Adidas 1998 Annual Report Download - page 8

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6Management Discussion and Analysis
NEW RECORD IN FOOTWEAR AND APPAREL SALES
Net sales of Foot-
wear within the adidas-Salomon group reached DM 3.9 billion, up 35% or DM 1 billion on
the previous year.
Apparel sales in 1998 grew 19%, reaching DM 4.3 billion. This represents 43% of
total net sales of the group. Measured by sales volume, Apparel thus remains the largest
product division.
HARDWARE SALES AT A NEW LEVEL
As the products of the newly acquired
brands Salomon, Taylor Made and Mavic are primarily included under Hardware, sales of
this product division increased from DM 238 million to DM 1,743 million. In prior years
Hardware has primarily included bags and balls. Today it also comprises skis, snowboards,
bindings, ski boots, cross-country ski equipment and in-line skates marketed under the
Salomon brand name, Taylor Made golf clubs and accessories, and Mavic bike wheels
and rims.
STRONGEST SALES GROWTH IN NORTH AMERICA
In terms of regional
performance, North America again delivered the highest growth rates. Net sales under the
adidas brand name were up 68%, while total net sales including the new brands doubled.
This region contributed 35% to total net sales of the adidas-Salomon group in 1998.
Europe remains the largest market, representing 55% of total net sales. Sales in this
region at DM 5.4 billion were up 32%. First-time inclusion of the Salomon group in the
consolidated financial results accounted for 15 percentage points of this growth.
In Asia/Pacific, sales growth was relatively slow, improving by just under 7% year-
over-year to reach DM 750 million. This increase is entirely due to first-time inclusion of
sales of the new brands. Sales of adidas products were 23% down compared to 1997,
largely due to currency translation effects.
Latin America contributed DM 218 million to consolidated net sales, which is an
increase of 30% compared to the previous year. The total sales in this region were gener-
ated by the adidas brand.
GROSS MARGIN REMAINED STABLE
Gross profit increased 48%, in line with
sales. As a result, gross margin at 41.9% (as a percentage of net sales) remained stable
at
the previous year’s high level. Gross margin for the adidas brand at 42.1% was above the
average for the group, while Salomon and Mavic were below the group level. Despite the de
-
cline of the golf business Taylor Made maintained a gross margin above the group average.
INCOME FROM OPERATIONS SHOWED DOUBLE-DIGIT GROWTH
The significant increase in sales and gross profit did not translate into a corresponding
improvement of income from operations. While income from operations of the adidas
brand kept pace with sales growth, the contribution of the Salomon group was low. The
golf business in particular was not able to deliver its traditionally high level of profitability
due to the rapid decline of the US golf market.
n
n
nn
n
1994 1995 1996 1997 1998
INCOME FROM OPERATIONS
(DM m / %)
9
8
7
6
5
4
3
2
1
900
800
700
600
500
400
300
200
100
nIncome from operations
nin % of net sales
nGross profit in % of net sales
1994 1995 1996 1997 1998
GROSS MARGIN
(%)
43
42
41
40
39
38
37
36
35
n
n
n
n
n