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Adidas Off To a Great Start in 2015

Adidas AG (ADDYY) reported first quarter 2015 financial results on Tuesday that confirm the company is restoring the luster to its brands beyond its home turf in Europe.

Revenues grew 17 percent to € 4.083 billion in the period from € 3.480 billion in the first quarter of 2014. Currency translation effects had a positive impact on sales given the weak euro. Revenues increased 9 percent on a currency-neutral basis, driven by an 11 percent increase at Adidas and 9 percent growth at Reebok. Growth was strong in Adidas Originals, Adidas NEO and training. Reebok’s growth was driven by double-digit gains in the training and studio categories as well as mid-single-digit sales growth in Classics. Revenues at TaylorMade-Adidas Golf decreased 9 percent currency-neutral, mainly due to sales declines in the metal woods and irons categories, which more than offset a double-digit increase in golf apparel.

Adidas Group CEO Herbert Hainer said it a statement, “We got off to a successful start to the year with our Adidas and Reebok brands enjoying great momentum. With our innovative performance products, fashion-driven styles and highly engaging marketing campaigns, we have excited our consumers around the world.”

By region, the combined sales of the Adidas and Reebok brands grew in all markets on a currency neutral basis except for Russia. Revenues in Western Europe, which represents 27 percent of total sales, down from 29 percent a year ago, increased 11%. Sales in North America (15 percent of total sales in the period) increased 7 percent on high-single-digit sales growth at Adidas. Revenues in Greater China (15 percent of the total, up from 12 percent last year) grew 21 percent reflecting double-digit top-line growth at Adidas and Reebok. Sales in Russia declined 3 percent as mid-single-digit growth at Reebok was more than offset by sales declines at Adidas. In Latin America, revenues grew 6 percent with a double-digit improvement at Reebok and a mid-single-digit increase at Adidas. In Japan, sales were up 7 percent on strong double-digit sales increases at Reebok as well as low-single-digit sales growth at Adidas. Sales in the Middle East and Africa, the company’s second largest market at 16 percent of total sales in the quarter, grew 10 percent on a currency-neutral basis, reflecting a double-digit top-line improvement at Adidas.

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Retail revenues increased 14 percent on a currency-neutral basis as a result of double-digit sales growth at Adidas and high-single-digit revenue increases at Reebok. Concept stores, factory outlets and concession corners were all up versus the prior year. E-commerce grew by 56 percent on a currency-neutral basis. Currency translation effects negatively impacted retail revenues in euro terms. Sales grew 13 percent to € 895 million from € 794 million in the prior year. Currency-neutral comparable store sales increased 4% versus the prior year, due to sales growth across all store formats and most markets.

Gross profit increased 17 percent to € 2.008 billion versus € 1.712 billion in the prior year. The gross margin of the Adidas Group remained unchanged at 49.2%. A more favorable product and pricing mix was offset by higher input costs as well as negative currency effects.

Operating profit increased 12 percent to € 345 million in the first quarter of 2015 versus € 307 million in 2014. The operating margin decreased by 0.4% points to 8.4% (2014: 8.8%). Excluding goodwill impairment losses, operating profit grew 18 percent to € 363 million from € 307 billion last year, representing an operating margin of 8.9%, up 0.1% points from the prior year level. This development was primarily due to the positive effect from lower other operating expenses as a percentage of sales. Sales and marketing expenditure increased 26 percent to € 554 million from the prior year period, however.

The Group’s net income from continuing operations increased 13 percent to € 237 million in the first quarter of 2015 from € 209 million in 2014. Excluding the goodwill impairment losses, net income from continuing operations was up 22 percent to € 255 million (2014: € 209 million). Basic EPS from continuing operations increased 16 percent to € 1.15 in the first quarter of 2015 (2014: € 0.99). Excluding the goodwill impairment losses, basic EPS from continuing operations increased 25 percent to € 1.24 from € 0.99 in 2014. Basic EPS from continuing and discontinued operations increased 11 percent to € 1.08 in the first quarter of 2015 (2014: € 0.98). Excluding the goodwill impairment losses, basic EPS from continuing and discontinued operations increased 20% to € 1.17 from € 0.98 in 2014.

Current year sales are forecast to increase at a mid-single-digit rate on a currency-neutral basis. Despite a high degree of uncertainty regarding the economic outlook and consumer spending in Russia, the positive sales development will be supported by rising consumer confidence in most geographical areas. In particular, Group sales development will be favorably impacted by a significantly improved top-line development at TaylorMade-Adidas Golf as well as ongoing robust momentum at both Adidas and Reebok. This, as well as the further expansion and improvement of the Group’s controlled space initiatives, will more than offset the non-recurrence of sales related to the 2014 FIFA World Cup™. Currency translation is expected to positively impact top-line development in reported terms, given the strengthening of major currencies such as the US dollar and the Chinese renminbi versus the euro.