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Adidas AG. Q2 2010 Earnings Call Transcript

adidas AG. Q2 2010 Earnings Call Transcript

adidas AG (ADDDF.PK)

Q2 2010 Earnings Call Transcript

August 04, 2010 09:00 am

Executives

TST Recommends

JP O’Meara - Head, IR

Herbert Hainer - Chairman & CEO

Robin Stalker - CFO

Analysts

Andreas Inderst - Exane BNP Paribas

Jürgen Kolb - Cheuvreux

Michael Kuhn - Deutsche Bank

Matthias Eifert - MainFirst

Antoine Belge - HSBC

Tony Shiret - Credit Suisse

Presentation

JP O’Meara

» Adidas Group Q1 2010 Earnings Conference Call
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Good afternoon ladies and gentlemen and welcome to our First Half 2010 Financial Results Conference Call. I’m JP O’Meara and I head up the IR activities here at the adidas Group.

Our presenters are Herbert Hainer, adidas Group CEO, and Robin Stalker, Group CFO. And they will be covering the Group’s first half financial performance as well as updating you on our outlook and strategic initiatives for the second half of the year.

So, with that I'll hand to Herbert.

Herbert Hainer

Good morning ladies and gentlemen and thanks JP. As you have seen in our announcement this morning, we had a fantastic first half, driven by our unquestionable dominance of the 2010 FIFA World Cup and the resurgence of the Reebok brand, particularly in North America. We generated record first half sales of €5.6 billion, an increase of 7% currency-neutral. Our profitability improved substantially, with gross margin up 3.7 percentage points to 48.8%.

And through operating expense leverage, net income attributable to shareholders jumped to €295 million from €13 million 12 months ago.

By segment, first half Wholesale revenues increased 6% currency-neutral with a strong pick-up in the second quarter where sales grew 12%. Western Europe and North America were key drivers of the first half development where revenues rose 10% and 15% respectively.

In the Retail segment, the strong momentum from the start of the year also continued, validating a healthier consumer environment and also, the strong appeal of our 2010 products and collections. Sales in the segment increased 17% currency-neutral in Q2, with comparable store sales up an impressive 10%.

On a brand basis, second quarter adidas and Reebok comp store sales increased 9% and 16% respectively. For the half year, Retail segment sales grew 16% currency-neutral and

comparable store sales were up 8%. North America and European Emerging Markets grew 14% and 27% in the first half, with Greater China and Latin America performing even stronger with sales increases of 48% in China and 45% in Latin America.

Comparable store sales in North America, Russia and China all grew at double-digit rates for the period. At the end of June, the adidas Group Retail segment operated 2,240 stores, a net increase of 28 compared to December 2009. During the first six months, we opened 97 stores, closed 69 and remodelled 17.

At the heart of the performance of the Wholesale and Retail segments are of course the adidas and Reebok brands. So let’s take a few minutes to talk about the key highlights of each brand for the quarter.

First adidas. Revenues grew 13% currency-neutral in the second quarter and gross margin expanded 210 basis points to 48.2%. The 2010 FIFA World Cup took centre stage and it will surely be remembered as a true celebration of football as colorful and passionate as its African hosts. And in our industry, it will also be remembered as a clear victory for the adidas brand.

Before the first whistle was blown, we knew that this World Cup was going to be a powerful event for our group, and it turned out even bigger and better than we had expected. On the pitch, our sponsored federations and players were outstanding. Four adidas teams competed in the quarter-finals, two in the semi-finals, and in the end the three-striped Spanish team deservedly secured their first title as World Champions.

Over 200 players wore adidas boots and the F50 adiZero was by far the top scoring boot with a total of 41 out of 145 goals, double that of its nearest rival. adidas Group players swept the individual awards as voted by journalists, with Diego Forlán winning the adidas Golden Ball as the best player. Thomas Mueller claiming the adidas Golden Boot as the top scorer and the best young player award, while Reebok’s Iker Casillas won the adidas Golden Glove for best goalkeeper.

Off the pitch, we also had a powerful performance. According to NM Incite and Sport+Markt, adidas generated the most online buzz and had the strongest visibility of any brand associated with the event. All of this translated into a meaningful impact on our business. With more than 6.5 million replica jerseys sold, the number of federation jerseys sold has more than doubled compared to 2006.

In addition, adidas will sell more footballs than ever before in 2010, with more than 13 million of the over 20 million footballs sold featuring the design of the Jabulani. In total, football category sales were up over 60% in Q2 and almost 50% for the half year. Therefore, we continue to expect record sales of at least €1.5 billion in football for the entire year 2010. This represents an increase of more than 15% compared to 2008, and an increase of 25% compared to the year of the last FIFA World Cup in 2006.

Ladies and gentlemen, no matter how you look at it, adidas has once again shown its ability to drive commercial success from large sporting events and there can be no argument about who is, and who continues to be, the undisputed No. 1 football brand.

However, important as it was, our tremendous performance at adidas in the second quarter was not just driven by football, and we scored on several other fronts. Running, Outdoor and Sport Style all grew at double-digit rates in the quarter. In running, sales of our lightweight adiZero collection were up over 70%. And our SuperNova Adapt took the Runner’s World Editor’s choice award.

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