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Letter from the CEO
Dear shareholders,
2019 marked a special year for adidas as we celebrated the 70th anniversary of the company and the completion of our modern workplace, ‘World of Sports’, our company headquarters. What our founder Adi Dassler started officially as a Franconian crafts business with 47 employees in 1949 is now a truly global brand and international company that has almost 60,000 employees and a presence on all continents.
As we aspire to be the best sports company in the world, we are immensely proud of our history and our roots in Germany. To this day, we live up to the philosophy of Adi Dassler, who always wanted to create the best product for the athlete. Numerous sporting highlights, such as the first world title for the German national football team in 1954, will remain forever connected with the 3-Stripes brand. Timeless products like the adidas Superstar have an established place in fashion.
It was an emotional moment for all employees, including myself, to celebrate our company’s birthday together with Adi Dassler’s daughter Siggi and other members of the Dassler family, our creative partner Pharrell Williams, tennis icon Stan Smith, football world champion Philipp Lahm, Olympic champions Laura Dahlmeier, Magdalena Neuner and Kristina Vogel, as well as Run DMC, who had a worldwide hit with ‘My adidas’.
In terms of business, top-line growth and another strong profitability improvement in 2019 put us in a position to complete our strategic cycle ‘Creating the New’ successfully. Although held back by supply chain shortages, we increased sales to € 23.6 billion, reflecting currency-neutral growth of 6% and nominal growth of 8%. Our gross margin climbed 20 basis points to 52%. Our operating margin improved 40 basis points to a level of 11.3%, the highest operating margin in the history of our company. Our net income from continuing operations again grew significantly faster than our top line, up 12% to a record € 1.9 billion.
Our strategy ‘Creating the New’ includes a strong commitment to returning cash to you, our shareholders, through both dividends and share buybacks. In 2019, we continued to deliver on this promise. We completed the second tranche of our current multi-year share buyback program, repurchasing 3.2 million shares for a consideration of € 815 million. Taking into account the dividend payment of € 664 million for the financial year 2018, which was paid out in May 2019, the total amount of cash the company returned to its shareholders in 2019 was again € 1.5 billion.
Our strategic growth drivers adidas North America, Greater China and E-commerce all contributed over-proportionally to our currency-neutral growth. E-com was our fastest-growing channel with a 34% increase year-over-year, confirming the strategic importance of building the perfect store for our consumers online with adidas.com and reebok.com. Greater China grew at a double-digit rate for the fifth year in a row, up 15%, as we capitalized on important brand and shopping moments such as Singles’ Day and an early Chinese New Year. adidas North America was impacted the most by our supply chain shortages, but still grew 7%. This means we continued to gain market share in the largest sporting goods market in the world.
Our top line was driven by growth in all market segments. Our home market Europe returned to growth with a 3% sales increase. Latin America grew 7%, Emerging Markets 13% and Russia/CIS 8%.
adidas’ commitment to sustainability started way before the topic gained global attention. For 20 years, we have been a change leader in our industry, as evidenced by our inclusion for the 20th time in the Dow Jones Sustainability Indices, a family of benchmarks evaluating the sustainability performance of the largest 2,500 companies listed in the Dow Jones Global Total Stock Market Index.
In terms of integrating sustainability in our business model, we produced a record more than eleven million pairs of shoes containing plastic waste collected from beaches and coastal regions in 2019, more than double the amount produced the year before. From 2024 onward, we are committed to using only recycled polyester. Our fight to end plastic waste is the best expression of our purpose that, through sport, we have the power to change lives. The increasing use of recycled materials is just one example of our sustainability activities. The spectrum ranges from waste prevention and new types of take-back programs for used products, to climate protection. This will contribute to our ultimate goal of climate neutrality in all our activities as well as our supply chain by 2050.
2020 is the last year of our five-year strategy cycle ‘Creating the New’. We have come a long way since we embarked on this journey at the beginning of 2016. We added almost € 7 billion to our top line, drove operating margin up nearly 500 basis points and increased net income by € 1.2 billion. Already today, adidas is a much better and stronger company than ever before. But we will not stop here. Like every athlete, we train and work hard to up our game season after season, year after year. For 2020, we are targeting a currency-neutral sales increase of between 6% and 8%. By further leveraging our scalable operating model, net income is expected to once again grow at a double-digit rate to a level of more than € 2.1 billion. Operating margin is expected to come in between 11.5% and 11.8%. These figures will enable us to fully achieve our 2020 financial ambition.
The company’s outlook for 2020 as outlined in this report is subject to change depending on the further developments related to the coronavirus outbreak.
In closing
Together with all adidas employees, I am very much looking forward to 2020. It will be an exciting year for our company. We will continue on our international growth track, accelerate our digital transformation and make our product range at adidas and Reebok even more sustainable. Through high-performing athletes, innovative products and inspiring marketing campaigns, adidas will take center-stage at the two major sport events of the year, the UEFA EURO 2020 and the Tokyo Olympics, and other important moments in sport and culture. We will finish our ‘Creating the New’ strategy with excellence before presenting our new strategy beyond 2020 in November. We are operating in an attractive industry and are well positioned for the future. Success is in our own hands.
