adidas

adidas is a global leader specialised in the design, development, production and distribution of sporting goods (footwear, clothing and equipment). The group’s business is built around two main brands: adidas and Reebok. Distribution is done through its own stores retail network, eCommerce and independent distributors.

Performance in 2017

In 2017, adidas delivered another year of strong performance, increasing currency-neutral revenues by 16% to EUR 21.2 billion. This development mainly reflects an 18% increase at brand adidas, which was driven by double-digit sales increases in the running category as well as at adidas Originals and adidas neo.

In terms of performance in key regions, the combined sales (on a currency-neutral basis) of the adidas and Reebok brands grew at double-digit rates in nearly all regions. Growth in the company’s key regions Greater China and North America was particularly strong, with currency-neutral sales increases by 29% and 27%, respectively.

While currency-neutral revenues in Western Europe increased by 13%, sales in Latin America were up by 12%. Currency-neutral revenues in MEAA and Japan increased by 10% each. Sales in Russia/CIS declined by 13%, reflecting the ongoing challenging consumer sentiment as well as additional store closures during the year.

The company’s gross margin increased by 1.2 percentage point to 50.4% (2016: 49.2%) due to the positive effects from a better pricing and product mix, which more than offset negative currency effects as well as higher input costs.

The company’s operating profit grew 31% to EUR 2,070 million (2016: EUR 1,582 million), representing an operating margin increase of 1.2 percentage points to 9.8% (2016: 8.6%).

Net income from continuing operations grew by 32% to EUR 1,430 million. Basic EPS from continuing operations increased by 31% to EUR 7.05.

Net cash amounted to EUR 484 million, representing an improvement of EUR 587 million compared to the prior year (2016: net borrowings of EUR 103 million). This development was driven by the increase in cash generated from operating activities as well as proceeds arising from the disposal of TaylorMade and CCM Hockey.

The Executive and Supervisory Boards will recommend a dividend of EUR 2.60 per share which represents an increase by 30% compared to the prior year dividend (2016: EUR 2.00) and a payout ratio of 37.1% (2016: 37.4%). This is within the target range of between 30% and 50% of net income from continuing operations as defined in the company’s dividend policy.

In addition, adidas decided to launch a multi-year share buyback program of up to EUR 3.0 billion in total until 11 May 2021. Starting on 22 March, the company plans to buy back shares worth up to EUR 1.0 billion in 2018.

Investment case

adidas is a strong brand: #1 in Europe and #2 worldwide in the design and distribution of sporting goods.

There is strong potential for growth in sales supported by (i) advertising and promotional expenditure, (ii) the company’s ability to introduce innovative products and (iii) the omni-channel (including digital) approach.

adidas has the possibility to improve its EBIT margin via:

• Optimising the structure of central costs, mainly through economies of scale
• Increased profitability in the USA and Russia
• A restructuring of the brand Reebok in the USA