adidas Group: First Half Year 2008 Results

Business Wire, August 5, 2008

Currency-neutral Group sales grow 12% in the first half year

First half year earnings per share increase 25%

* Currency-neutral Group sales grow 14% in the second quarter

* Q2 earnings per share grow 15%

* Full year gross and operating margin guidance increased

HERZOGENAURACH, Germany -- Second quarter adidas Group currency-neutral sales grow 14%

During the second quarter of 2008, Group revenues grew 14% on a currency-neutral basis. All brand segments contributed to this development with currency-neutral sales increasing 19% at adidas, 2% at Reebok and 6% at TaylorMade-adidas Golf. Currency movements negatively impacted Group sales in euro terms. Group revenues grew 5% in euro terms to [euro] 2.521 billion in the second quarter of 2008 from [euro] 2.400 billion in 2007.

Second quarter EPS increases 15%

The Group's gross margin increased 2.7 percentage points to a new record level of 50.1% (2007: 47.4%) in the second quarter as a result of an improving regional and product mix, further own-retail expansion and favorable currency movements. Group gross profit increased 11% to [euro] 1.263 billion (2007: [euro] 1.138 billion). As a result of the strong gross margin increase in all brand segments and operating profit growth in the HQ/Consolidation segment, the Group's operating margin increased 0.4 percentage points to 8.2% in the second quarter of 2008 versus 7.8% in the prior year. These effects more than offset higher operating expenses as a percentage of sales primarily as a result of the phasing of this year's marketing expenses in the adidas segment. Operating profit grew 10% to [euro] 208 million versus [euro] 188 million in 2007. In the second quarter of 2008, the Group's net income attributable to shareholders increased 12% to [euro] 116 million (2007: [euro] 104 million) due to the higher operating profit as well as a lower tax rate. As a result of the lower weighted average number of shares due to the share buyback program, earnings per share increased at an even stronger rate. Basic EPS for the second quarter grew 15% to [euro] 0.59.

adidas Group currency-neutral sales grow 12% in the first half of 2008

During the first six months of 2008, Group revenues increased 12% on a currency-neutral basis, driven by double-digit sales growth in the adidas and TaylorMade-adidas Golf segments. The adidas segment grew 16%, the Reebok segment decreased 2% and TaylorMade-adidas Golf segment sales increased 11%. Currency movements negatively impacted Group sales in euro terms. Group revenues grew 4% in euro terms to [euro] 5.142 billion in the first half of 2008 from [euro] 4.938 billion in 2007.

"We are proud to report a strong set of financial results for the first half of 2008. Our performance is nothing short of exceptional, particularly in light of the tougher macroeconomic environment," commented adidas CEO and Chairman Herbert Hainer. "adidas and TaylorMade-adidas Golf continue to show strong momentum and we have laid the foundation at Reebok for continued improvement in the second half of the year."

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Strong sales increase in nearly all regions

adidas Group sales grew at double-digit rates in all regions except North America where revenues declined. First half Group sales in Europe grew 16% on a currency-neutral basis as a result of strong increases in nearly all countries. In North America, Group revenues declined by 8% on a currency-neutral basis due to lower adidas and Reebok sales in the USA. Sales for the Group in Asia increased 25% on a currency-neutral basis in the first half of 2008, driven by particularly strong growth in China. In Latin America, currency-neutral sales grew 29% in the first half of the year, with double-digit increases coming from all of the region's major markets. The development was supported by the first-time consolidation of Reebok's joint ventures in the region. Currency translation effects negatively impacted sales in euro terms in all regions. Sales in Europe increased 11% in euro terms to [euro] 2.352 billion in 2008 from [euro] 2.116 billion in 2007. Revenues in North America decreased 19% to [euro] 1.160 billion in 2008 from [euro] 1.429 billion in the prior year. In euro terms, revenues in Asia grew 17% to [euro] 1.214 billion in 2008 from [euro] 1.036 billion in 2007. Sales in Latin America grew 23% to [euro] 381 million in 2008 from [euro] 310 million in the prior year.

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Record group gross margin

The gross margin of the adidas Group increased by 2.5 percentage points to 49.6% of sales in the first half of 2008 (2007: 47.1%), driven by improvements in all brand segments. This highest-ever first half year rate was related to an improving regional and product mix, increased own-retail activities as well as favorable currency movements. Cost synergies resulting from the Reebok integration into the adidas Group also continued to have a positive impact. Input price increases had only a modest negative impact on the cost of sales development in the first half of 2008. As a result of the Group's strong top-line growth and gross margin improvement, gross profit for the adidas Group rose 10% in the first half of 2008 to reach [euro] 2.552 billion versus [euro] 2.326 billion in the prior year.