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Adidas Profit Jumps 17% in First Quarter, but Currency Issues Cut Into Sales

While currency issues kept sales down in the first quarter, Adidas did score solid gains from its signature brand, and pulled off a 17 percent increase in net income.

In a Nutshell: Adidas started the year off and running, with gains in sales and income from its signature brand. The combined sales of the Adidas and Reebok brands grew in most market segments, with growth particularly strong in North America and Asia-Pacific, driven by a 26 percent increase in Greater China. From a channel perspective, e-commerce was once again the fastest-growing channel with an increase of 27 percent.

For 2018, Adidas continues to expect sales to increase at a rate of around 10 percent on a currency-neutral basis, driven by double-digit growth in North America and Asia-Pacific. The company’s gross margin is forecast to increase up to 0.3 percentage points to a level of up to 50.7%. Gross margin will benefit from the positive effects of a more favorable pricing, channel and regional mix, but partially offset by the negative impact from unfavorable currency movements and higher input costs.

Sales: Net sales in the first quarter ended March 31 increased 1.9% to 5.55 billion euros ($6.65 billion) from 5.45 billion euros ($6.53 billion) in the year-ago period, with currency-neutral revenues increasing 10 percent, as the euro-dollar exchange rate cut into top-line results. This reflects an 11 percent increase at the Adidas brand driven by double-digit increases in the running, football and training categories, as well as at Adidas Originals. Revenues at the Reebok brand decreased 3 percent, with declines in the training and running categories.

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Earnings: Net income from continuing operations in the quarter rose 17 percent to 542 million euros ($649 million) from 462 million euros ($553 million) a year earlier. The company’s operating profit increased 17 percent to 746 million euros ($893 million) compared to 637 million euros ($763 million) in the prior-year period, resulting in an operating margin improvement of 1.8 percentage points to a level of 13.4%.

For the year, net income from continuing operations is projected to increase to 1.62 billion euros ($1.94 billion) to 1.68 billion euros ($2 billion). This reflects an increase of 13 percent to 17 percent compared to the prior year.

CEO’s Take: Kasper Rorsted, CEO, said: “We had a successful start to the year that was fully in line with our expectations. Our high-quality top-line growth was driven by our strategic focus areas North America, Greater China and e-commerce. At the same time, we managed to grow the bottom line significantly faster than the top line, while continuing to invest into creating brand desire.”