Adidas Group First Quarter 2014 Results
In the first quarter of 2014, Group revenues remained stable on a currency-neutral basis. Currency translation effects had a significant negative impact on sales in euro terms. Group revenues decreased 6 percent to €3.533 billion in the first quarter of 2014 from €3.751 billion in 2013. Currency-neutral wholesale revenues increased 1 percent due to growth at Adidas. Currency-neutral retail sales increased 22 percent versus the prior year, as a result of double-digit sales growth at both Adidas and Reebok. Revenues in other businesses were down 27 percent on a currency-neutral basis, due to double-digit sales declines at TaylorMade-Adidas Golf. This decline is primarily related to strategic changes the group is implementing at TaylorMade-Adidas Golf to realign key shipment, product and launch cycles to market demand patterns. Currency-neutral revenues at Rockport also decreased, while sales at Reebok-CCM Hockey grew versus the prior year. Currency translation effects had a negative impact on segmental sales in euro terms. Wholesale revenues decreased 5 percent to €2.357 billion in the first quarter of 2014 from €2.481 billion in 2013. Retail sales rose 10 percent to € 794 million versus € 722 million in the prior year. Sales in Other businesses declined 30 percent to € 382 million (2013: €548 million).
"Our financial results for the first quarter reflect the challenging start to 2014 which we had expected," commented Herbert Hainer, Adidas Group CEO. "Strong performances particularly in the emerging markets and in our own retail were masked by strategic changes to how we go to market at TaylorMade-Adidas Golf as well as adverse currency effects. Looking in depth through our results, however, there are many positive underlying trends. Therefore, we can look forward to an accelerated period of growth and momentum for our Group for the remainder of 2014."
Currency-neutral sales increase in nearly all regions
In the first quarter of 2014, currency-neutral Adidas Group sales grew in all regions except North America. Revenues in Western Europe remained stable on a currency-neutral basis, as double-digit increases in Germany and Poland were offset by sales declines in Italy and the UK. In European Emerging Markets, Group sales were up 28 percent on a currency-neutral basis, with double-digit sales increases in nearly all markets.
Currency-neutral sales for the Adidas Group in North America decreased 20 percent, mainly due to double-digit sales declines in the USA. Sales in Greater China increased 5 percent on a currency-neutral basis. Currency-neutral revenues in other Asian markets remained stable, as sales increases in India and South Korea were offset by declines in Japan and Australia. In Latin America, sales grew 19 percent on a currency-neutral basis, with double-digit increases in nearly all markets, in particular Argentina, Brazil, Mexico and Colombia. Currency translation effects had a negative impact on regional sales in euro terms.
Net income attributable to shareholders down 34 percent
The group's net income attributable to shareholders decreased to €204 million in the first quarter of 2014 from €308 million in 2013. This represents a decline of 34 percent versus the prior year level. The group's tax rate increased 1.4 percentage points to 28.9 percent in the first quarter of 2014 (2013: 27.5 percent), mainly due to a less favorable earnings mix.
Basic and diluted earnings per share decrease 34 percent and 35 percent, respectively
In the first quarter of 2014, basic earnings per share decreased 34 percent to € 0.98 versus €1.47 in the prior year. The weighted average number of shares used in the calculation of basic earnings per share was 209,216,186 (2013 average: 209,216,186). Diluted earnings per share decreased 35 percent to € 0.96 from € 1.47 in the prior year. The weighted average number of shares used in the calculation of diluted earnings per share was 215,233,140 (2013 average: 209,216,186). The dilutive effect results from additional potential shares that could be created in relation to the Group's outstanding convertible bond.
Adidas Group confirms guidance for the full year 2014
Adidas Group sales are forecasted to increase at a high-single-digit rate on a currency-neutral basis in 2014. In particular, this year's major sporting events will provide positive stimulus to Group sales. As the Official Partner of the 2014 FIFA World Cup in Brazil, the Adidas brand will be the most visible brand during the event and will benefit from record sales in the football category. Group sales development will also be favorably impacted by the Group's high exposure to fast-growing emerging markets as well as the further expansion of retail. Currency translation is expected to have a significant negative impact on the Group's top-line development in euro terms.
In 2014, the Adidas Group gross margin is forecasted to increase to a level between 49.5 percent and 49.8 percent (2013: 49.3 percent). Improvements are expected in most segments. Group gross margin will benefit from a positive pricing, product and regional sales mix, as growth rates in high-margin emerging markets are projected to be above growth rates in more mature markets. In addition, the Reebok brand will positively influence group gross margin development. However, these positive effects will be partly offset by less favorable hedging terms compared to the prior year, negative exchange rate variances in emerging markets such as Russia and Argentina, as well as increasing labor costs in our cost of sales.
In 2014, the Group's other operating expenses as a percentage of sales are expected to be around the prior year level (2013: 42.3 percent). Sales and marketing working budget expenses as a percentage of sales are projected to increase modestly compared to the prior year. Marketing investments will be centered on major sporting events such as the 2014 FIFA World Cup and highly innovative product launches, particularly in the running category. Further, the Group will support Reebok's growth strategy in key fitness categories, leveraging partnership assets such as CrossFit, Spartan Race and Les Mills. Operating overhead expenditure as a percentage of sales is forecasted to decrease modestly in 2014. Higher expenses in the Retail segment due to the planned expansion of the Group's store base will be offset by leverage in other areas.
In 2014, the operating margin for the Adidas Group is forecasted to be at a level between 8.5 percent and 9.0 percent (2013 excluding goodwill impairment losses: 8.7 percent). The Group tax rate is expected to be at a level of around 28.5 percent and thus more favorable compared to the 2013 tax rate excluding goodwill impairment losses of 29.0 percent. As a result of these developments, net income attributable to shareholders is expected to be at a level between €830 million and €930 million compared to the 2013 net income attributable to shareholders, excluding goodwill impairment losses, of €839 million. This represents basic earnings per share of between € 3.97 and € 4.45.
"While we still have to be wary of currencies and their effects on our financials, I expect a strong second quarter to point the way forward to a sustained period of growth and momentum for our Group," Herbert Hainer stated. "Later this month, we will unleash our largest football offensive ever ahead of the 2014 FIFA World Cup. The energy and intensity of our campaign and product concepts will be a clear statement and sign of things to come from our Group as we drive towards the realization of our strategic goals and our 2014 financial guidance."
For more information or to view the full release, visit www.adidas-group.com.