adidas Group Nine Months 2012 Results

Group sales increase 8% on a currency-neutral basis

Net income attributable to shareholders up 22% to € 798 million

adidas Group to achieve record sales and earnings in 2012 and 2013

adidas and TaylorMade-adidas Golf currency-neutral sales up 12% and 21% in first nine months respectively
Operating margin grows 0.4 percentage points in first nine months
Gross margin up 0.3 percentage points in Q3 despite increase in input costs
Inventories decline 1% on a currency-neutral basis
Net borrowings decrease 55% to € 337 million at quarter-end

adidas Group currency-neutral sales grow 4% in the third quarter of 2012

22-11-2012 — /europawire.eu/ — In the third quarter of 2012, Group revenues grew 4% on a currency-neutral basis, driven by double-digit sales increases in Retail. Currency-neutral revenues in Western Europe increased 1%, supported by sustained momentum at adidas. In European Emerging Markets, currency-neutral sales grew 19% as a result of strong increases at both adidas and Reebok. Group sales in North America were down 5% on a currency-neutral basis, as double-digit increases at adidas and TaylorMade-adidas Golf were more than offset by strong revenue declines at Reebok. In Greater China, Group sales were up 11% on a currency-neutral basis, driven by double-digit increases at adidas as well as growth at Reebok. Currency-neutral revenues in Other Asian Markets increased 1% as growth at adidas was partly offset by a strong sales decline at Reebok. In Latin America, currency-neutral sales grew 16%, driven by double-digit growth at adidas, TaylorMade-adidas Golf and Rockport. From a brand perspective, third quarter sales at adidas increased 10% currency-neutral. Sales in the TaylorMade-adidas Golf segment grew 4% on a currency-neutral basis. Reebok sales declined 25% on a currency-neutral basis, largely as a result of the non-recurrence of prior-year licence sales as well as negative impacts from Reebok India Company. Currency translation effects had a positive impact on sales in euro terms. Group revenues grew 11% to € 4.173 billion in the third quarter of 2012 from € 3.744 billion in 2011.

Third quarter gross margin increases 0.3 percentage points

The Group’s gross margin increased 0.3 percentage points to 47.4% (2011: 47.1%) in the third quarter as product price increases, a more favourable product and regional sales mix as well as a larger share of higher-margin Retail sales more than offset the increase in input costs. Group gross profit increased 12% to € 1.978 billion (2011: € 1.762 billion). Other operating expenses as a percentage of sales grew 0.7 percentage points to 37.0% compared to 36.3% in the prior year, mainly as a result of an increase in the Group’s marketing expenditure to support this year’s major sporting events. As a result of the higher gross margin and other operating income, which more than offset the increase in other operating expenses as a percentage of sales, the Group’s operating margin grew 0.1pp to 11.8%. Operating profit increased 12% to € 494 million compared to € 441 million in 2011. The Group’s net income attributable to shareholders grew 14% to € 344 million (2011: € 303 million). Diluted earnings per share for the third quarter increased 14% to € 1.64 (2011: € 1.45).

“These impressive financial results reflect our relentless focus on creating the industry’s most desirable brands, which we are doing through consistent product innovation, brand authentication and investment,” commented Herbert Hainer, adidas Group CEO. “We have grown the bottom line faster than the top line now for the last seven quarters, which ensures we will deliver another year of record financial results for 2012.“

adidas Group currency-neutral sales up 8% in the first nine months of 2012

In the first nine months of 2012, Group revenues increased 8% on a currency-neutral basis. Currency translation effects had a positive impact on sales in euro terms. Group revenues grew 14% to € 11.514 billion in the first nine months of 2012 from € 10.081 billion in 2011.

First nine months Group sales increase driven by double-digit growth in Retail and Other Businesses

The adidas Group’s sales increase in the first nine months of 2012 was primarily due to double-digit growth in Retail as well as in Other Businesses. Currency-neutral Wholesale revenues increased 4% during the period, driven by double-digit sales growth at adidas. Currency-neutral Retail sales increased 16% versus the prior year as a result of double-digit sales growth at adidas and Reebok. Comparable store sales grew 9% on a currency-neutral basis. Revenues in Other Businesses increased 20% on a currency-neutral basis, mainly due to strong double-digit sales growth at TaylorMade-adidas Golf and Reebok-CCM Hockey. Currency translation effects had a positive impact on segmental sales in euro terms.

	Nine months 2012	Nine months 2011	Change y-o-y in euro terms	Change y-o-y currency-neutral
	€ in millions	€ in millions	in %	in %
Wholesale	7,470	6,869	9	4
Retail	2,491	2,015	24	16
Other Businesses	1,553	1,197	30	20
Total¹⁾	11,514	10,081	14	8

Nine months net sales development by segment

1) Rounding differences may arise in totals.

Currency-neutral sales increase in all regions

In the first nine months of 2012, currency-neutral adidas Group sales grew in all regions. Revenues in Western Europe increased 4% on a currency-neutral basis, primarily as a result of double-digit sales growth in the UK and Poland. InEuropean Emerging Markets, Group sales increased 17% on a currency-neutral basis due to double-digit growth in most of the region’s markets. Sales for the adidas Group in North America grew 5% on a currency-neutral basis due to increases in both the USA as well as Canada. Sales in Greater China increased 16% on a currency-neutral basis. Currency-neutral revenues in Other Asian Markets grew 9%, driven by double-digit increases in Japan and South Korea. InLatin America, sales grew 10% on a currency-neutral basis, with strong double-digit increases in Argentina and Colombia. Currency translation effects had a positive impact on sales in euro terms

	Nine months 2012	Nine months 2011	Change y-o-y in euro terms	Change y-o-y currency-neutral
	€ in millions	€ in millions	in %	in %
Western Europe	3,342	3,172	5	4
European Emerging Markets	1,486	1,189	25	17
North America	2,641	2,306	15	5
Greater China	1,169	900	30	16
Other Asian Markets	1,741	1,482	17	9
Latin America	1,135	1,031	10	10
Total¹⁾	11,514	10,081	14	8

Nine months net sales development by region

1) Rounding differences may arise in totals.

Group gross margin decreases 0.4 percentage points

The gross margin of the adidas Group decreased 0.4 percentage points to 47.8% in the first nine months of 2012 (2011: 48.2%). The increase in input costs more than offset the positive impact from product price increases, a more favourable product and regional sales mix as well as a larger share of higher-margin Retail sales. Gross profit for the adidas Group grew 13% in the first nine months of 2012 to € 5.500 billion versus € 4.855 billion in the prior year.

Operating margin improves 0.4 percentage points

Group operating profit increased 19% to € 1.159 billion in the first nine months of 2012 versus € 973 million in 2011. The operating margin of the adidas Group improved 0.4 percentage points to 10.1% (2011: 9.7%). This was primarily due to the positive effects from lower other operating expenses as a percentage of sales, which more than offset the decrease in gross margin. Higher royalty and commission income as well as higher other operating income also contributed to this development. Other operating expenses as a percentage of sales decreased 0.5 percentage points to 39.1% in the first nine months of 2012 from 39.6% in 2011. In euro terms, other operating expenses increased 13% to € 4.500 billion (2011: € 3.996 billion), as a result of the expansion of the Group’s own-retail activities as well as higher marketing expenditure. Thereof, sales and marketing working budget expenditures amounted to € 1.346 billion, which represents an increase of 8% versus the prior year level (2011: € 1.245 billion).

Financial income grows 25%

Financial income increased 25% to € 29 million in the first nine months of 2012 from € 24 million in the prior year, mainly due to an increase in interest income.

Financial expenses decrease 13%

Financial expenses declined 13% to € 84 million in the first nine months of 2012 (2011: € 97 million). The decrease in negative exchange rate effects was the main contributor to the decline.

Income before taxes as a percentage of sales increases 0.7 percentage points

Income before taxes (IBT) for the adidas Group increased 23% to € 1.104 billion in the first nine months of 2012 from € 900 million in 2011. IBT as a percentage of sales improved 0.7 percentage points to 9.6% from 8.9% in 2011. This was a result of the Group’s operating margin increase and lower net financial expenses.

Net income attributable to shareholders up 22%

The Group’s net income attributable to shareholders increased to € 798 million in the first nine months of 2012 from € 652 million in 2011. This represents an increase of 22% versus the prior year level. Higher IBT was the primary reason for this development. The Group’s tax rate increased 0.4 percentage points to 27.8% (2011: 27.4%), mainly due to a less favourable earnings mix.

Basic and diluted earnings per share reach € 3.82

In the first nine months of 2012, basic and diluted earnings per share amounted to € 3.82 (2011: € 3.12), representing an increase of 22%. The weighted average number of shares used in the calculation of both basic and diluted earnings per share was 209,216,186 (2011 average: 209,216,186) as there were no potential dilutive shares in the first nine months.

Group inventories up 2%

Group inventories grew 2% to € 2.347 billion at the end of September 2012 versus € 2.302 billion in 2011. On a currency-neutral basis, inventories were down 1%, reflecting the Group’s strong focus on inventory management.

Accounts receivable increase 6%

At the end of September 2012, Group receivables increased 6% to € 2.387 billion (2011: € 2.251 billion). On a currency-neutral basis, receivables were up 3%. This growth is slightly higher than the 1% currency-neutral wholesale-related sales increase in the third quarter of 2012.

Net borrowings decrease € 414 million

Net borrowings at September 30, 2012 amounted to € 337 million, which represents a decrease of € 414 million, or 55%, versus € 750 million at the end of September 2011. The decrease was driven by the strong operating cash flow development over the past 12 months. Currency translation had a positive effect in an amount of € 37 million. The Group’s ratio of net borrowings over 12-month rolling EBITDA decreased to 0.2 at the end of September 2012 versus 0.6 in the prior year.

adidas Group confirms earnings guidance for the full year 2012

The strong performance in the first nine months of 2012 has set the adidas Group up for another year of record financial results. Compared to the previous guidance, Management has decided to adjust the full year 2012 adidas Group sales guidance. Management now forecasts adidas Group sales to increase at a high-single-digit rate on a currency-neutral basis in 2012 (previously: at a rate approaching 10%). The slight reduction relates to lower sales expectations at Reebok and Rockport as well as negative impacts due to the NHL lockout.

In 2012, the adidas Group gross margin is forecasted to be around 47.5% (2011: 47.5%). As in the prior year, gross margin development will be negatively impacted by increasing input and labour costs year-over-year. However, these negative influences will be largely offset by positive regional mix effects, as growth rates in high-margin emerging markets are projected to be above growth rates in more mature markets. In addition, a larger share of higher-margin Retail sales as well as product price increases will positively influence Group gross margin development.

The adidas Group’s other operating expenses as a percentage of sales are expected to decrease modestly (2011: 41.4%). Sales and marketing working budget expenses as a percentage of sales are projected to decrease slightly compared to the prior year. Operating overhead expenditure as a percentage of sales is also forecasted to decline in 2012.

In 2012, the operating margin for the adidas Group is expected to increase to a level approaching 8.0% (2011: 7.6%), despite a projected negative impact of up to € 70 million on Group operating profit related to the reorganisation and changes to commercial activities at Reebok India Company. Lower other operating expenses as a percentage of sales are expected to be the primary driver of the operating margin improvement.

As a result, net income attributable to shareholders is projected to increase at a rate of 15% to 17% to a level between € 770 million and € 785 million. This equates to basic earnings per share between € 3.68 and € 3.75.

Herbert Hainer stated: “Our results this year prove that Route 2015 is a powerful and robust strategic business plan. We are fully prepared and ready to continue in the same direction and with the same determination in 2013 as we stay focused, simplify to the maximum and implement with excellence. We have a full pipeline of game-changing product innovation and fresh brand activation that will shake up the market and yield one result – significant market share gains for our Group. And with it, we will grow our top line, improve our operating margin to around 9%, and deliver another year of significant double-digit earnings growth.”

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