Figure 1. Adidas 1Q18 Key Metrics

	1Q18	1Q17	YoY Change
Revenues (EUR Mil.)	€5,548	€5,447	1.9%
Gross Margin	51.1%	49.6%	149 bps
SG&A/Sales	39.1%	39.0%	19 bps
Operating Margin	13.4%	11.7%	175 bps
Diluted EPS (EUR)	€2.64	€2.23	18.4%

Source: Company reports/Coresight Research

• At constant currency, Adidas grew 1Q18 revenues by 10%. Currency effects meant this translated to just a 1.9% increase in reported revenues.
• The company increased its gross margin and operating margin due to the effects of better pricing and product mix.
• Management reiterated its guidance for FY18: the company expects to grow sales by approximately 10% excluding currency effects and to increase operating profit by 9%–13%.

  1Q18 Results Adidas reported 1Q18 revenues of €5.55 billion, up just 1.9% year over year as reported and up 10% at constant currency, reflecting currency headwinds. The figure was slightly below consensus expectations of €5.63 billion and constant-currency growth slowed sequentially from a 19% increase in 4Q17 and a 16% increase across FY17. Operating profit of €746 million came in ahead of analysts’ expectations of €713 million. Operating profit was up 17.1% year over year. This yielded an operating margin of 13.4%, up 175 basis points year over year. The company attributed this increase to better pricing and product mix. Statutory net income of €540 million was up 18.6% year over year and was ahead of analysts’ expectations of €510.5 million. Adidas reported diluted EPS of €2.64 versus analysts’ expectations of €2.51. Management Commentary The Adidas brand grew constant-currency sales by 11% in the quarter, driven by double-digit increases in the running, football and training categories and the Adidas Originals line. Reebok revenues fell by 3% due to declines in the training and running categories. At constant currency, the company grew revenues by 21% in North America and by 15% in the Asia-Pacific region, where 26% growth in China underpinned regional revenue growth. Latin America sales were up 10% and Western Europe sales were up 5%. Outlook Management reiterated the guidance it issued when it published its FY17 results. That guidance calls for a 10% increase in sales at constant currency in FY18. Adidas expects to increase its gross margin by 0.3 percentage points, to 50.7%. The company expects a 9%–13% increase in operating profit, yielding an operating margin increase of 0.3–0.7 percentage points. Management expects net income from continuing operations to be €1.615–€1.675 billion. Deborah Weinswig, CPA CEO and Founder Coresight Research New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 deborahweinswig@fung1937.com   John Mercer Senior Analyst Hong Kong: 6/F, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong   London: 242–246 Marylebone Road London, NW1 6JQ United Kingdom   New York: 1359 Broadway, 18th Floor New York, NY 10018   Coresight.com