Adidas Raises Profitability Target After Strong 2017

In reassuring news for investors, Adidas AG said revenue growth accelerated in the fourth quarter, fueled by Greater China and North America, and it has upgraded its profitability target for 2020 in light of its strong performance last year.

The sporting goods maker reported on Wednesday that sales rose 19 percent on a currency-neutral basis to 5.05 billion euros ($6.24 billion), following a 12 percent increase in the third quarter. The maker of Stan Smith and Superstar sneakers expects revenues to rise 10 percent, when adjusted for currency swings, in 2018.

Gross margin, a key indicator of profitability, was up 220 basis points to 51.7 percent in the fourth quarter, mostly due to a better pricing and channel mix. Operating profit jumped to 132 million euros during the period, from 41 million euros during the prior-year period.

The company logged a negative one-time tax impact of 76 million euros as a consequence of U.S. tax reform. As a result, Adidas posted a net loss of 41 million euros in the fourth quarter, compared with a loss of 10 million euros a year earlier.

“We made great progress toward achieving our mission to be the best sports company in the world,” said Kasper Rorsted, CEO of Adidas, noting the contribution of e-commerce, which posted a 57 percent revenue increase in 2017.

The Herzogenaurach, Germany-based firm now expects net income from continuing operations to grow by an average of 22 percent to 24 percent per year between 2015 and 2020, versus a previous target of 20 percent to 22 percent, having increased by 25.2 percent in 2017 as a whole.

Adidas expects to reach an operating margin of up to 11.5 percent by 2020, versus 11 percent previously. It has maintained its target for currency-neutral revenues to grow between 10 percent and 12 percent on average during the five-year period.

The company said on Tuesday it plans to buy back up to 3 billion euros of its shares by 2021. The executive and supervisory boards will recommend paying a dividend of 2.6 euros for the year, up 30 percent compared with 2016.

Effective Jan. 1, Adidas has consolidated its former four Asia-Pacific markets — Greater China, Japan, South Korea and Southeast Asia-Pacific — into a single operating segment named Asia-Pacific.

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