Adidas 2003 Annual Report Download - page 95

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CURRENCY-NEUTRAL SALES TO IMPROVE BUT MARGINS TO
REMAIN UNDER PRESSURE DUE TO NEGATIVE CURRENCY
EFFECTS IN 2004 /// At Salomon, we expect currency-neutral
sales to increase at mid-single-digit rates in 2004. Summer
sports products are likely to be the primary growth driver,
helped by our expanding Salomon apparel line and the inno-
vative Ground Control System™ footwear. Furthermore, winter
sports products also look poised to deliver growth with strong
new products in the alpine and nordic categories (see Brand
Strategies and Group Management Report/Outlook). Gross
margin, however, is likely to remain under pressure as a
result of the negative currency effects explained above. As a
result, operating profit is unlikely to surpass the 2003 level in
the coming year.
91
SALOMON NET SALES BY PRODUCT CATEGORY
1)Includes skis, boots, bindings and other related products
2)Includes inline skates and skateboards
3)Includes boards, boots and bindings
4)Includes wheels, rims and other related cycling products
Surfing 1%
Nordic1) 6%
Apparel and gear 10%
Cycling4) 12%
Snowboarding3) 7%
Skating2) 7% Alpine1) 43%
Outdoor footwear 14%
SALOMON NET SALES BY REGION
Latin America 1%
Asia 10%
North America 25%
Europe 64%
NEGATIVE CURRENCY EFFECTS DRIVE GROSS MARGIN
DECLINE /// Salomon gross margin declined 0.7 percentage
points to 40.1% in 2003 versus 40.8% in 2002. 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 segment sales are
registered in non-euro currencies. These currencies for the
most part depreciated significantly versus the euro in 2003.
As a result of this development and lower revenues in euro
terms, Salomon gross profit declined 6% to € 264 million in
2003 from € 279 million in 2002.
OPERATING PROFIT DECLINES DESPITE OPERATING
EXPENSE REDUCTIONS /// Operating expenses at Salomon
were reduced by 5% to € 228 million in 2003 versus
€ 240 million in 2002, and operating expenses as a percent-
age of sales declined 0.4 percentage points to 34.7% from
35.1% in the prior year. These reductions were driven by
continued strict cost control, which led to lower expenditures
in all operating expense categories. Despite lower operating
expenses, Salomon operating profit declined 10% to € 35 mil-
lion in 2003 from € 39 million in 2002 and operating margin
declined 0.4 percentage points to 5.4% of sales in 2003 versus
5.7% in the prior year. Both these declines are fully attribu-
table to negative currency effects on sales and gross margin
as described above.
PROVISION OF BACKLOG INFORMATION ON SALOMON NOT
MEANINGFUL /// Because of the strong seasonality of
Salomon’s business and the often short-term nature of orders
within the winter sports industry, we do not provide backlog
information for the Salomon family of brands.
SALOMON /// GROUND CONTROL SYSTEM™ PRO
TRAIL RUNNING SHOE