Source: Company reports/Fung Global Retail & Technology

1Q17 Results

Adidas reported 1Q17 net sales of €5,671 million, up 18.9% on a reported basis and up 16.0% on a constant-currency basis. Net sales for the quarter were above the consensus estimate of €5,387 million. The company’s gross margin contracted by 20 basis points year over year, to 49.2%, due to foreign-exchange headwinds, and its operating margin increased by 90 basis points, to 11.1%. Underlying EPS expanded by 30.5% year over year, to €2.23, which was above the consensus estimate.

Performance by Brand

In terms of brands, Adidas showed the strongest sales growth, with sales up 20.0% year over year on a reported basis (up 17.6% on a constant-currency basis), to €4,842 million. Reebok sales grew by 18.5% on a reported basis (and by 13.3% on a constant-currency basis), to €492 million, and TaylorMade-Adidas Golf revenues increased by 7.0% on a reported basis (and by 4.4% on a constant-currency basis). CCM hockey brand revenues declined by 7.3% on a reported basis (and by 10.8% on a constant-currency basis), reflecting the challenging conditions in the US hockey market.

Performance by Segment

Across the group’s regions of operation, North America exhibited the strongest sales growth in the quarter, with sales up 30.6% at constant currency (and up 35.8% on a reported basis), followed by Greater China at 30.3% (up 29.9% on a reported basis). Western Europe constant-currency sales increased by 9.6% (and by 7.7% on a reported basis). All regions exhibited constant-currency sales growth except Russia, which posted a decline of 9.8% year over year (16.0% growth on a reported basis), due to weak consumer sentiment as well as additional store closures.

Outlook

For FY17, Adidas confirmed its guidance for group sales to increase by 11.0%–13.0% at constant currency, driven by strong growth in North America, Greater China and Western Europe. Adidas expects its full-year gross margin to increase to 49.1% from 48.6% in FY16. The company expects a full-year operating margin of 8.3%–8.5%, compared with 7.7% in FY16. The company expects net income to grow by 18%–20%, to approximately €1.225 billion. The FY17 revenue consensus estimate stands at €21,579 million, implying annual reported year-over-year growth of 11.8%. Consensus expects operating profit of €1,820 million, implying year-over-year growth of 22.1%, and EPS of €6.03, implying reported growth of 18.7% year over year.