Adidas 2002 Annual Report Download - page 64

Management Discussion&Analysis
62 REPORTING
adidas-Salomon /// IN 2002, adidas-Salomon
DELIVERED EXCELLENT TOP- AND BOTTOM-LINE RESULTS.
NET SALES INCREASED 7% FROM € 6.1 BILLION IN 2001 TO
€ 6.5 BILLION IN 2002. THE GROUP’S GROSS MARGIN GREW
0.7 PERCENTAGE POINTS TO 43.2% OF SALES. THIS WAS
ACHIEVED DESPITE DIFFICULT RETAIL CONDITIONS IN ALL
MAJOR MARKETS. THE GROUP’S OPERATING EXPENSES AS
A PERCENTAGE OF NET SALES GREW 1.1 PERCENTAGE
POINTS TO 35.9%. AS A RESULT, OPERATING PROFIT GREW
TO € 477 MILLION (2001: € 475 MILLION). adidas-Salomon’s
INCOME BEFORE TAXES WAS € 390 MILLION, UP 4% VERSUS
€ 376 MILLION IN 2001. LOWER MINORITIES ALSO CON-
TRIBUTED TO THE GROUP’S NET INCOME, WHICH GREW
10% FROM € 208 MILLION IN 2001 TO € 229 MILLION IN
2002. THIS REPRESENTS BASIC EARNINGS PER SHARE OF
€ 5.04 VERSUS € 4.60 IN THE PRIOR YEAR. THESE RESULTS
ARE AT THE TOP END OF THE EARNINGS RANGE TARGETED
BY MANAGEMENT AT THE BEGINNING OF THE YEAR. FOR
2003, THE GROUP ANTICIPATES REVENUE GROWTH OF
AROUND 5%, A VISIBLE OPERATING MARGIN IMPROVEMENT
AND EARNINGS GROWTH OF BETWEEN 10 AND 15%.
ECONOMIC AND SECTOR DEVELOPMENT
STOCK MARKET LOSSES AND FEAR OF WAR IN IRAQ
CHARACTERIZE US ECONOMY /// 2002 was a year with
largely negative macroeconomic signals from all major
markets. In the USA, the economy experienced gross domestic
product (GDP) improvements at the beginning of 2002. How-
ever, substantial stock market losses, fears with respect to
the anniversary of the September 11 attacks and uncertainties
surrounding possible military action in Iraq significantly
slowed down growth in the second half of the year. As a
result, GDP grew only 2% and consumer confidence, which
declined in eight of the 12 months, was at its lowest level in
nine years at the end of December 2002.
STAGNANT ECONOMIES YIELD LOW CONSUMER SPENDING
IN EUROPE /// European economies showed little growth in
2002 with a GDP increase of less than 1% compared to the
prior year. The drivers of this development include the deteri-
oration of consumer sentiment due to the introduction of the
euro and corresponding price increases at the beginning of
the year, rising unemployment as well as a decline in global
price competitiveness owing to the appreciation of the euro.
Germany has been particularly weak, with GDP growth of only
0.2%, reflecting the worst economic development since 1993.
NEGATIVE GDP DEVELOPMENT IN ASIA AND LATIN
AMERICA /// In Japan, GDP growth was negative in 2002.
Increases in exports and solid growth in private consumption
were more than offset by decreases in both public and private
investment. Furthermore, wholesale prices declined and
deflation persisted during the entire year. In Argentina, the
economy suffered a severe financial and banking crisis in
2002. As a result, GDP declined strongly compared to the
prior year and many other economies in the region were
impacted by spill-over effects.
SPORTING GOODS SECTOR UNDER PRESSURE IN NORTH
AMERICA DURING THE SECOND HALF OF THE YEAR ///
After a successful first half of the year among sporting goods
retailers, low consumer confidence and the difficult economic
conditions led to disappointing back-to-school sales which
exacerbated an already strongly promotional environment in
North America. In addition, the US West Coast dock dispute
put further pressure on suppliers and retailers who had to
redirect shipments to ensure fall deliveries. As a result,
several athletic specialty retailers as well as smaller sporting
goods manufacturers were forced to issue sales and profit
warnings. Nevertheless, most of the major suppliers were
able to increase both their sales and earnings.
MIXED CONDITIONS AT SPORTING GOODS RETAIL IN
EUROPE /// In Europe, the picture for the sporting goods
market was mixed, developing similarly to the national
economies. While market conditions continued to be tough
throughout Central Europe with particular weakness in
Germany, where the retail sector experienced the worst
trading conditions in more than 40 years, athletic retail
showed some improvements in the UK, France and Spain.
WORLD CUP SPURS GROWTH IN ASIAN SPORTING GOODS
SECTOR /// In Japan and South Korea, the retail environment
experienced World Cup-driven improvements which continued
throughout the year. In addition, expansion of retail doors in
China continued during 2002 mainly as a result of increased
consumer spending.