Reebok 2011 Annual Report Download - page 170

adidas Group
2011 Annual Report
GROUP MANAGEMENT REPORT – FINANCIAL REVIEW
166
2011
03.5 Subsequent Events and Outlook
03.5
adidas Group sales expected to increase in all regions
We expect Group currency-neutral revenues to increase in all our
regions in 2012, however at varying growth rates. In Western Europe,
although the highly challenging macroeconomic environment is
projected to negatively impact consumer spending, the UEFA EURO
2012 as well as the London 2012 Olympic Games will benefit the
develop ment of Group sales. In European Emerging Markets, the major
sporting events will also provide positive stimulus. In addition, the
expansion of, and increasing sophistication in, our own-retail activities,
particularly in Russia/CIS, are forecasted to have a positive influence
on Group sales. In North America, we expect solid growth despite the
discontinuation of the NFL licence agreement. With the adidas brand,
we will continue to build on the momentum we have created in this
market over the past two years as we further strengthen our product
offering, distribution scope as well as consumer engagement initia-
tives. In Greater China, following strong double-digit sales increases
in 2011, we expect further growth in line with our Route 2015 aspira-
tions. This development will be primarily driven by expanding and
solidifying our distribution footprint, including the further roll-out of
adidas Originals and the adidas NEO label. In Other Asian Markets,
challenging conditions in Japan will be more than offset by a strong
performance in the region’s other markets such as South Korea and
South East Asia. Lastly, in Latin America, Group sales development
is projected to be positively impacted by the solid momentum of the
region’s sporting goods industry. However, trade barriers in certain
markets continue to weigh on growth prospects.
2012 Group gross margin to be around 47.5%
In 2012, the adidas Group gross margin is forecasted to be around
47.5% (2011: 47.5%). While we expect gross margin in our Retail
segment as well as Other Businesses to improve, gross margin in
the Wholesale segment is forecasted to decline. As in the prior year,
gross margin development will be negatively impacted by increasing
input and labour costs year-over-year, particularly in the first half of
2012. In addition, hedging terms in 2012 will be slightly less favourable
compared to the prior year. However, these negative influences will
be largely offset by positive regional mix effects, as growth rates in
high-margin emerging markets are projected to be above growth
rates in more mature markets. In addition, improvements in the Retail
segment as well as at the Reebok brand will positively influence Group
gross margin development. Furthermore, product price increases are
also forecasted to benefit the Group gross margin development.
Group other operating expenses to decrease as a
percentage of sales
In 2012, the Group’s other operating expenses as a percentage of sales
are expected to decrease modestly (2011: 41.4%). Sales and marketing
working budget expenses as a percentage of sales are projected to
be at a similar level to the prior year. Marketing investments will be
centred around key sporting events such as the UEFA EURO 2012 and
the London 2012 Olympic Games to leverage the outstanding visibility
of the adidas brand during these events. Further, we will continue to
support Reebok’s growth strategy in the men’s and women’s fitness
category and will also invest in growing our key attack markets North
America, Greater China and Russia/CIS. Operating overhead expend-
iture as a percentage of sales is forecasted to decline in 2012. Higher
administrative and personnel expenses in the Retail segment due
to the planned expansion of the Group’s store base will be offset by
leverage in the Group’s non-allocated central costs.
We expect the number of employees within the adidas Group to
increase versus the prior year level. Additional hires will be mainly
related to own-retail expansion. The majority of new hires will be
employed on a part-time basis and will be located in emerging
markets. The adidas Group will continue to spend around 1% of Group
sales on research and development in 2012. Areas of particular focus
include customisation and digital sports products at adidas, as well as
supporting the expansion of Reebok’s fitness positioning SEE RESEARCH
AND DEVELOPMENT, P. 95
.
Operating margin to continue to expand
In 2012, we expect the operating margin for the adidas Group to
increase to a level approaching 8.0% (2011: 7.6%). Lower other
operating expenses as a percentage of sales are expected to be the
primary driver of the improvement.