adidas Group: First Quarter 2008 Results

Business Wire, May 6, 2008

Net income attributable to shareholders grows 32%

Group sales increase 10% on a currency-neutral basis

Currency-neutral adidas backlogs increase 13%

* adidas and TaylorMade-adidas Golf currency-neutral sales increase at double-digit rates

* Group gross margin increases 2.3 percentage points to new record level of 49.1%

* Currency-neutral Reebok backlogs decline 13%

* 2008 outlook reconfirmed

HERZOGENAURACH, Germany -- adidas Group (FWB:ADS):

First Quarter adidas Group currency-neutral sales grow 10%

During the first quarter of 2008, Group sales increased 10% on a currency-neutral basis, driven by double-digit sales growth in the adidas and TaylorMade-adidas Golf segments. Revenues in the Reebok segment, however, declined. Currency movements negatively impacted Group sales in euro terms. Group revenues grew 3% in euro terms to EU 2.621 billion in the first quarter of 2008 from EU 2.538 billion in 2007.

"We are off to a fast start to 2008," commented adidas AG CEO and Chairman Herbert Hainer. "adidas and TaylorMade-adidas Golf were our growth engines. At Reebok, we are progressing on plan to reposition the brand. As a Group, we are stronger than ever before. Most importantly, Group profitability has improved substantially."

Double-digit sales growth at adidas and TaylorMade-adidas Golf in Q1

The adidas and TaylorMade-adidas Golf segments set the pace for the Group's sales growth in the first quarter of 2008. Currency-neutral adidas segment revenues increased 14% during the first three months, driven by strong performance product sales in nearly all major categories. Currency-neutral sales in the Reebok segment declined 6% in the first quarter of 2008, mainly as a result of Reebok's repositioning efforts in the USA and the UK. At TaylorMade-adidas Golf, currency-neutral revenues increased 17%, due to the strong product offering in all major categories, helped by several new product launches. Currency translation effects negatively impacted sales in all segments in euro terms. adidas sales in euro terms increased 8% to EU 1.968 billion in the first quarter of 2008 from EU 1.819 billion in 2007. Sales at Reebok decreased 13% to reach EU 454 million versus EU 524 million in the prior year. TaylorMade-adidas Golf sales in euro terms increased 6% to EU 191 million in 2008 from EU 180 million in 2007.

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Q1 net sales growth by segment

Currency-neutral sales grow at a double-digit rate in all regions except North America

adidas Group sales grew at double-digit rates in all regions except North America where revenues declined. First quarter adidas Group sales in Europe grew 12% on a currency-neutral basis as a result of strong increases in the region's emerging markets. In North America, Group revenues declined by 7% on a currency-neutral basis due to lower adidas and Reebok sales in the USA and Canada. Sales for the adidas Group in Asia increased 25% on a currency-neutral basis in the first quarter of 2008, driven by particularly strong growth in China and Korea. In Latin America, currency-neutral sales grew 18% in the first quarter, with increases coming from all of the region's major markets. Currency translation effects negatively impacted sales in euro terms in all regions. Sales in Europe increased 9% in euro terms to EU 1.249 billion in 2008 from EU 1.149 billion in 2007. Revenues in North America decreased 17% to EU 578 million in 2008 from EU 698 million in the prior year. In euro terms, revenues in Asia grew 18% to EU 594 million in 2008 from EU 501 million in 2007. Sales in Latin America grew 13% to EU 177 million in 2008 from EU 157 million in the prior year.

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Q1 net sales growth by region

1 Including HQ/Consolidation.

Record Group gross margin

The gross margin of the adidas Group increased by 2.3 percentage points to a new record level of 49.1% of sales in the first quarter of 2008 (2007: 46.8%), driven by improvements in all brand segments. This is related to an improving product and regional mix, increased own-retail activities as well as favorable currency movements. Cost synergies resulting from the Reebok integration into the adidas Group continued to have a positive impact. As a result of the Group's strong underlying top-line growth and gross margin improvement, gross profit for the adidas Group rose 8% in the first quarter of 2008 to reach EU 1.288 billion versus EU 1.188 billion in the prior year.

Operating margin increases by 1.7 percentage points

The Group's operating margin increased 1.7 percentage points to 10.8% in the first quarter of 2008 (2007: 9.0%). A strong gross margin increase was partly offset by modestly higher operating expenses. Operating expenses as a percentage of sales increased 0.5 percentage points to 39.2% of sales (2007: 38.7%). This development was a result of higher operating overhead costs in the adidas and Reebok segments mainly due to increased infrastructure expenses in emerging markets. Operating profit for the adidas Group increased 23% in the first quarter of 2008 to reach EU 282 million versus EU 229 million in 2007.