Adidas 1998 Annual Report Download - page 19

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Management Discussion and Analysis 17
TAYLOR MADE
1998 WAS A BAD YEAR FOR THE GOLF INDUSTRY. GLOBAL SALES DECREASED SIGNIFICANTLY, ALSO
IMPACTING TAYLOR MADE. THE USA AND JAPAN, THE TWO LARGEST GOLF MARKETS IN THE WORLD,
EXPERIENCED A SLUMP IN SALES, LEADING TO CONSIDERABLE PRESSURE ON THE OPERATING RESULT OF
TAYLOR MADE. HOWEVER, WITH THE HELP OF NEW PRODUCTS TAYLOR MADE EXPECTS TO STABILIZE
SALES AND IMPROVE EARNINGS AGAIN IN 1999.
Net sales 1998, split by region
Americas Europe Asia
74.4% 13.9% 11.7%
TAYLOR MADE
OPERATING RESULT ALMOST AT BREAK-EVEN LEVEL Operating expenses
increased by 16%, growing at a far more moderate rate than gross profit. As a consequence,
the operating result improved by DM 41 million and, at negative DM 3 million, almost
reached break-even.
Marketing expenses were up 4% to DM 98 million.
FURTHER IMPROVEMENT OF SALES AND PROFITABILITY Net sales of
Salomon brand products will continue to grow in 1999. Additionally the numerous integra-
tion measures already initiated will further improve profitability. This means Salomon can be
expected to record a positive operating result for the first time in 1999. In the medium term
Salomon is seeking to achieve an operating margin in line with the current adidas level.
MARKETS IN USA AND JAPAN IN SHARP DECLINE While in the first
quarter of 1998 Taylor Made increased sales by 25%, the second quarter showed a
slump in sales in the USA and Japan which continued through the rest of the year. In the
second half of the year, the production of Ti Bubble 2 Metalwoods was stopped altogether
in order to allow retailers to reduce inventories and free space for new products in 1999.
The significant deterioration of major markets is attributable to several factors. The
level of innovation content offered by the products in the 1998 range was not felt by con-
sumers to match the price. The climatic phenomenon “el niño” brought continuous rain-
fall lasting until the end of June to California and Florida, the biggest volume golf markets.
It was impossible or impractical to play golf, impacting demand for golf products accord-
ingly. As a consequence inventories at retail rose and sales of Taylor Made products fell.
In Japan, sales suffered from the overall economic downturn of the country.