Adidas 2002 Annual Report Download - page 76

74 REPORTING MANAGEMENT DISCUSSION & ANALYSIS /// adidas
adidas /// IN 2002, adidas BRAND SALES GREW 6% TO
REACH € 5.1 BILLION VERSUS € 4.8 BILLION IN THE
PRIOR YEAR. ON A CURRENCY-NEUTRAL BASIS, THIS
INCREASE WAS 10% - THE BRAND’S STRONGEST GROWTH
IN FOUR YEARS - WITH IMPROVEMENTS COMING FROM ALL
REGIONS. adidas GROSS MARGIN IMPROVED 1.0 PERCENT-
AGE POINTS FROM 38.2% IN 2001 TO 39.2% IN 2002. THIS
POSITIVE DEVELOPMENT REPRESENTS THE EXPANSION OF
HIGH-MARGIN OWN-RETAIL ACTIVITIES, LOWER CLEAR-
ANCE ACTIVITIES AND SELECTIVE PRICING INITIATIVES.
OPERATING EXPENSES INCREASED DURING THE YEAR, TO
SUPPORT THREE KEY STRATEGIC INITIATIVES: THE 2002
FIFA WORLD CUP™, THE EXPANSION OF OWN RETAIL AND
START-UP COSTS ASSOCIATED WITH THE PURCHASE OF
THE REMAINING SHARES OF adidas ITALY. AS A RESULT,
adidas OPERATING PROFIT DECLINED 3% FROM € 352
MILLION IN 2001 TO € 343 MILLION IN 2002. FOR 2003,
MID-SINGLE-DIGIT SALES GROWTH WILL CONTINUE,
WITH IMPROVEMENTS EXPECTED IN ALL REGIONS, LED BY
NORTH AMERICA AND ASIA WHERE DOUBLE-DIGIT GROWTH
ON A CURRENCY-NEUTRAL BASIS IS ANTICIPATED.
adidas SALES TOP € 5 BILLION FOR THE FIRST TIME /// In
2002, adidas net sales increased 6% to € 5.1 billion compared
to € 4.8 billion in the prior year. No new companies were
consolidated into brand adidas sales in 2002, so all growth
is organic. On a currency-neutral basis, this increase was
10%. Growth came from all regions, with particular strength
coming from Asia and North America, where sales grew 20%
(+26% currency-neutral) and 4% (+10% currency-neutral)
respectively. From a divisional perspective, sales grew in both
the Sport Performance (+3%) and Sport Heritage (+23%)
divisions. Own-retail activities also contributed meaningfully
to top-line growth.
SPORT PERFORMANCE GROWTH DRIVEN BY BASKETBALL,
FOOTBALL AND RUNNING /// Sales in the Sport Performance
division (previously named the adidas Forever Sport division)
grew 3% in 2002 from € 4.1 billion in 2001 to € 4.2 billion in
2002. This is the largest division within the Group and now
contributes 82% of brand adidas revenues. The strongest
growing product category in the division was basketball,
where sales increased 46% in 2002 as a result of strong
product introductions including the T-MAC, T-MAC 2 and All
Day All Night. In addition, the Group’s leading market position
in football was further strengthened with excellent products,
which were highlighted at the 2002 FIFA World Cup™.
SPORT HERITAGE SALES GROW 23% /// At € 904 million,
sales from the Sport Heritage division (previously named
adidas Originals) were again the largest component of brand
adidas growth, increasing more than 23% versus € 736 million
in 2001. As a result, Sport Heritage now makes up 18% of
brand adidas sales. Footwear sales in the Sport Heritage
division grew 22% from € 686 million in 2001 to € 837 million
in 2002. Apparel and accessories, which were first introduced
as a full collection in 2002, contributed € 68 million to adidas
sales.
SALES UP IN BOTH FOOTWEAR AND APPAREL /// Looking
at sales from a product perspective, adidas footwear sales
grew 9% (+14% currency-neutral) from € 2.5 billion in 2001
to € 2.7 billion in 2002. Sales grew 22% in the Sport Heritage
division, which serves as a strong indicator of brand percep-
tion. In addition, both football and basketball grew at strong
double-digit rates, reflecting the acceptance of our marketing
initiatives in these categories. In apparel, sales grew 2% (+5%
currency-neutral) from € 2.1 billion in 2001 to € 2.2 billion in
2002. The Sport Performance categories basketball and
football led this growth with increases of 101% and 35%
respectively. adidas hardware sales – which include balls,
bags, socks and protective gear – increased 17% from
€ 185 million in 2001 to € 217 million in 2002, as a result
of the strong response to 2002 FIFA World Cup™ product
introductions.
adidas OWN RETAIL AN IMPORTANT DRIVER IN TOP-LINE
GROWTH /// An increasingly important part of brand adidas
revenues is own-retail activities. Own retail within adidas
consists of four major components: concept stores, conces-
sion corners in developing markets, factory outlets and
Internet sales. In 2002, adidas operated 162 concept stores
(2001: 120). These stores market Sport Performance and/or
Sport Heritage products directly to the consumer. adidas
concession corners, which number 269 (2001: 288), provide
sales infrastructure in the developing markets, in particular in
Asia. Factory outlets, which are utilized to optimize clearance
activities for brand adidas, are located in North America and
Europe and currently number 174 (2001: 157). Internet sales
are available at www.adidas.com. adidas own-retail activities
made up 8% of brand sales in 2002, up from 7% in the prior
year. This represents an increase of 16% from € 354 million
in 2001 to € 410 million in 2002. This was driven both by
comparable sales growth and new store openings. These
sales are not intended to exceed 10% of adidas sales in the
medium term.
adidas /// a3® TWIN STRIKE
RUNNING SHOE