The FINANCIAL — MAJOR DEVELOPMENTS IN Q1 2018: Revenues grow 10% currency-neutral and 2% in euro terms; Gross margin increases 1.5pp to 51.1% driven by pricing and product mix; Operating margin improves 1.8pp to 13.4% despite continued brand investments; Net income from continuing operations grows 17% to € 542 million; Basic EPS from continuing operations up 16% to € 2.65.
“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”, said adidas CEO Kasper Rorsted.
Currency-neutral sales increase 10% in Q1 2018
adidas started into the year with currency-neutral revenues increasing 10%. This development reflects an 11% increase at brand adidas which was 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% due to declines in the training and running categories. From a channel perspective, e-commerce was once again the fastest-growing channel with an increase of 27%. In euro terms, the company’s sales were up 2% in the first quarter to € 5.548 billion (2017: € 5.447 billion).
Double-digit growth in North America, Asia-Pacific and Latin America
From a market segment perspective, on a currency-neutral basis, the combined sales of the adidas and Reebok brands grew in most market segments. Growth was particularly strong in North America (+21%) and Asia-Pacific (+15%), the latter driven by a 26% increase in Greater China. While Latin America also grew at a double-digit rate (+10%), revenues in Western Europe increased 5%, in line with the full-year outlook for this market. Sales in Emerging Markets and Russia/CIS declined 5% and 16%, respectively, as a result of the challenging market conditions, according to adidas.
Operating margin increases 1.8 percentage points to 13.4%
The company’s gross margin increased 1.5 percentage points to 51.1% (2017: 49.6%). This development was despite a significant currency headwind in the quarter, which was more than offset by the positive effects from a better pricing and product mix. Other operating expenses increased 2% to € 2.172 billion (2017: € 2.122 billion). As a percentage of sales, other operating expenses increased 0.2 percentage points to 39.1% (2017: 39.0%), as significantly higher marketing investments were largely offset by strong operating overhead leverage. The company’s operating profit increased 17% to a level of € 746 million (2017: € 637 million), resulting in an operating margin improvement of 1.8 percentage points to a level of 13.4% (2017: 11.7%). Net income from continuing operations was up 17% to € 542 million (2017: € 462 million). Basic earnings per share from continuing operations increased 16% to € 2.65 (2017: € 2.29).
Average operating working capital as a percentage of sales decreases
Inventories decreased 11% to € 3.224 billion (2017: € 3.609 billion). On a currency-neutral basis, inventories were down 4%. Inventories from continuing operations decreased 6% in euro terms and increased 1% currency-neutral. Operating working capital declined 1% to € 4.488 billion (2017: € 4.554 billion) at the end of March 2018. On a currency-neutral basis, operating working capital grew 9%. Operating working capital from continuing operations rose 6% in euro terms and 17% currency-neutral. Average operating working capital as a percentage of sales from continuing operations decreased 0.7 percentage points to 20.3% (2017: 21.0%), reflecting the company’s continued focus on tight working capital management.
Net cash position of € 371 million
Net cash at March 31, 2018 amounted to € 371 million (2017: net borrowings of € 859 million), representing an increase of € 1.230 billion compared to the prior year. This development was driven by a decline in short-term borrowings on the back of working capital improvements as well as, to a lesser extent, the conversion of the convertible bond.
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