, which grew 3.4 percentage points to 45.9 percent in the first quarter, the highest first-quarter gross margin in the history of the group, is “projected to be at least 45 percent [for 2004] and operating margin will improve versus the prior year’s level,” the group said.
— Melissa Drier