PARIS – Adidas sprinted into 2015, boosted by the strong performance of its running business as it stepped up spending on marketing following a tough 2014.
The German activewear giant posted a net profit of 221 million euros, or $249.4 million, in the first quarter, up 8.2 percent versus the same period last year. This followed a loss in the fourth quarter of 2014.
Group sales rose 17.3 percent to 4.08 billion euros, or $4.61 billion. Stripping out the impact of currency fluctuations, revenues increased 9 percent.
The combined sales of the Adidas and Reebok brands grew in all market segments except for Russia and the Commonwealth of Independent States, which posted a 3 percent decline in revenues.
The group’s gross margin remained unchanged at 49.2 percent, despite currency swings and higher input costs.
Adidas chief executive officer Herbert Hainer noted growth should slow slightly in the second quarter before picking up again in the second half. “Our business is in great shape, our product pipeline is full for the upcoming months and brand activation will continue as the year progresses,” he said in a conference call with reporters.
“However, we remain vigilant and acknowledge the fact that, while we had a great start to the year, we need to bear in mind that most of the year is still ahead of us and we will also be facing tougher comparisons from the prior year World Cup-related sales during the second and third quarter.”
Adidas, which recently unveiled an ambitious five-year growth plan, confirmed its guidance for 2015, saying group sales were expected to increase at a mid-single-digit rate on a currency-neutral basis while net income is set to rise by 7 percent to 10 percent.
“Despite a high degree of uncertainty regarding the economic outlook and consumer spending in Russia/CIS, the positive sales development will be supported by rising consumer confidence in most geographical areas,” it noted.
Spending on sales and marketing jumped 26 percent in the first quarter to 554 million euros, or $625.2 million, and Hainer said it would remain high in the second quarter before leveling out in the second half at levels comparable with 2014.
Revenues at Adidas were up 11 percent during the period, while Reebok progressed 9 percent. Standout categories included Adidas running, Originals and Neo, as well as Reebok training and fitness, which all grew at double-digit rates.
The running business recorded double-digit growth in both footwear and apparel sales, helped by the introduction of the Ultra Boost shoe. In the lifestyle segment, Adidas Originals posted a 29 percent sales increase, thanks partly to the Superstar shoe.
Hainer touted long queues for the launch of the Yeezy Boost, its first shoe developed in collaboration with Kanye West.
Adidas grew 9 percent in North America when stripped of currency swings, as the brand rolled out initiatives including its new “Sport 15” films featuring personalities including Lionel Messi, James Rodriguez and Derrick Rose.
Revenues at Reebok fell 3 percent in the region as the brand closed some factory outlets, resulting in a 5 percent reduction in its North American store base during the first quarter.
“America is not a sprint for us, it’s more a marathon,” noted Hainer. “We are continuing to be optimistic for the American market, but we also know that we still have a lot of work ahead of us.”
He noted that Reebok sales were up by mid-single-digits in Russia, despite depressed consumer sentiment and economic activity. Adidas posted a decline in the region.
“Overall, we are pleased with the business under the current circumstances,” Hainer said, adding that the group was closing more stores in Russia than it was opening. “The crisis is definitely not over. The ruble has stabilized now, but consumer confidence is still shaky because the economy is not growing at the moment. We definitely have manifested our number-one position with Adidas in the Russian market and a strong number-three position for Reebok, and long-term there is no doubt that this will be a very good market for us,” he remarked.
Hainer said the group was profitable in Russia in the first quarter and would remain that way for the year as a whole despite the store closures, which, according to Adidas chief financial officer Robin Stalker, totaled around 30 in the first quarter.
Revenues at TaylorMade-Adidas Golf decreased 9 percent in currency-neutral terms in the three months ending March 31, mainly due to sales declines in the metalwoods and irons categories. Hainer said he expected the division to return to growth in the second half of the year.
“In golf, we have learned our lesson from the past. We will definitely not sacrifice the long-term success of our TaylorMade-Adidas Golf business for short-term goals. Instead, we will very closely monitor the industry and only slowly increase the volumes we are bringing to the market,” the ceo explained.
Hainer said he was not worried about TaylorMade-Adidas Golf’s market leadership, but rather about prospects for the golf market in general, which he did not see growing.
The executive, who last year faced calls to resign, sidestepped a question about whether he would remain at the helm of Adidas until the end of his contract in 2017, saying the question was not whether he would stay, but whether management would succeed in turning around the company.