- Prachi Singh |
In 2017, Adidas currency-neutral revenues increased by 16 percent, which the company said, mainly reflects an 18 percent increase at brand Adidas, driven by double-digit sales increases in the running category as well as at Adidas Originals and Adidas Neo. In euro terms, sales for the company were up 15 percent to 21.218 billion euros (26.309 billion dollars) in 2017.
“2017 was a strong year – financially and operationally. We made great progress toward achieving our mission to be the best sports company in the world. 2018 is a key milestone on the road to achieving our long-term targets for 2020. We expect quality growth, with overproportionate bottom-line improvements. This will enable an even stronger increase in profitability by 2020,” said Adidas CEO Kasper Rorsted commenting on the company’s performance.
Review of Adidas’s full year performance
The company reported high-single-digit sales increases in the training category. Revenues at the Reebok brand grew 4 percent, driven by double-digit sales increases in Classics as well as low-single-digit growth in the running category. While the brand’s international revenues grew at a double-digit rate in 2017, sales in the US declined, reflecting the significant amount of store closures in the market. From a channel perspective, the company’s revenue growth was driven by double-digit increases in all distribution channels, with particularly strong support from e-commerce, where revenues grew 57 percent.
On a currency-neutral basis, the combined sales of the Adidas and Reebok brands grew at double-digit rates in nearly all regions. The company said, growth in the company’s key regions Greater China and North America was particularly strong, with currency-neutral sales increases of 29 percent and 27 percent, respectively. While currency-neutral revenues in Western Europe increased 13 percent, sales in Latin America were up 12 percent. Currency-neutral revenues in MEAA and Japan increased 10 percent each. Sales in Russia/CIS declined 13 percent, reflecting the ongoing challenging consumer sentiment as well as additional store closures during the year.
The company’s gross margin increased 1.2 percentage points to 50.4 percent due to the positive effects from a better pricing and product mix, which more than offset negative currency effects as well as higher input costs. While other operating income declined 49 percent to 133 million euros (164.8 million dollars), reflecting the non-recurrence of two one-time gains in 2016, other operating expenses were up 13 percent to 8.882 billion euros (11,010 billion dollars). The company’s operating profit grew 31 percent to 2.070 billion euros (2.565 billion dollars), representing an operating margin increase of 1.2 percentage points to 9.8 percent.
Excluding the negative one-time tax impact, net income from continuing operations increased 32 percent to 1.430 billion euros (1.772 billion dollars). Basic EPS from continuing operations increased 31 percent to 7.05 euros (8.74 dollars) from 5.39 euros (6.68 dollars) in 2016. As a result, net income attributable to shareholders, excluding the negative one-time tax impact, grew 15 percent to 1.173 billion euros (1.454 billion dollars), resulting in basic EPS from continuing and discontinued operations of 5.79 euros (7.18 dollars), up 14 percent compared to 5.08 euros (6.30 dollars) in 2016.
Fourth quarter Adidas sales rise 19 percent
Currency-neutral sales increase 19 percent in the fourth quarter, driven by a 22 percent increase at brand Adidas led by strong double-digit sales growth in the running, football and outdoor categories as well as at Adidas Originals and Adidas Neo. In addition, a mid-single-digit sales increase in the training category also contributed to this development. Revenues at the Reebok brand declined 1 percent, as double-digit increases in the running category as well as in Classics were more than offset by declines in the training category. In euro terms, sales for the company were up 12 percent to 5.056 billion euros (6.266 billion dollars) in 2017.
On a currency-neutral basis, the combined sales of the Adidas and Reebok brands grew 32 percent in Greater China and 31 percent in North America. In addition, currency-neutral revenues in Western Europe rose 17 percent and Latin America increased 19 percent. While currency-neutral revenues in MEAA increased 7 percent, sales in Japan were up 4 percent but currency-neutral sales in Russia/CIS declined 14 percent.
The company’s gross margin increased 2.2 percentage points to 51.7 percent due to the positive effects from a better pricing and channel mix. Other operating expenses were up 13 percent to 2.559 billion euros (3.170 billion dollars). As a percentage of sales, other operating expenses increased 0.3 percentage points to 50.6 percent. The company’s operating profit increased strongly to 132 million euros (163.5 million dollars) from 41 million euros (50.8 million dollars) in 2016, representing an operating margin increase of 1.7 percentage points to 2.6 percent.
Excluding the negative one-time tax impact of 76 million euros (94 million dollars), net income from continuing operations increased to 72 million euros (89 million dollars). Basic EPS from continuing operations increased to 0.35 euro (0.43 dollar) from 0.02 euros (0.025 dollar) in 2016. Losses from discontinued operations amounted to 38 million euros (47 million dollars). As a result, net income attributable to shareholders, excluding the negative one-time tax impact, grew to 34 million euros (42 million dollars), resulting in basic EPS from continuing and discontinued operations of 0.17 euro (0.21 dollar), compared to a loss of 0.05 euros (0.06 dollar) per share in 2016.
Adidas expects strong top and bottom-line expansion in 2018
The company expects sales to increase at a rate of around 10 percent on a currency-neutral basis in 2018. Currency-neutral revenues are projected to grow at double-digit rates in North America and Asia/Pacific, while currency-neutral sales in Western Europe and Latin America are forecast to improve at a mid-single-digit rate each. In addition, currency-neutral revenues in emerging markets are expected to grow at a low-single-digit rate. Currency-neutral sales in Russia/CIS are projected to be around the prior year level.
The company’s gross margin is forecast to increase up to 0.3 percentage points to a level of up to 50.7 percent. This, together with a forecast decline in other operating expenses as a percentage of sales, is expected to drive an increase in operating profit of between 9 percent and 13 percent. Consequently, the company projects the operating margin to increase between 0.5 and 0.7 percentage points to a level between 10.3 percent and 10.5 percent. Net income from continuing operations is projected to increase to a level between 1.615 billion euros and 1.675 billion euros (2.001 to 2.075 billion dollars), an increase of between 13 percent and 17 percent. Basic EPS from continuing operations is expected to increase at a rate between 12 percent and 16 percent.
Following the strong operational and financial performance in 2017, the company has also upgraded its 2020 profitability target. While Adidas continues to forecast currency-neutral revenues to grow between 10 percent and 12 percent on average per year between 2015 and 2020, the company now projects net income from continuing operations to grow by an average of 22 percent to 24 percent per year compared to previous target of 20 percent to 22 percent between 2015 and 2020. As a result, the company now expects to reach an operating margin of up to 11.5 percent by 2020 against previous target of 11 percent.