Reebok 2007 Annual Report Download - page 102

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ANNUAL REPORT 2007 --- adidas Group GROUP MANAGEMENT REPORT – OUR FINANCIAL YEAR -- Business Performance by Segment - adidas Business Performance - Reebok Business Performance
GROSS MARGIN IMPROVES TO 47.4 % The adidas gross margin
increased by 1.2 percentage points to 47.4 % in 2007 from 46.2 %
in 2006. This development was in line with Management’s initial
expectation of a gross margin improvement. The increase was
primarily driven by cost synergies resulting from the combination
of adidas and Reebok sourcing activities, which positively
impacted the segment’s cost of sales. Improvements due to
increased own-retail activities also contributed to this develop-
ment. As a result, adidas gross profi t grew 10 % to € 3.370 bil-
lion in 2007 versus € 3.059 billion in 2006.
ROYALTY AND COMMISSION INCOME UP 8 % In 2007, adidas
royalty and commission income grew by 8 % to € 80 million
from € 74 million in 2006. This increase was a result of higher
external licensee sales. Higher average royalty rates also
supported growth. In addition, increased intra-Group royalties
received from the TaylorMade-adidas Golf segment due to
strong adidas Golf sales contributed to this development. adidas
royalty and commission income relates, for example, to royalty
income for cosmetics, watches and glasses.
OPERATING EXPENSES AS A PERCENTAGE OF SALES GROW
MODESTLY adidas operating expenses as a percentage of sales
grew 0.2 percentage points to 35.6 % in 2007 (2006: 35.4 %). Higher
operating overhead costs related to the continued expansion
of adidas own-retail activities and one-time costs associated with
the realization of cost synergies from the Reebok acquisition
contributed to this increase. In euro terms, operating expenses
grew 8 % to € 2.530 billion in 2007 from € 2.345 billion in 2006.
OPERATING MARGIN INCREASES TO 12.9 % In 2007, the adidas
operating margin increased 1.0 percentage points to 12.9 %
(2006: 11.9 %). This development was in line with initial Manage-
ment expectations of an operating margin improvement. The
increase was the result of positive gross margin development
in the segment, which more than offset slightly higher operat-
ing expenses as a percentage of sales. Operating profi t for
the adidas segment increased 17 % to € 920 million versus
€ 788 million during the same period in the prior year.
ADIDAS GROSS MARGIN BY QUARTER
i
n
%
ADIDAS OPERATING PROFIT BY QUARTER
€
in milli
o
n
s
Q1 2006
Q
1
200
7
Q2 2006
Q
2 2007
Q3 2006
Q3 2007
Q4 2006
Q
4
200
7
Q1 2006
Q1 2007
Q2 2006
Q2
200
7
Q3 2006
Q3
2007
Q4 2006
Q4 2007
49.
3
3
9
5
47.7
365
46
.
1
1
9
1
46.3
135
47.2
2
7
0
46.6
279
46
.
4
64
43.3
9