BERLIN — Better margins allowed Adidas-Salomon to report healthy third-quarter profit gains as net income increased 14.5 percent to $171.5 million, or $3.78 a share, from $149.8 million, or $3.30, a year ago.
This story first appeared in the November 6, 2003 issue of WWD. Subscribe Today.
Dollars have been converted from the euro at current exchange as Adidas-Salomon reported net earnings of 150 million euros, or 3.31 euros a share.
Revenues for the quarter declined 0.8 percent to $2.17 billion, or 1.9 billion euros, but were up 6 percent on a currency neutral basis, the company said.
A 120 basis-point expansion in gross margin to 45 percent of sales, as well as a 200 basis-point decline in operating costs, contributed to the better bottom line despite the mixed top-line results.
Given the strong quarter, and an especially robust first nine months of the fiscal year, Adidas-Salomon confirmed its full-year targets of a 10 to 15 percent earnings increase on revenue growth of at least 5 percent on a currency neutral basis.
As for the nine-month period, group earnings grew 17.6 percent to $267.6 million, or $5.88, from $227.6 million, or $5.03, a year ago. Adidas-Salomon reported net income of 234 million euros, or 5.15 euros a share, versus 199 million euros, or 4.40 euros, a year ago. Revenues over that time sagged 2 percent to $5.62 billion, or 4.91 billion euros, from $5.73 billion, or 5.01 billion euros, but on a currency neutral basis actually increased 7 percent.
Adidas-Salomon said sales were driven by solid growth in Europe, Asia and Latin America. The North American market, however, remained weak as nine-month sales declined 15.8 percent to $1.4 billion, or 1.25 billion euros, and were flat in currency neutral terms.
Moreover, order-book backlogs in North America as of Sept. 30 were even more seriously impacted, dropping 35 percent in euros and 23 percent in neutral currency. By category, apparel orders fell 28 percent in euros and 16 percent in neutral currency, while footwear dropped 40 percent in euros and 29 percent in neutral currency.
“The North American market is fiercely competitive, and we must struggle to stay ahead,” said chief executive officer and chairman Herbert Hainer on a conference call. “But we must get it right in the North American market. We’re heavily invested there and we will invest even more.”
He declined to provide specific figures.
Hainer added he thought the company “had seen the bottom of the U.S. market,” both in terms of sales and profits, and that “2004 will be about getting all the details right.”
American growth strategies include a global brand campaign, which he described as the “first significant ad campaign” in the U.S. in the last five years, and expanding relationships with retailers who effectively showcase the Adidas brand.
Other initiatives will include working to differentiate the brand to further discourage discounting, improving point-of-sale presentation and shop-in-shops and creating a more visible profile, with three new sport performance centers to open in the next year.
Asked if the order backlog in the U.S. reflected a loss of market share, Hainer said that on the contrary, the firm’s market share slightly increased in the first nine months.
Adidas-Salomon has long aimed for a 20 percent market share in the U.S., “which unfortunately doesn’t go as fast as we wanted it,” he said. Adidas-Salomon is now reported to have an 11 percent market share in the U.S., compared to 10.7 percent last year, said Hainer.