adidas-Salomon Sales Up Seven Percent

HERZOGENAURACH, Germany, Nov. 2 — Net sales for the adidas-Salomon Group in the first nine months of 2000 grew by 7 percent to Euro 4.4 billion, continuing the growth trend registered in the first half of the year.

Sales growth in the first nine months was driven by Footwear and Hardware, which were up 9 and 24 percent respectively. The Footwear increase was largely attributable to solid double-digit growth in the adidas basketball, soccer, adventure and skateboarding categories. Hardware improvements reflect the introduction of new high-technology products at Salomon and TaylorMade-adidas Golf. Group Apparel sales in the first nine months were virtually flat.

All brands again show positive sales performance

Sales for brand adidas in the third quarter were up 4 percent, which brought sales for the first nine months to Euro 3.7 billion, a 4 percent increase year-over-year. adidas brand Footwear sales increased by 8 percent in the first nine months to Euro 1.9 billion. adidas Apparel sales were slightly below the previous year’s level.

TaylorMade-adidas Golf increased net sales in the first nine months by 30 percent to Euro 359 million, which means that sales at the end of September have already exceeded the 1999 full year level. These figures show the continued success of the SuperSteel golf clubs as well as first contributions from the new Series 300(TM) drivers.

Salomon increased sales by 20 percent to reach Euro 333 million in the first nine months. Third-quarter sales growth was 15 percent against a strong comparative from the same period last year. Summer product categories such as inline skates and outdoor footwear showed strong growth year-to-date.

Asia top performer, solid growth in Europe, North America flat

Asia again delivered the highest regional growth rate with net sales increasing 33 percent to Euro 589 million for the first nine months, extending the growth pattern of the half-year. In Europe, sales grew 5 percent to Euro 2.3 billion. In North America, sales performance for the first nine months matched last year’s level at Euro 1.4 billion.

Gross margin maintains strength

The gross margin for the first nine months was 43.4 percent, which was achieved despite the impact of the strong US Dollar, maintaining the half-year level. This again exceeded management’s target range of 41 to 43 percent for the full year. The gross margin for the third quarter was up for the first time this year at 0.2 percentage points above last year’s level.

Operating expenses up in line with expectations

Operating expenses were up 12 percent in the first nine months. In the third quarter, this increase was 18 percent. The main drivers of the third- quarter rise were Euro 14 million for the Growth and Efficiency Program, Euro 25 million marketing spend for the Olympics, as well as continued investments in the sales and marketing infrastructure at Salomon and TaylorMade-adidas Golf and the ongoing expansion of adidas’ own retail activities.

The operating profit declined 14 percent to Euro 384 million for the first nine months compared to the previous year.

Income in line with expectations

Income before taxes reached Euro 326 million for the first nine months of the year. This represents a year-over-year decline of 15 percent.

The financial result showed an improvement compared to the prior year, mainly due to positive currency effects.

The tax rate rose by more than 2 percentage points year-over-year to 39.9 percent. At the same time, minority interests increased significantly, due to increased joint venture contributions.

These factors led to a 22 percent lower net income for the first nine months of Euro 177 million and earnings per share of Euro 3.91, in line with the previously stated earnings outlook.

Shareholders’ equity increased 28 percent year-over-year. This is the first time since the Salomon acquisition in 1997 that the shareholders’ equity ratio has again surpassed 20 percent of total assets.

Order backlogs up

At September 30, adidas order backlogs were up 9 percent over the same period last year. This increase represents the biggest improvement since 1998. Footwear backlogs rose strongly, up 17 percent. Apparel backlogs also improved, up 1 percent, and were positive for the first time in eight quarters. With Hardware backlogs also up 11 percent, the overall trend is positive.

Backlogs in Asia and Europe were up 43 percent and 6 percent respectively, both clearly continuing their growth trends. In North America, Footwear and Apparel backlogs also improved, although much of this improvement was due to currency effects.

Outlook

For 2000, Salomon and TaylorMade-adidas Golf are expected to achieve double-digit sales improvement as a result of new high-technology product introductions and increased sales efforts initiated with the Growth and Efficiency Program. This is significantly above adidas-Salomon’s original expectations and will compensate for the lower than expected performance of adidas in North America and the significant net negative currency effects and higher interest expenses. adidas-Salomon therefore confirms that it will meet its earnings forecast announced at the beginning of the year, of 20 percent below the previous year’s level.