Adidas 2003 Annual Report Download - page 75

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EUROPE LEADS GROUP GROSS MARGIN EXPANSION /// On
aregional basis, gross margin improvement was driven by
Europe, reflecting strong gains within brand adidas as
described above. In Europe, the gross margin grew 1.3 per-
centage points to 40.8% in 2003 from 39.5% in 2002 as a
result of increased own-retail activities as well as an improv-
ing product mix and purchase prices. The gross margin in
North America declined 2.4 percentage points to 34.3% in
2003 from 36.8% in 2002. This decline was mainly due to
lower demand for many adidas product lines throughout the
year as a result of difficult market conditions. This led to a
significantly higher portion of clearance sales than in the prior
year. In Asia, gross margin decreased 1.1 percentage points to
46.8% from 48.0% in 2002 due to higher clearance sales at
lower margins. In Latin America, the gross margin declined
0.9 percentage points to 38.9% in 2003 from 39.9% in the prior
year, impacted by negative currency effects.
71
GROSS MARGIN AT RECORD LEVEL DRIVEN BY BRAND
adidas /// The adidas-Salomon gross margin grew 1.7 per-
centage points to 44.9% in 2003 from 43.2% in 2002. This is
the Group’s highest gross margin on record and clearly above
the 42 to 43% target range communicated by Management in
early 2003. Brand adidas gross margin improved by 1.3 per-
centage points to 40.6% of sales in 2003 (2002: 39.2%),
reflecting favorable currency fluctuations, the increased
proportion of own-retail activities and an improving product
mix. This improvement was reduced by lower gross margins
at brand adidas in North America because of higher clearance
sales. At Salomon, gross margin declined 0.7 percentage
points to 40.1% (2002: 40.8%). This decrease was mainly
attributable to negative currency effects, arising from the fact
that nearly all Salomon hardware sourcing takes place in
Europe, while nearly 50% of sales are denominated in non-
euro currencies, which for the most part depreciated signifi-
cantly versus the euro in 2003. TaylorMade-adidas Golf gross
margin declined 3.3 percentage points to 44.5% in 2003 from
48.8% in 2002. The major factor contributing to this decline
were lower metalwood and golf ball gross margins. Currency
effects on purchase prices, which are also captured in the
headquarter function as a result of the Group’s centralized
hedging strategy, positively impacted the Group’s gross margin
by more than 1.0 percentage points. As a result of these
developments and the decrease in sales in euro terms, Group
gross profit was nearly stable with the prior year’s level at
€ 2.814 billion (2002: € 2.819 billion).
GROSS MARGIN in %
1999 43.9
2000 43.3
2001 42.6
2002 43.2
2003 44.9
GROSS PROFIT € in millions
1999 2,352
2000 2,528
2001 2,601
2002 2,819
2003 2,814
adidas SPORT PERFORMANCE ///
INNER BOOTIE OF CLIMACOOL®3 RUNNING SHOE