• Q3 net income rises 15% to EUR387m
  • Gross margin down 0.9pp to 47.6%
  • Sales increase 13.8% to EUR5.41bn
Adidas confirmed its FY outlook, despite one-time costs in the second-half of the year related to measures aimed at strengthening the group’s growth foundation

Adidas confirmed its FY outlook, despite one-time costs in the second-half of the year related to measures aimed at strengthening the group’s growth foundation

German sporting giant Adidas today (3 November) revealed better than expected third-quarter results, but shares fell after the group revealed it will incur one-time costs to invest in future growth and restructure the Reebok brand.

The first set of results  under new chief executive Kasper Rorsted saw net income in the three months to the end of October rise 15% to EUR387m (US$429m) from EUR337m a year earlier. Unfavourable currency movements contributed to a 0.9 percentage points drop in gross margin to 47.6%.

Group revenues were up 13.8% to EUR5.41bn, driven by strong momentum at both Adidas and Reebok. Reebok revenues grew 7% during the quarter, with sales growth across all regions. This development was supported by double-digit sales increases in the running category as well as in Classics.

Overall footwear sales growth remains strong increasing 26% year-on-year in the quarter, down just slightly from a rise of 28% in the first-half; but apparel sales growth of 10% was down from 16% in the first six months.  

Meanwhile, all market segments posted currency-neutral sales increases, with double-digit growth across all regions except Russia/CIS, where revenues grew at a mid-single-digit rate. 

Revenues in Western Europe increased 15% on a currency-neutral basis, driven by the UK, Germany, France, Italy, Spain and Poland. Growth trends in North America and Greater China remained strong, as reflected in currency-neutral sales increases of 20% and 25%, respectively. Meanwhile, revenues in Russia were up 7% on a currency-neutral basis.

"I am extremely happy to be the CEO of a company that is doing so well," said Rorsted. "The great momentum across all major markets shows the strength of our strategy 'Creating the New' because it is driving significant improvements in the desirability of our brands across the globe." 

Based on this performance, the company has confirmed its outlook for the full year despite one-time costs in the second-half of the year related to measures aimed at strengthening the group's growth foundation.

Operating overhead expenditure as a percentage of sales is now forecast to be around the prior year level of 29.2%. Adidas said this development mainly reflects further investments to spur the company's 'Creating the New' strategic business plan as well as one-time costs during the second-half of around EUR30m associated with restructuring measures at Reebok.

This includes the relocation of Reebok's North American HQ to Boston and the relocation of 650 employees, as well as cutting another 150 jobs. However, while management acknowledges the brand is under performing both Adidas and the industry's growth rates, Reebok's third quarter sales in North America grew for the first time since 2013.

In spite of these one-off expenses, which are expected to impact the group's operating profit in the fourth-quarter to the tune of EUR20m, the company continues to project revenues to increase at a rate in the high teens on a currency-neutral basis in 2016.

Net income is expected to improve to a level between EUR975m and EUR1bn, while gross margin is forecast between 48.0% and 48.3%

"2016 will be a record year for the Adidas Group with truly exceptional results," added Rorsted. "Going forward, it is our job to make this fantastic company even better."

Analyst John Kernan at Cowen & Co believes recent results from Under Armour and Nike show the competitive environment is increasing. "Adidas continues to outperform Nike in terms of sales and EPS growth rates as new products, successful collaborations with celebrity endorsers and a focus on casual trends continue to drive growth globally," he notes.