The Adidas 3D Runner

PARIS — Adidas AG is on a roll.

Boosted by gains in North America and China, as well as the growth of its e-commerce business, the German activewear giant reported an 18.9 percent jump in sales to 5.67 billion euros, or $6.04 billion, in the first quarter.

This follows a record year for the firm in 2016, when its profits passed the billion-euro mark for the first time.

The Herzogenaurach, Germany-based company’s first-quarter net income from continuing operations climbed 29.9 percent to 455 million euros, or $484.7 million, while operating profit grew 28.8 percent to 632 million euros, or $637.3 million.

“We saw strong profitability improvements despite FX headwinds that impacted our gross margins, which we will continue to see in the first half, and that will switch to a positive in the second half,” Kasper Rorsted, chief executive officer of Adidas AG, said on a conference call on Thursday.

The company confirmed its sales and profit guidance for 2017, forecasting a sales increase of between 11 and 13 percent, and an 18  to 20 percent rise in net income.

“We expect the current momentum to continue in 2017,” said Rorsted. “We have maintained a very strong brand position, and it’s important that we sustain that. I think we can do so, because we have a number of exciting launches coming up.”

Asked if the company’s guidance was not pessimistic, given the strong momentum it has seen so far, Rorsted noted that last year’s second-quarter profits had benefited from a non-operational item of 100 million euros, or $113 million.

“We believe that our guidance for the full year is appropriate,” he said.

In the first quarter, revenues in North America grew 35.8 percent, or 30.6 percent in constant-currency terms, to 988 million euros, or $1.05 billion, following two years of solid growth. In comparison, rival Nike Inc. saw sales grow just 3 percent in the quarter ended Feb. 28.

In Greater China, company sales were up 29.9 percent, or 30.3 percent in constant currency, to 990 million euros, or $1.06 billion.

“We continue the very strong path we have in both regions, both from a top- and bottom-line standpoint, but also from a market-share standpoint,” said Rorsted.

Sales increased 7.7 percent to 1.52 billion euros, or $1.61 billion, in Western Europe and by 15.4 percent to 454 million euros, or $483.7 million, in Latin America, despite the challenging market conditions there, especially in Brazil and Argentina.

Online is another area of growth, with e-commerce revenues increasing 53 percent in the first quarter.

Adidas AG aims to post e-commerce sales of 4 billion euros, or $4.37 billion, by 2020, said Rorsted.

“We came in at approximately 1 billion [euros, or $1.11 billion] by the end of last year with a growth rate of 50 percent-plus, and it’s good to see that we’ve been capable of maintaining the momentum of 53 percent,” he added.

Online sales were particularly strong in key e-commerce markets North America, China and the European Union, he said. “We will continue to invest heavily into the infrastructure that is necessary to sustain a similar growth rate moving forward.”

Core brand Adidas grew 17.6 percent in constant currency terms to 4.84 billion euros, or $5.16 billion.

Adidas Originals and the brand’s running portfolio were strong points for the quarter, with constant-currency sales up 28 percent and 27 percent, respectively. The brand continued to build its women’s business, which grew 28 percent during the quarter, and now accounts for a quarter of its sales.

Reebok also did well, growing 13.3 percent despite its ongoing restructuring, thanks to store expansion in China and launch activity, although Rorsted said he did not expect the brand to maintain that momentum through the year.

Low points for the quarter, meanwhile, included Russia and the Commonwealth of Independent States, where sales fell 9.8 percent in local currency terms.

“We are seeing the continued impact of the sanctions, but also we are seeing consumers moving to lower price points,” Rorsted commented. The company closed approximately 80 stores in Russia in the first quarter, leaving it with approximately 800 doors in the country.

“Russia is 3 percent of total revenues, it’s very different to the position we had five years ago, and will have no impact whatsoever on the total guidance for the full year,” he said.

Comparable sales growth also slowed in Western Europe, he said, and sales from football and basketball were further negatives for the quarter, with sales down due to lower demand for licensed apparel.

Dollar figures are converted at average exchange rates for the periods to which they refer.

 

ENDS

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