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› Group Business PerformanceGroup Management Report ›
090 ANNUAL REPORT 2006 › adidas Group ›
Gross Margin Improves to 46.2%
The adidas gross margin increased by 0.9 percentage points
to 46.2% in 2006 from 45.3% in 2005. This represents the
segment’s highest gross margin since the IPO. The improve-
ment was largely driven by increased own-retail activities and
a favorable product mix. As a result of these developments,
adidas gross profit grew 15% to € 3.059 billion in 2006 from
€ 2.654 billion in 2005.
Royalty and Commission Income Grows Strongly
In 2006, royalty and commission income at brand adidas grew
by 24% to € 74 million from € 59 million in 2005. This increase
was driven by both an increased number of units sold and
higher average royalty rates as well as higher intra-Group
royalties received from the TaylorMade-adidas Golf segment.
Operating Expenses Increase
adidas operating expenses as a percentage of sales increased
0.9 percentage points to 35.4% in 2006 (2005: 34.5%). This
increase primarily reflects higher marketing expenditures
associated with the 2006 FIFA World Cup™ as well as the con-
tinued expansion of adidas own-retail activities. In absolute
terms, operating expenses grew 16% to € 2.345 billion in 2006
from € 2.020 billion in 2005.
Operating Profit Reaches € 788 million
In 2006, the adidas operating margin improved by 0.1 percent-
age points to 11.9% from 11.8% in 2005. This was a result of
higher sales and the improved gross margin, which more than
offset higher operating expenses as a percentage of sales.
Own-retail activities contributed overproportionately to oper-
ating profit due to a higher gross margin which more than
compensated higher operating expenses as a percentage of
sales compared to adidas’ wholesale operations. Operating
profit for the adidas segment increased 14% to € 788 million
from € 693 million in 2005.
adidas Operating Profit by Quarter € in millions
Q1 2005
Q1 2006
Q2 2005
Q2 2006
Q3 2005
Q3 2006
Q4 2005
Q4 2006
258
279
92
135
324
365
20
9
adidas Gross Margin by Quarter in %
Q1 2005
Q1 2006
Q2 2005
Q2 2006
Q3 2005
Q3 2006
Q4 2005
Q4 2006
47.1
46.6
43.8
46.3
46.1
47.7
43.6
43.3