Adidas Ag Ord

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining the Adidas AG Q2 2023 conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may do so by pressing star and 1. Press the star key followed by 0 for operator assistance. It is my pleasure, and I would now like to turn the conference over to Sebastian Steffen, Head of Investor Relations. Please go ahead, sir.

Thanks very much, Francie, and hello, everyone. Good afternoon, good evening, good morning, wherever you're joining us today for our Q2 2023 results conference call. Our presenters today are our CEO, Bjorn Golden, and Tom Ohlmeier, our CFO. As always, Bjorn will kick it off in a second with our prepared remarks and we'll walk you through our Q2 results and our outlook together with Harm. As always also, I would like to ask you that during the Q&A session, you limit your initial questions to two in order to allow as many people as possible to ask their questions. Thanks very much in advance for sticking to that rule. And now, without any further ado, over to you, Bjorn.

Thanks. We all know that they will not stick to the two questions, but we will try. As you can see on the screen, we start with the Women's World Cup. I hope you all follow it. It's been a great tournament so far. Unfortunately for us and for most people in the room, Germany lost. That means that we will only have five teams going to the next round. But still, I think starting with 10 and the way we look, extremely proud of how the brand has showed up. As you can see, we had 10 out of the 30 teams starting in three stripes, and we had more than 120 players contracted, and of course, many, many more playing in our shoes. And I think it's fair to say with all the reports that I've seen, 1.6 million spectators in the stadium, and television ratings very high everywhere, this is the real breakthrough for women's football. And of course, that's what they deserve, and also very, very important for us in the future. What is also new is that not only do we participate, but we also made different campaigns with different players and put the media money. Here you see Oberdorf, Fowler, Russell, English, Australian and German players that we have used in campaigns together and also individually. And then again, in our strategy to be more local in the US, our US subsidiary has done a campaign with Trinity Rodman, one of the American players. who also happened to be the daughter of a famous Dennis Rodman who used to play in the Chicago Bulls basketball team and was one of the great personalities. So again, just to sum up, women's soccer is coming. We play a major part. Let's see how the tournament ends. And very, very excited to see the development. Going over to business, I think you have probably seen all the numbers already, but we'll repeat them quickly. It was a quarter where I said or we said we think we were happy with the development. We're starting with the biggest problem, that's North America. As you can see, minus 16 in the quarter, minus 18 for the first half. Needless to say, you know this, there is still a lot of inventory in the market, not only ours, but also ours. And the problem is, of course, some of that inventory is not great. That means that the sell-through is slow and we have to work through that for a while. And that because of that, also the discounts are high in general and also of our products. The good thing is that the team in America has reacted and has had what we call a conservative selling strategy, not pushing in more merchandise, but trying to do it very dedicated. And of course, we have some very, very good bestsellers that we are now starting to scale up, which means that we hope we can turn it around to be something positive. And of course, that will create more brand heat and we can get into 24 looking better. We'll get back to that in a second. What is very positive in the U.S. is, of course, this. I mean, Messi deciding to go to Miami, you know, helped by David Beckham, who is one of our, what should I say, very, very close friends, has been fantastic. He scored now five goals in three games. And there's a real boom after Miami products and especially then, of course, Messi products. When you look at the screen, you see also quite some, I would say, very innovative marketing that our team turned around and did in a very, very short time. I'm very, very proud of what they have done. Some critique that all the products are sold out, but I think you understand that the explosion in the demand, you cannot source 10,000 of your other products within days. So that will be, what should I say, higher demand and supply for a while. But sometimes that's good, and I'm sure we will please the demand as the next weeks and months passes. This has also caused us to renew the contract with Leo. There was a question where he would go, and it took a little bit of time after the World Cup to get it to the table. But as you can see here, we have signed with him, and of course, he will be part of our family for a long, long time. What is also important in the U.S. is women's basketball. As you can see in the middle, the exhibit select is a dedicated shoe only for her. using that shoe with all our, what should I say, star players, as you can see on the left side. And we are continuing to invest in more players because we really believe in the women's NBA. And as a part of more focus on women's sports, this is extremely important for us in the American market. Changing to men's basketball, We know we have not performed the way you would expect and also the way we should. But when you look at the roster, we have four signature players, Harden, Mitchell, Young and Edwards, which we know we can do and have to do a better job with. We have added Deke and Shefino as two young guns. And then when we take that together with the launch of Pharaoh God, which you see both on the performance side and on the lifestyle side, which we talked about a couple of weeks ago, These products starting to flow into the market in the second half being scaled in 24. We feel we are in a better shape in this business than we've been for a long time. And remember the opening of the LA office which happened in February. That is not the productive office yet because the results of their work is of course not going to be visible until 24. So a lot of activities going on between global and North American business. to strengthen our business, because as you know, it's a very important market for us in the industry. And when you look at the numbers, of course, we're not happy with the performance, but again, in a very, very difficult market where many are struggling. If you then go to Europe or Europe EMEA, Europe, Middle East and Africa, Flattish down one in Q1, plus two second half. Again, here, numbers that we're not happy with. We should be stronger in the home market. Many reasons for this. But I think you will see next year that we will start to build market share again by chasing more of the commercial business than we've done. A couple of important investments. We announced together with Manu that we have extended their contract long term. Very, very important for us to secure that right now. You know, Manchester is in talks also of changing owners. And we and the club felt it was very important to get this assured. Many numbers floating around. I can only say, like I always say, the more we pay, the better it is. The contract has, you know, a retailer, which is fixed. It has royalties for how much we sell and bonuses for how they perform. So that means the more we pay, the better they have performed and the more we have sold. So let's hope that that will get a high, high sum. A couple of news in Europe in soccer. We signed AS Rome, one of the most traditional and of course with the most unique color in the league. Very proud of that. We have gotten the traditional club, Nottingham First, back again in the Premier League. And then we have again signed Maccabi Haifi, which is the best club in that country. So we continue to invest in football and it is, of course, one of our most important sports going forward. We talked also about Indian cricket. Again, India being probably the fastest growing market in our industry going forward and cricket being the major vehicle. It was then clear for us, although it was not part of the global strategy, that when we got the chance, we would invest in the national team. And as you can see, they're already starting playing with our performance logo on three stripes. And of course, they won and the whole market very excited. We think this will be a game changer in the Indian market. Continuing into a very important market that we talked a lot about, Greater China, plus 16. Remember, we said last quarter that our sell-in was down, but sell-out was double-digit out. Now both sell-in and sell-out is double-digit up, and that's why the plus 16 was in the quarter, but only plus one for the first half. And we see the energy in China starting to pay out. And as I said, double-digit sell-throughs, now two quarters in a row, confirms that. What is also new, you know, we for a long time, for many reasons, have not been able to activate any major celebrities. We did last week activate Ma Xichun, which is one of the most famous actors in China. She's one of the winners of the so-called Golden Horse Award, which is the same as their Oscar. And she's been now both in social media and other media promoting our product, and it's worked very well. So hopefully a breakthrough that we can get back again and use the ambassadors the way we can do optimal and not be so afraid of the impact. Cool thing, yesterday morning on the film set of a new movie, before they started shooting, she showed up, of course, in the samba, as you can see in black-white, and in Adidas track jacket. So she's also using our product in the spare time and very, very positive development for us. We also sent our world champions, the Argentina national team and Messi to China. Unbelievable interest, crazy amount of people showing up. Good for the brand, good for Argentina, good for Messi. So football, also global symbols, very important in China. We are investing more and more in sports, even in athletics. I hear an event that was actually done on the street, 20,000 people watching Chinese athletes doing different jump competition. And it shows that the interest in sports in China is growing and that China is going back again to more normal times. And for us, we clearly need to invest even more in sports than we have done before. Another activity, mobile skate park. Our sales and marketing teams traveling around in China doing different activities for the young generation to connect with the street culture. And skate is one of the things that we see growing. Skate and music together makes great atmosphere. And as you can see, a lot of people and a lot of, I would say, positive energy around these kind of events. On the totally other side, outdoor, we have talked about the outdoor boom globally. This is also happening in China. Terex actually started a series of ultra trail runs, I think 11 of them. And as you can see, 10,000 of Chinese then doing these kind of events. And again, confirming the dedication to sports and also to outdoor activities. And good to see that we can play that in China on many categories. What is also extremely positive is that the first time in three years, there was a trade meeting again. Our sales organization had more than 2,000 customers at an event showing the collections for 24. And again, I think it's three years ago that was done physically last time. It was all digital. And as you can see, a great atmosphere. And again, things starting to normalize in the way we used to do our business. Very important for us, the investment in the new distribution center that we opened in Suzhou. Highly technical, automated, and of course, a major vehicle for us to do the growth that we plan and hope to have in the Chinese market. So to summarize, difficult time in China. We see the improvements now two quarters in a row. And again, very proud of what the local team is doing, because again, China is more local than it's been for a long, long, long time. If you then go to Latam, strong growth again, plus 30, plus 39 for the first half. Same here, a lot of activities, of course, around Argentina team. The Argentinian market has been very strong for us and, of course, helped by the success of the national team and, of course, also Messi. But also on the women's football side, we had four of the teams from the region actually in the World Cup. And again, I don't need to say that I think, you know, the design team did a great job on some of this design. And the Colombian team, you know, in my opinion, looked the best. Also qualified for the next round. I think they play Jamaica. So we have two of our coolest teams playing each other in the next round. And at least one of them will then go through. And again, women's football, slow start in Latam, but also they're growing. And as football crazy the region is, this is very, very good for us. Another small thing, a lot of local events and local products. On the left side, you see some of the SMUs that have been made locally for the market. And then on the right side, you see some of the, what should I say, artists, both from the rap side and dance and music side that the local team are using. And again, I've said it many, many times, we need to be more local in our marketing. And I think the team in Latam, you see also in the numbers have done a terrific job on that. Even on retail, trying out new concepts. Here you see actually a women's only shop-in-shop concept that they have developed. She being a major focus for us globally, but especially now in LATAM. And of course, as flexible as we are, we let some of the markets take the lead on that. And the first indication, very positive. Moving to the last region, Asia Pacific or APAC, 7% up for the quarter. 11 for the first half. We are going to do some changes here. Today, this region is run out of a headquarter in Singapore. It basically has three independent markets, Japan, South Korea, Thailand, and then it has two clusters of markets, Southeast Asia, as you can see, and then Pacific, which is New Zealand and Australia. Going forward, we are going to have Japan and South Korea as standalone markets going straight into headquarters. Why? Because both of these markets are very, very special. They're big markets, they're very trendy markets, and they're markets that set trends. And that's why we feel that having them in a region together with, I would say, other markets with different directions doesn't make any sense. So they will be tied into the global machine and be handled separately as a region. The other countries and clusters will then go to the emerging markets, very successful leadership that will then bundle them and find synergies. And they are sitting in a headquarter now in Dubai, but I'm sure they will have some kind of hub going forward also in Singapore. So a change that is strategic. And we think that both Korea and Japan will see an immediate impact of that when they can be more independent and be quicker to market with what they actually need. we will also have you know our development center the creative center in japan working then very specifically for the japanese market so to sum it up both second quarter and first half were basically flat and this in our opinion quite better than what we had expected a while ago you would immediately ask so what would the impact be excluding gc And as you can see on the bottom, not big because the growth was flattish with Yeezy and excluding Yeezy, we were down minus one. And if you look at the markets, no big differences between, you know, with and without, except for North America, which then excluding Yeezy was down minus 20 instead of 16. The rest of the impact, you know, between one and two percent. So not that big of a difference, to be honest, that you might have expected. If you then look at the channels, wholesale minus 10. And remember, we had an order book that was even worse than this. So, of course, we have picked up some. But we have said that we need to put a lot more effort on wholesale. But, of course, for a while, the numbers will be negative because that's what, you know, the results of what we did last year is or was. Own retail, very strong, up 19%. We have only closed net 12 stores since last year, which means that we have double-digit like-for-like growth all over the world and actually a very strong development in our brick and mortar stores. Ecom up 14%. Of course, this is impacted by Yeezy. Remember, Yeezy was only sold in Ecom in the quarter. and you will see later what impact that had. So reported wholesale at 56% DTCS 44, and the difference between e-comm and all retail only 2% by 23 and 21%. If you then look at the business without GC, wholesale then down only seven, all retail the same of course, because we didn't have any sales in all retail of GC, and then e-comm goes from plus to minus one. And that is then the impact that Yeezy had, which gives you 61% wholesale, 39 B2C. And again, I think this mix is also similar to what we will have going forward after Yeezy. And as you can see on Retail22 and Ecom at 17. The positive thing of Ecom is that also without Yeezy, we have been much better in selling full price and not discounted. And I think we have a gross margin improvement of around 2% also in the e-commerce business without GC. So there is an improvement by taking out discount and using it also as a full price brand building channel, which is going to be very important in the future. If you then look at the new stores, although we talk a lot about wholesale, we will, of course, continue our retail business. We are experimenting with new retail concepts. As you can see here, open a flagship in Sydney and also what we will call a big home of sports store in South Africa here in Durban. We currently have around 1,940 stores in the company divided between what you say concept stores and factory outlet value stores. And as I said, the change in number of stores only minus 12 in the last 12 months. So basically the same amount of stores and the same size in square meters. And again, very impressed what the retail teams have done. And I think when you look at the numbers, when we fill the stores with the right merchandise, you also see good numbers, which is a good indicator of what could happen if we get better distribution. So then to the division footwear up one, Apparel minus three, you know that the power market is, I would say, highly inventoried in general. And you see that also here. And then maybe a positive surprise that accessories is up 8%. This quote is mainly from the football business, balls and other accessories. So a positive development. And that gives you then 58% footwear, 34% apparel, and 8% accessories. And again, always say that footwear in a company like ours must be at least 50%, and 58% is very, very healthy. If you then look at the different categories and performance, performance generally was up. And you see here football, especially sports, which includes the smaller sport, for example, tennis, and U.S. sports, which is what we do for the American market, all up. And then running training, outdoor and golf, slightly down, all in the low single digits. Explanation is easy. If you take North America out, you will see that everything is up except for outdoor, which is slightly down by 1% or 2% globally in a business that, of course, was growing very quickly before. So the only difference is the general downturn in the American market and takes some of the performance categories down, but in the rest of the world, very positive. Soccer, of course, the DNA of the brand. Many of our teams are doing well. You probably know this. Very proud that Mexico won the Gold Cup and that Italy, which is new in our portfolio, actually won the under-19 European Championship, which shows that they have a talented generation coming up. We have launched the home jerseys for our four major teams in Europe. Very traditional, as you would expect, but then we've been much, much more innovative and, I would say... much more creative on the way jersey. And this going forward is going to be important. We will be more, what should I say, local in our designs and we will be more tied to the club and not try to do the same design for all the clubs. And as you can see here, it's pretty different than what we have done before and the reaction has been very, very good. Football boots, again, very good reaction to both Crazy Fast and Crazy Light. We have a very, very good product. And as I've said, the product for 24 will be even better. So very happy with that. Running, you know, the development the last two years on the real racing side, very good. New launches of both Adizero Boston and Adios. And again, these shoes are winning marathons every week. Alberto, our running guy, has built a product and a sports market portfolio that works. But now we need to work on distribution and we will start to hire people again to go out in running specialty. The brand left that part for a while and wanted to serve that digitally. But you will now start to see us be much more active in running communities again and also have sales reps servicing running specialty. Track and field, very, very important as the core in the Olympics and the core of all sports. We, of course, have to invest more again to get back to more athletes and more federation. That takes some time, but the pipeline is already starting to fill up. Many, many good athletes, especially on the female side, also in what we call new markets like India. And we will look good in Paris, and we will continue then to pick up both athletes and federation as we go forward, because this is a place where Adi should dominate. A new launch in the quarter was Adidas Switch, probably the most comfortable running shoe in the market, just out there. So if you want a comfortable shoe, then please try it. At least for me, it's the best comfortable shoe I've had. Maybe not the running shoe for the racer, but for those who also are normal, this is the shoe. So try it. Training, a category that is very interesting and where we are starting to invest again. We partnered with Les Mills and globally had a series of events. The last one in the right corner was last week in Los Angeles, where I think more than 10,000 people were doing activities with us and Les Mills. Again, we have the product, a lot of innovative product, both for her and him, but we've not been good in distribution. And we believe that this is one of the avenues where we can get growth with the normal sports stores all around the world. Outdoor, talked a lot about it. As you can see, only flattish development, but of course, we had great growth last year. Terex, as an innovation outdoor brand, won four ESCO awards, so very proud of that. That means that the product is right. And now we need to also there work on distribution and get it placed more in the right wholesale environment. Talking about outdoor enterics, you know, our female ambassador, Michaela Schifrin, won the ESPUI award for the best female athlete. You know, this is the award that the American ESPN is giving out. And we also won with Patrick Mahomes the men's award. So both the best female and the best male athlete was Adidas award. So very, very, very, very, very proud of that. Talked about golf, important, boomed during COVID, slowed down, stagnated a little bit afterwards. We have Rose Tsang who went straight from being an amateur to win her first professional tournament. And as I said many times, golf is especially in the U.S. a very important category for us, and we will continue to invest both on the female and male side. A sport we don't talk a lot about, volleyball, but a big sport, especially in the U.S. Here you can see that the Nations League, which is kind of the World Cup for national teams, we were in the final with both teams, China and Turkey, and Turkey actually won. But that means, again, here, both on apparel and on footwear, a category that we will also invest more in, together with investment in more smaller sports to be the leaders that we used to be. Quickly over to lifestyle. For the first time, I think in many quarters, the original side was positive. Also, when you take Yeezy out, it was kind of flattish, I think down only 1% or 2%. So a positive development on that side. The sportswear side, which is then mainly the product that is a little bit lower priced in price, still down, but the minus becoming less and less. Activities here was, for example, in the Paris Fashion Week, where we both had a collab fashion show with Wales Bonner. We had, you know, with our friend Pharrell, a samba cafe with product that he had co-designed with us. And then we used actually our marathon runners, as you see on the right side, and also long distance runners as models. And a very cool, I would say, atmosphere that we created at the Paris Fashion Week. And he will see us more in this environment going forward. Needless to say, with Farrell actually working out of Paris, we hope we can do a lot of cool stuff with him going forward. Quickly, Yeezy, you know we had a very successful first drop. Harm won't get more into it, but we sold around 400 million in Q2, which is basically the same as we did a year ago. The whole launch worked very well. We are currently, as we speak, in a second drop. You see the 10 moles that we have offered this week. And we will have smaller drops going forward too. But as we said from the beginning, we will not report this or take any of this revenue into account until we have it in the box. We've been very careful with this and we'll continue with that. And I hope you agree with that strategy because six months ago, people said we should burn destroy the product. And now we have, you know, found ways of selling it and we can use, you know, part of that revenue to actually do something good in society. And instead of writing off the inventory, we can actually create cash. I'm very proud how the team has worked on that so far. Quick look on the product side, I've said this many times, the tariff trend is continuing and we're scaling it up. The number of pairs in the market is still small, but the consumer who buys it is absolutely the right trendsetter. So we're scaling that up with bigger volumes every month. And then we also have the campus that is being highly in demand and that is also picking up. When you combine that with what we call Addicolor, which is our three-stripe original apparel, very colorful, very clearly three-foil and three-stripe branded, we think this is going to trend very, very heavily going forward. And then going into next year, you will see that we will add the 70s running, which are the running silhouettes that mirrors what we're doing on Terrace. And with our archive and the models we have there, we think that this is spot on to create brand heat again. for both our logos, which is the performance logo on the left side. And then of course, the three fold on the right side. So again, a quarter that developed as we had hoped. The easy thing was something we were nervous about that worked. And we've seen, you know, our inventories go in the right direction and we feel that the business is slowly moving in the right direction in a very difficult and of course, very volatile and uncertain environment. So with that, I hand over to Harm to take you through the details of the financials.