Adidas 1996 Annual Report Download - page 32

32
Net Sales – Footwear
1,360
1,749
1995
2,171
199619941993
mNet Sales
Footwear
(DM million)
1,790
Net Sales – Apparel
1,007
1,256
1995
2,314
199619941993
mNet Sales
Apparel
(DM million)
1,528
Gross Margin and Gross Profit
827
1,141
1,389
1995
1,877
39.8
199619941993
32.5
35.7
39.7
mGross Profit
(DM million)
m Gross Margin
(%)
Additionally, we control currency risk
through hedging contracts which
cover up to 90% of our seasonal
purchasing volume one year in
advance. In addition to
forward con-
tracts, which are
arranged primarily
for shorter periods, we will continue
to employ various forms of currency
options in order to manage our cur-
rency exposure. The currency impact
of such contracts, which have their
effect at the time of the phys
ical
transaction, is reflected in cost of
sales and consequently influences
gross margin.
Income before Taxes increased to
DM 444 million, or 9.4% of net sales
for 1996, from DM 296 million, or
8.5% of net sales, for 1995. Starting
from a significantly higher gross
profit base, the following factors
influenced income before taxes:
vSelling, General and Adminis-
trative Expenses (SG&A) not
including depreciation and amor-
tization amounted to DM 1,454
million in 1996, an increase of
32.8% over 1995. However,
SG&A expenses decreased as a
percentage of net sales by 40
basis points to 30.9% despite
significantly higher promotion
and advertising spending related
to major sports events in 1996
(12.3% of net sales in 1996 com-
pared to 11.7% of net sales in
1995). SG&A expenses other than
promotion and advertising de-
creased as a percentage of net
sales by 100 basis points (18.6%
of net sales in 1996 compared to
19.6% in 1995). A major focus in
the medium-term will be to con-
tinue tight control of operating
PROFITABILITY ANALYSIS
Gross Profit increased from
DM 1,389 million in 1995 to DM 1,877
million in 1996 primarily based on
volume growth. Gross Margin
improved slightly from 39.7% in
1995 to 39.8% in 1996. The less
favorable purchasing terms during
the second half of 1996 as com-
pared to 1995, primarily due to the
appreciation of the U.S. Dollar ver-
sus the Deutsche Mark, was offset
by the tight control of product costs
and a further shift to the higher
margin apparel business in the sales
mix. Additionally, a more favorable
product mix led to satisfactory
margin performance in footwear as
high margin
segments such as run-
ning increased
their share while
other volume segments such as
soccer, basketball and tennis main-
tained margins at comparable levels
to those of 1995.
Because two thirds of our purchases
from suppliers are denominated in
U.S. Dollars, and because the main
focus of sales is in Europe, control
of product costs will become in-
creasingly important for our ability to
sustain gross margin at competitive
levels, especially during periods of
an appreciating dollar. We therefore
are continuing to allocate substan-
tial management and financial
resources to our sourcing organiza-
tion in order to continuously improve
the quality of cooperation with sup-
ply factories. In addition, we
will
attempt to further
streamline our
supply base and focus
on core sup-
pliers in order to reduce complexity
and realize efficiencies.