Adidas Ag Ord

Hello everyone, good evening, good afternoon, good morning, wherever you're joining us today and welcome to our Q3 2023 results conference call. We know it's a pretty busy reporting today, so we definitely appreciate you joining our call today. Our presenters on the call will be our CEO Björn Golden and our CFO Harm Ohlmeier. As always, I would like to ask you that during the Q&A session, you limit your initial questions to two. to allow as many people as possible to ask their questions. And with that, and without any further ado, over to you, Bjorn.

Yeah, thanks, and hello also to everybody from me. As always, we will take you through a lot of pictures and some numbers, both Harm and myself, to tell you what we are working on and what is going on. I'll start with some good news. You know, there's been a lot of critique and negativity around Audi that we're not a good company and a lot of critique on different things. Therefore, I'm actually very proud to see the Forbes research that says that we are, you know, one of the 12 best companies to work for and actually the best one in the sports industry. And I think that I've always said that Audi is a great company and being on the inside of it, I can confirm it. And it's also cool to see that external people say the same thing. We have talked a lot about, you know, the soft values. And also a couple of weeks ago, we had what we call a global week of inclusion. You know, where all minority groups and all groups in general were able to, you know, present their views and we discussed on how we should behave with each other. And in a global company, this is extremely important and actually very interesting to be part of it and proud of the outcome. Also extremely proud to look what our team in Ukraine is doing under very difficult circumstances. The stores are open, they run the business, and they're also now starting again the running club. And as you know, sports is always important, and the spirit of our people in Ukraine is just fantastic. Unfortunately, over the last months, we have another conflict in our world, which will impact us, I think, for a while. We have about 620 people in Israel in the offices and the stores. Good is that no one of them are hurt, but many of them are now being called into the army. What we have done is, of course, to assure all the safety of all our people. And then we have started donating for other people and also in the Gaza area. through SOS Kinderdorfer. And we will continue to do that, of course, to help the civilians in the area in this terrible conflict. When you then look at the business, I think it's fair to say that we are trending in the right direction and a little bit better than what we have told you the last nine months. And by that, the financial performance, I think both top and bottom line is a little bit better than expected. I think the energy in the team and especially in the decision making has improved. So we are becoming faster and therefore, in my opinion, better. We are getting extremely good feedback from the retailers for fall winter 24. And you have to remember that fall winter 24 is the first go to market process. That is the way we would like it to be. And the first time we have gotten together as a team, treating the retail partners the way we want with full set of samples, showrooms, and also I will say with a service degree when it gets to SMUs and everything. And I'm pretty certain that we will have a very good order book building for the second half of 24. The sell-through of our new product is improving. I'm sure you see that also in the stores that you are. And of course, for us, it's about getting enough of the new good inventory through the slow moving inventory. And as you probably have seen already, the great thing is that our inventory is heavily down 23%. And we feel that our inventory at the year end will be under control with the exception of the US. I also think I said in my quote that retail inventory is improving and therefore You know, it should be during the first half an improvement in the total sellout. And, of course, then also building then the order book for the second half. Inventory level in the U.S. in general is still an issue. I think it lacks about six months for the rest of the world. But very proud of what Harm and the team in finance and also what the operational team has done. And you will see the details of that later. If we then get to the top line, North America was down nine, 15 for the year. So you see that at least a quarter has improved. We still have issues in our American business that we have to work through. We had a management change. Rupert, who's been the president for about two years and 11 years with the company, resigned and ended his great career with Audi end of October. As an interim solution, our board member, Arthur, has taken over. And then the idea is that during Q1, we will announce a new permanent president. And it should not be a surprise that we are looking for an American citizen. The issues in the market hasn't really changed. There are still elevated inventory, both in the trade and also in our own books. And especially in all the successful outlet businesses, is then almost only clearance business, which has a drag on both sales and on margin. The good thing is that our full-price concept stores are all comping like for like up and with a higher margin. So you clearly see that the D2C business is improving where we have the right merchandise. We do continue to see high discounts, and we will, of course, continue to be very conservative in the way we sell product in for the next six months. Told you about this before, but we need to be more American. That's why the office that we open in LA in Q1 is so important. It will focus on the American street culture, also connected to basketball, and all of American partnerships when it gets to CoLab and street culture-relevant CoLabs will then be managed out of LA. And I think this is a game-changing thing for us. There is no results of this yet because this was open in Q1, so you will not see the impact of this in product until I would say Q2, Q3 next year. Stores, I mean, I've been in New York every month and very happy to see the development of all our stores in New York. Here you see some of them. And as the good inventory has floated in, the like for like has continued to improve. And in the stores you see here, they're all up double digit like for like. And it clearly shows that the consumer is reacting very positively, even in the U.S., to our new merchandise. Messi's entrance to the U.S. we talked about many times. What he has done in Miami is unbelievable. They didn't qualify for the playoffs, but they won the League Cup. And when you see his pink jersey, it's the most sold jersey in the U.S., I think, ever. And, of course, it has had an impact on what we call also soccer street course in the U.S. I'm extremely happy that he went there instead of going somewhere else. Also cool in the U.S., we were part of the biggest women event ever, 93,000 people or 92,000 people watching our Nebraska Lincoln women's team in volleyball playing. And again, one of the small pieces in the focus on women's sports that I think is going to be very important also going forward. American football, extremely important for the U.S. market. Patrick Mahomes probably being, you know, should I say not only the best, but the coolest player in the NFL. He was also in Frankfurt last week. We just launched his collection, his training shoe, and we will do more products with him, branded with him, And I'm very, very, very sure that we can market him as a superstar and also get much more commercial success of him, especially in the U.S. We have also started to sign college athletes, you know, legally with the NIL agreement that's now allowed. And also here in American football, we started to invest in that. And it's clear to say that both college and high school sports for us, you know, connecting to the sports youth culture in the U.S. is going to be important. And here you see a couple of examples of players that we have just signed. Changing into EMEA, Europe, Middle East, and Africa, plus two, same in the quarter as for the year. So basically the same business. Also here, you know, investing in things that are a little bit different. We extended the Kings League. If you follow it, you know, a very cool league for the GNC coming out of Spain. They will expand this concept into other markets. And it's soccer done in a different way. And the same thing with the battle of the socials. We do try to connect with our traditional sports also into the new generation and into the social media. And they're doing quite some stuff outside, you know, sponsoring the big teams and the big players. And these are two examples of it. We talked about India and cricket. You know, we signed at the beginning of the year. We have sold more than half a million jerseys of the national team. Very, very unique, I think, for the sport and also very cool for us. The team won the Asia Cup and is currently playing the World Cup. I think the final is on the 19th, and that will give another boost to a business that I've said many times. I think India will be the fastest growing market for us, and that's why it's cool to see that that investment has worked very well. Another market that people talk a lot about, Saudi Arabia. We just opened the office. Haram was there to open it. And it's clearly that Saudi Arabia will play a bigger role in sports. We know that they are trying to get events. We know that the league is attracting players. And I'll be very surprised if you don't see Saudi Arabia investing even more into sports. And that is for us natural also to open our office there, which we now have. If you then move into a big, big, big important market, Greater China, we were up 6% for the quarter. 3% for the year. You remember we started the year being down double digit, then the business has improved. All of us, all board members have been to China, not only one time, but more times. We have talked to the trade, we have talked to the political, to the government, we have talked to the different sports federations, and been very active to understand what we can do and not do, and happy to report that the local focus The energy of the team is starting to improve the business. You see the growth numbers are not that great, but if you take the GC business out, it's already double-digit. And all the D2C business where we really have the best of the best are up double-digit. And as I've said many, many times, I'm a big believer of the market, and I'm really, really, what should I say, proud of the energy of the team and feel that we are in a very, very good way. We also took our basketball stars to China. We started our grassroots program again, and we know that basketball still is the sport that has the most street-relevant culture, so we will continue to do that. And we will also start to build basketball products for a price level that will compete with the local brands because we clearly see that there is two different markets. It's the market at the top where we compete now, but there is also commercial market, especially the local brands have established price points that we also need to enter, for example, in basketball, but also in running. Talking to running and other sports for the first time, I think in a long time, we have invested then in many, many sports from track and field to volleyball, to tennis, And the team is signing more and more athletes so that even if the market is small now, we will be a real sports brand in China because we think that's very important for the future. And we will over invest in this in the next couple of months and also in years to come. A cool thing, you know, the break dance thing, which is also going to be an Olympic sports. That's where we already have a big, what should I say, impact. And needless to say, when you see three stripes, when you see here, I think it's superstar, you clearly see that we fit into that and have already, I would say, good connection to that generation in that market. To service the growth that we foresee in China, we just opened also the most modern and the biggest distribution center, Harmos, there. And again, it's a commitment to the market with the best technology and the most automated wearers that we have. And yeah, I'm sure Harm will say something about that later. Going into LATAM, 13% for the quarter, 29 for the year. So the growth was slower in this quarter. As you probably know, LATAM, many of the markets are in a political situation with elections. There's a lot of inflation and uncertainty. So maybe a little bit more careful growth, but as you can see, still double-digit. And we have the feeling that the team with investments in sport, but also the energy they have on the activations are doing a great job. Here you see we're sponsoring running events in all the markets. And we are opening new and modern stores in all the major cities. And the D2C business there has developed very, very good. And again, I'm sure that Latam will still be a growing market for us. Very excited about Asia-Pacific, up seven for the quarter, ten for the year. You know that both Korea and Japan are very trend-setting markets, of course, very lifestyle-driven. And here we also clearly see that the success of our lifestyle business is having a big impact. And when you see the reaction to both the original campaign that we started in September, but also to the terrorist trend and all the trends that we have generated, our store is doing extremely well. especially actually in Korea and Japan. So when you look at all that, you see that the Q3 growth was then 1% and we are flattish for the year. If we then take a quick look how it looks compared to the non-GC business, you see that North America was 9% up in total. If you take EC out, 9% down for the quarter. If you take Yeezy out, then with minus 10, so a small impact. EMEA, actually no impact, plus 2, plus 2. Greater China, you know, plus 6 with Yeezy, plus 10 without. So you clearly see that the impact of Yeezy was less, and the underlying business is stronger. LATAM, almost sladdish. And then Asia Pacific, a little bit the other way, where actually the business was then helped by the Yeezy business with plus 7 to plus 5. All in all, as I said, our growth at 1%. If you exclude Yeezy, the underlying business was then up 2%. If you look at the channels, wholesale business down 2%. You have to remember that we started the quarter with an order book that was down more than 20%. I've always said that the second half order book was very, very weak because of all the inventory and because the way the retailer was reacting to RDNO a year ago. So you can see we've been able to chase the business and then deliver into the trade much more product that was not on order from the pre-orders, but actually then product that we accelerated and scaled, especially on the lifestyle area, where they were able then to sell through and, of course, then also make money with us. On retail, brick and mortar of 10. Number of stores, if you take China and Russia out, flattish. That means that most of this is like-for-like growth. Very happy to see that our concept stores, meaning the full-price stores, are actually up between 10% and 15% everywhere. And then the factory outlets are, of course, weaker because, as we know, they are currently selling almost only clearance. But the most important thing is that our own retail full-price concept stores are up double-digit. Ecom up one, same thing here. We have said that it's not to optimize or maximize top line. It is now to balance the brand side of it together with commercial success. So the share of full price here has increased substantially. We're protecting our franchises and the new management of digital clearly has the view of being more branded and value creation than maximizing top line. That's why we're actually very happy with that number under the current circumstances. That gives you the current split, 63% wholesale, 37% D2C. And as you can see, brick and mortar and e-comm is basically 50-50. Talking about the digital, we had a change in the management. So Scott left us as the chief digital officer, and we welcome Tobias again. He has a big history with us, but also with other digital companies, and was a natural replacement when Scott decided to go. I think Tobias has been here for a month and he's already had a big impact on, you know, looking at the strategy, making sure that we build plans based on the new Audi and the new environment in digital. And then, of course, make sure that we really are pushing the brand side and not only the commercial side. If you look at divisions, very important for us that footwear is still growing here at 6%. Apparel we said was going to be down with all the inventory in the market, down 6%. And then accessories for the quarter, a little bit worse than flattening. Remember last quarter it was up because of all the football accessories. So I would say in line with our expectations. Footwear being almost 60% of the business, apparel 36%, and accessories only 6%. I think a very healthy split. You could argue that accessories which should be high margin could be bigger. But as long as footwear is above 50%, I'm very happy. Performance, basically a flattish business. Football being up slightly, running flat, training down very, very slightly, outdoor strongly up. Golf actually down now. We clearly see a stagnating side on the golf side after a series of quarters with positive numbers. Especially sports down, but that has more to do with deliveries into the market and then US sports up, especially a very healthy business in American football. which is kind of cool for us that we in America with three stripes can actually have high market share in American football that tells us that if we build the right product for America, we can actually also be good in the US sports. On the performance side, don't need to talk a lot about it, but very proud of Women's World Cup, not only winning with Spain the whole tournament, but also taking three of the four individual prizes with our players. And again, a clear commitment from us to women's football. And I think the tournament was a great, great win for women's football in general. And look forward to that investment to continue. Some cool things we're doing on women's football, not only building now shoes for her with specific models, but also starting to use collab partners. You see that one of the jerseys that Arsenal is playing is actually a collab with Stella McCartney. And you will continue to see us actually doing different branding on certain teams to make it more street relevant and build brand heat also through the combination of, I would say, partners, originals, and performance. Cool collab on the soccer football side. Here an example of what we just did with Bugatti. And again, same thing here on footwear. We will do more co-lab product to create heat, do more limited edition and create excitement in football. And we have all the vehicles to do that. Welcome home to Newcastle. You know, after a while, they're coming back to three stripes, you know, with new ownership and very, very high ambition. This is a great fit. So look forward to that. Ballon d'Or, almost as usual, Messi wants his eight. And then I think the future, Jude, you know, won the Copa Trophy, which is the Young Players Award. And again, needless to say, he's probably the superstar of the future and, of course, playing in our product. A lot of critique on us that we're not having enough innovation. I think that is not true. And I think, you know, the Pro Evo shoe here from Marizero is a good example, the lightest shoe in the market, the best performing shoe in the market. setting also the world record, you know, we did just here in Berlin, almost two minutes better than the previous one, but also in other, what should I say, records, if it's records on tracks or it's records in markets, this year has been unbelievable. And it shows that we can bring innovation very, very quickly to the market if necessary. I'm very proud of that. Then in general, In running, we are investing a lot of money into events and to athletes to build credibility. We know we still have a long way to go to actually be back again where our leaders belong. But we have the credibility now by winning races, arranging races, and having the best performances. So now the job is, of course, to build credibility also into the commercial area, and that's what we're going to do in the future. Same thing on track and field. Very important for us to be in the most, what should I say, credible sport. In Budapest, a lot of our athletes did a great job and were very visible with the footwear. Going forward, you will see a sign, again, more federation to also be visible on the apparel side. And again, as I said many times, we will invest more and more money also into the smaller sports. Same thing on outdoor. You know, I think with the Agravix Speed Ultra, we have the most innovative trail running shoe. And I hear the same thing, winning a lot of events, taking part in many events, and showing innovation. as a big part of an investment of what we're doing in Terex. Very proud also of what happened in the Rugby World Cup. You know, Sia Kwelisi, the captain of the South African team, nine months after he pulled his ACL, he captained them to the championship, a great ambassador for our brand, fantastic guy. And even if he beat the All Blacks, which is our team, you know, he's a great, great part of the family. And the same thing with the All Blacks, probably the team with the best spirit in the world in any sport doing their training camp here in our campus. Very proud to work with them and very, very happy that we extended that contract and we will extend that cooperation into also other product categories, also into the lifestyle area. If we then look at the lifestyle side, the business is up for the first time in a long time. Good growth in the higher area with originals. Basketball also growing double digits, so we clearly see that the higher end of the market is accepting our new product. Sportswear, the more commercial side, is still down a little bit. But again, with the pipeline of more commercial products for 24, we will also turn that into a positive number. And needless to say, the left side is more important in the beginning to create brand heat again, and that's what we have actually been able to do. Couple of things that we have done in the basketball area, we have signed a new multi-year contract with Overtime Elite, which is professional leagues, both in American football and in basketball, linking the college athletes into the professional leagues, the NBA and NFL, And we will do a lot of collabs and partnerships with them to be more connected to that youth culture in American sports. Then Anthony Edwards, the new superstar in NBA, launched his first signature shoe, as you see here. We launched it on the field of play in September, and it's now being rolled out in the different markets. Needless to say, he captained also the American national team, and we expect actually a lot of good stuff coming out of that cooperation. Mostly proud of, probably, is the original campaign that we launched in September, the first campaign I think RDA has done for original since 2015 or 16. Very well-received campaign, between $50 and $100 million in media money. Very well executed all over the world, both with global stars, but also connected into local celebrities. And it's a message that we will continue to use also going into 2024. The collab with Moncler, you know, launched in their fashion show a couple of months ago, now in the stores. And the same thing here. Moncler, for me, the only luxury brand that has connected into the winter culture and for us being together with them with fantastic product. Very, very thankful for, you know, their CEO that they did that and the product also selling very, very well. A couple of other things. We did the collab with Korn, sold out very quickly, you know, a collab that is also connecting to the young consumer. Then we did in China with Edison Shen, a collab, both on the global, as you see here, but also local. And here you see people lining up in front of the stores. So one of the very, very high impact core labs that we don't shortly. And, you know, this is the replacement that we have to do to replace the easy business. We need many smaller core labs that can create the heat and that we then can commercialize. Not surprising, probably, Samba is being named the shoe of the year in the U.S. So we will receive that award, I think, end of the month. And then I've said many, many times what has turned the brand lately is, of course, the terrace trend with the Samba Gazelle and Special. We have then lately seen compost outselling Samba in certain markets already, especially, I would say, in the men's area and the kids' area. So then we have something outside terrace that is working well. And then those of you who follow fashion have seen that Superstar, especially in black-white and triple black, is picking up. And that's a shoe that we will heat up for the future. Extending the terracing also into running, we are into the 70s running here with ASL 72, which is then a natural evolution for us, again, getting into running lifestyle. And you will see these products starting to seed in in Q1 and then be scaled into the second half of next year. We are also working on... four or five very interesting silhouettes on the running lifestyle side of new silhouettes to replace the successful shoes that we had, for example, the NMT. Needless to say, next year will be full of three stripes and color. This is in line with what you see on the footwear side. And we have, I think, 16 color combinations coming in different silhouettes. And you will see a lot of this in the market. And this is being very well received currently of the retailers. A couple of words about Yeezy. You know we have had two very successful launches, one in Q2 and one in Q3. We are still sitting on about 300 million of the inventory, and we have decided not to have any more launches during Q4, and will then spend the rest of the year then to evaluate what we should do next year. And I think with that, blah, blah, I'm ready to hand over to Harm, who will take you to the real reason why you're listening, the numbers.

Thank you, Bjorn. And I guess I deserved a break for a couple of minutes now as I guide you through the financial update. Well, unfortunately, there will be not a lot of news, which is probably fortunate as well, because we did the pre-release already a couple of weeks ago. So what you see in the P&L should not be a lot of news for you. Again, $6 billion on the top line in Q3, leading to a 49.3% gross profit, and then to an operating profit of $409 million. Of course, all of you are interested what is the relevance of Yeezy in these numbers, and in the $6 billion net sales, which is roughly one percentage point, the currency will increase. $350 million Yeezy are in there, as Bjorn alluded earlier. If you would do a like for like without Yeezy, it's actually 2% up currency neutral. And also on the gross profit, if we exit the easy part, the underlying business at 48%, you know, gross profit, and I'll come back to that in a second. What's also important, looking at our infrastructure, because we always said we need to have a healthy top line and we need to continue to grow the top line to grow into our infrastructure, while we also, you know, right-size infrastructure through the one-time cost. So we have 1.9 billion operating overheads. which is around 32.1%, but in there was 110 million extraordinary costs. So 80 million one-offs, which is a combination of severance, DEC closures, or retail closures and impairment, and 30 million donation linked to the Yeezy business. So if I would deduct that one, we are getting closer to the 30% line, which again would contribute also to the bottom line in a healthier way. And on the bottom line, it's 150 million Yeezys included there. So as gross margin is a very important KPI for us, I want to decompose that a little bit when it comes to Q3 compared to prior year. As you would expect, freight is a significant benefit in that gross margin bridge, but also the underlying business mix is positive compared to prior year. What is the business mix? Of course, it's a combination of category mix, market mix, channel mix, but also what kind of products we are selling when it comes to footwear versus apparel. So all of that is in, and that's why I want to say I call it business mix or underlying business, which is healthier compared to last year. Inventory allowance, given the progress that we made on the inventory, also contributed positively. And then we have a significant negative impact on the currencies on the FX because, as you know, we're hedging early on. going into this that season and that is significant negative impact on our gross margin and compared to prior year as we continue to clear some products, especially on the wholesale side and in our factory outlets and primarily in North America, it has also a negative impact compared to prior year. If I compare that quarter to quarter, you see the similar impact on the freight. It's very positive and it will continue to be positive for the next couple of quarters Discounts here is already positive because we made so much progress on the inventory. So that is also something you should expect going forward. And the business mix is slightly negative. That is a reason as we're expanding our wholesale business as a higher share of business that has an impact there. And of course, when you come to the market mix, it's a similar impact there. FX, it's also negative because we are going into a season of negative impact and that will continue to go into early next year as well. And here, like for like from Q2 to Q3, Yeezy also had a negative impact because we had on the one hand, a smaller business in Q3 versus the second quarter. And of course, it was a mix of our own D2C business and a combination of our hotel partners as well. So that hopefully shares some light. into our gross margin bridge. What probably wasn't new today is our balance sheet information in more detail. The highlight is probably the first number, the inventories of 4.8 billion. Again, 23% down reported or 90% currency neutral. And I give you one more, you know, details on that on the next page, but that is definitely a significant progress that we have achieved over the last couple of quarters. Accounts receivables are somewhat down, given our decline still on the wholesale side. And the accounts payable are significantly down as we bought less, you know, given our trajectory of the business overall. So it shouldn't be a surprise that was required to bring the inventory down as well, linked to conservative selling and making sure that they're sell-through in the market. One more number on this page is the cash on the balance sheet. It's roughly a billion on the balance sheet. Also, that is a healthy level compared to 12 months ago. I'm, as a CFO, very happy to see that development on the overall balance sheet. Very healthy situation on the balance sheet. When it comes to the inventories, we all remember Q3 was the peak on inventory last year with $6.3 billion. If you compare this to today, it's $1.5 billion down. That is significant progress. and also look at year end, 6 billion, made significant progress. We always said it will improve quarter by quarter, but now being at 4.8 billion, 300 million of that Yeezy, and still having, you know, higher, you know, product costs in 12 months, they go overall from an inventory point of view. We are now at a point where we are happy with that inventory. We are happy what we have on our side. And of course, you know, by the end, we are also happy what we have around the world, but North America, when it comes to our retail partner. Still North America, slightly too high, and especially with our retail partner, we still need to work a couple of months to get to a decent level of inventory, but tremendous progress and happy where we are, and do not expect this coming further down going forward. Now, of course, we gave a complicated guidance at the beginning of the year, and we changed it a couple of times, so I want to explain that a little bit in more detail. going from net sales through operating profit underlying and operating profit reported. We started the year with a high single-digit decline on the net sales as a guidance. We changed that to mid-single-digit decline on July 24th. And when it comes to the guidance a couple of weeks ago and today, it's now only low single-digit decline. So significant improvement on the top line over the course of the last couple of quarters. We have not changed in the last update on the underlying business, which is was reported as a break even. Now we said even that one is improving, not just on the top line trajectory, but also operating profit point of view. Now we believe, you know, $100 million is now the guidance for the underlying business, excluding any one-offs or Yeezy business. And, of course, what we're going to report is yet another number. We started with $700 million decline or loss. as a starting point, moving to 450 million. And now we believe, as we had a second drop in Yeezy, we can report a loss of 100 million. How does that relate to a probably simpler bridge? How did we get from the 700 million to the 450 million? That was linked to the first drop of Yeezy, where we generated a net 150 million in profit and 100 million less potential write-off of the Yeezy inventory. A similar thing happened now in the third quarter, another 150 million net profit from the Yeezy drop, from the second drop. Of course, with that, less risk of writing off the Yeezy inventory because we sold it. And then what's new now is also that the underlying business has improved by 100 million to now lead to a guidance of 100 million negative. I know this is not where we want to be, but we show significant progress. But now I want to hand over to Bjorn again, where we had from here.

As Hans said, we are not where we would like to be, but we have asked you for some patience. We feel that we are making progress and actually a little bit faster than we thought. There was a lot of critique from you that we're not creating brand heat. We are not having, what should I say, innovation. I do actually believe that that's not true at all. The pipeline is full of innovative products. I think also the lifestyle side, we've been able now to activate four or five of the franchises. That will also move into a high-low effect on the apparel side. In the next In a couple of weeks, we will finally have the Ferro Gold product that we talked about for a couple of years in the market. They are now in the markets and will soon be in the stores. We will in the next week, actually next week, launch the ball for the European Championship here in Germany. That will be done in Berlin. And for the Indian market, we will probably win the World Cup final with India. And again, it's been a huge investment for us that has paid off. And we actually do believe that if you give us the time, we will show you that we can, again, be the best sports brand. I ask you when you say you're long-term to think long-term. Q4, when you do the math, you will say you're too conservative. It's obvious that we will not do something to look good in Q4. We will build the base for a better 24 and a successful 25 and 26. That is important. And then you will ask about the easy inventory. You know, in that outlook, it's currently that we write off all the inventory. If we will do that or not depends on many factors. And if we don't do it, of course, you can add that back again, you know, to your P&L. And I think with that, I've already answered some of the questions you will have, but I hand back again to Head of IR.

Thanks very much, Bjorn, and I'm sure there's going to be more questions. So, Andrea, we're happy to take the questions now.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please leave the handset before making your selections. Anyone who has a question may press star followed by one at this time. The first question comes from the line of Anisha Sherman with Bernstein. Please go ahead.

Hi, good afternoon, and thank you for the opportunity to ask questions. We have two questions for you, please. The first one is your Q4 guide implies a pretty big deceleration in revenue trajectory, you know, double-digit revenue declines at the midpoint. Can you talk about what's driving the deceleration in your performance, and does your current performance align with that Q4 guidance so far in the quarter? And then my second question is, Biren, you talked about your ability to sell in product this quarter and this half that wasn't part of the pre-orders originally. Given that response, are you seeing retailers change and have more appetite for higher pre-orders in H1 or H2 2024? Thank you.

Well, your second question is definitely yes. As I tried to say is that, you know, nine months ago, we started to look up on how we would like to treat the trade in the future. And that has to do with what we offer them, how we offer it, how we treat them, blah, blah, blah. And that actually our retail partner is more important for us than D2C. And of course, to set that up takes some time. And the first, which was a go to market process that is in line with that is for fall winter 24, which is happening right now. So we clearly see a big increase in the interest of the retail partners and therefore expect a much higher order book for the second half of 24. You have to remember that we've been working on a negative order book as long as I've been here in the sense that, you know, the sell-through of the product, the inventory has not been good. Therefore, the pre-orders for all the quarters in 24, not 23, was negative. And that will improve all the quarters in 24. I think I said to you that the order book we were working against for Q3 this year was over 20% minus. We ended at minus two. So the difference is what we then have chased. And I think I also said to you on the lifestyle side, when we began the year, the whole terrace thing was not on the calendar to be scaled this year, but next year. And of course, you have seen that the visibility of that has turned around, I think, the image of the brand very quickly. And that is based on actually chasing the business and then put good product on the shelf and therefore increasing the sell-through. But what you also have to understand that we cannot do that with everything. So hopefully when we get to Q1, Q2 next year, we can actually fulfill pre-orders, which are then increased in these areas, and we can have a more plannable business. The reason why Q4 looks the way it is is, of course, we are not going to chase any business in the sense that we will pull anything forward to look good in Q4 because it makes no sense because then we will actually put even more pressure on the pipeline. So Q4 for us will be to lay the foundation for a better first half next year and a very good second half next year. And that's why the guidance is the way it is. I'm sure when you do your math, you think it is conservative, and maybe it is, but you also have to understand that for us, the performance in those three months is not relevant for the long-term story of Adidas, so that's the way we deal with it. Same with Yeezy. We could easily have sold Yeezy in Q4 to look good, but it doesn't make any sense where we're sitting, and I hope you agree with us that what we're trying to do is to build A business now with brand heat, with performance and lifestyle product that we can extend for a longer period of time, we have gotten the inventories down. Of course, we need them to improve the quality of the inventory, both in our own inventory, but also in the trade. And all those things are not done in 12 months. So you need to be a little bit patient and believe in us, and then we will actually convince you that the strategy is correct. But your math is, of course, correct. and then we will see if it's a little bit better or if it will end exactly on the guidance.

That's very clear. Thank you.

The next question comes from the line of Graham Renwick with Birnberg. Please go ahead.

Hello. Good afternoon, everyone. Thanks for taking my question. Just firstly on full price sales, you made quite a few comments there of making good progress on full price sales mix. Just a bit of put a bit more context to that are you able to tell us where full price sales were um as a percentage of that brand sales x easy um you know pre-pandemic where that mix is today and what your ambition is for full price sales mix in the midterm and on running um it was flat oval in q3 we've seen the headlines of athletes breaking records in added zero shoes You mentioned the Adizero family is up strong double digit by presuming it's from a low base. I just wondered how long it takes to build that credibility and better distribution in the commercial segment. So when will we see Adizero's success at the athlete level start to cascade down to stronger growth across the broader running business? Should we be expecting a big impact as soon as next year? Are you already seeing that stronger demand in all the books or is this something that needs to be developed over a longer time frame? Thank you.

Well, I think your first question, I mean, what we clearly see is that the new product that we have been chasing the very demand is selling at full price everywhere and actually all markets in all channels. And then, of course, not all the products we're selling is that new product. And this is the, what should I say, difficulties that we are in is that there isn't enough good product to kind of replace the bad product. And that's why the numbers are not better than they are. If we only had the right product now, we would already, you know, promise you probably 10% EBIT next year. So it takes some time to get through all the issues that we have had because you have to remember that we had an order book being down 20% because the retailers were full of product that didn't sell. And we have been able to take the inventory down partly in our own, as you saw, down 23%, but also with many retailers we've been able to clear a lot of products. So we are cleaner than we've been before. That's why the full price sales of new product is much, much higher. On our e-com, we have protected our franchises, so we're not allowed to discount them ourselves, which would also help our retail partners. And the full price share is then going up and margin is going up. But, of course, when you look globally and especially in the U.S., all our outlets are selling at a high discount because it's only clearance. So we are not there yet. And a lot of the retailers still have, you know, too much of the inventory that was not selling and is now being sold at a discount. So the picture is of course not as clean as we would like it to be, but the trend is right. And I think, you know, with the facts that we now have and the way we work with the retailers and especially the reaction for the pre-orders for fall 24 is of course that now they can buy a brand that is selling well with new product. There's a trust on how we go to market. And of course we then starting to build our business on facts and not only beliefs. So it's a better situation to be in. In the running area, we have chosen, or what should I say, the business unit have chosen to build credibility at the top. So the ADC range is probably, I think even competitors will say, the best technical product in the market. And it's selling and performing very well. But as you rightly say, it's a small part of the segment. And, of course, our challenge then is to take that credibility, having the right athlete, the right technology, and the right product, and then cascade it down to more commercial product. And, of course, the speed of that, I can't promise you, but it's better to do it that way than the other way around. You know that there are other brands currently that have played the comfort game. I mean, both HOKA and ON has had success with their story. And you should not be surprised to see also in our line, you will have more running shoes that is built on the comfort story. I can't promise you any numbers. The only thing I can promise you is that the visibility in running will be increased. So you will see us at more events. You will see us with more athletes. And you will see us with more, what should I say, products out there. And then we will be patient. On running specialty, it's also fair to say that Audi left running specialty in many markets, so we didn't have a sales force anymore. The idea was that the runner will buy it in our D2C, and that doesn't work. So we are again building now sales force and I would say technical experts to support running specialty to also build a real relationship to running community, which you have to do physical and not digital. So there is quite some investment going on there. And, of course, the payback of that will take some time, but it's the only right thing to do for a brand like Adi. So you also have to be a little bit patient, but the product is there.

That's clear. Thank you very much.

The next question comes from the line of Ervan Ramburg with HSBC. Please go ahead.

Yeah, hi. Good afternoon, gentlemen. I hope you can hear me okay. I had one for Bjorn and one for Harm. So Bjorn – One on China. I just came back from China about three weeks ago. There's a lot of talks of Western brands taking back share from local Chinese brands after pretty much two and a half years of misery. I'm wondering if you could comment on that. How easy is it now to operate in terms of brand ambassadors, in terms of events? Is there a role post the neo-restructuring? Can you comment on inventory levels specifically in China? And last year, you were down 50% in Q4. So what can we expect both short-term and long-term for that market? So that's for you, Bjorn. For Harm, I was just wondering, on the gross margin levers, you talked about freight input costs, promotional activity, FX. I'm just wondering if you can comment on timing of when some of those start to turn. You know, the FX pressure, how long will that last for the promotional activity market? it seems that leaving aside the U.S., that's going to temper somewhat. But can you help us understand the building blocks to think about gross margin in, again, the short and the longer term from here?

Thank you. I'll start. On the China situation, I think we need to divide the lifestyle business and the performance business. When it gets to the performance business, it's obvious that the local brands have built a price point for running shoes, basketball shoes, and all the performance shoes that is below what, for example, we are offering. That means we have been competing in running, I would say also in basketball, in a smaller part of the market because our price points have been high. And if you want to have real volume, I think you need to go down and also do real performance shoes at sub-$100 price points. That's what we are going to do to compete for a bigger part of the consumer. The rest, I mean, the higher end is starting to grow again, but that market is smaller than you might expect. On the lifestyle area, you know, we've been lagging the, what should I say, the opportunity to actually work with celebrities coming out of music or out of art or out of whatever. And that has changed in the sense that we now are starting to activate, again, actresses, actors, musicians, artists. I would say street culture-relevant people, for example, in breakdance. So far, all these activations have been working without any shitstorm from any, what should I say, communities. How long that will last and is it forever, we don't know, but the team is very energized by actually starting to compete again on a fair level compared to local brands. You saw that our underlying business was up 10% for the quarter. And again, our own concept stores where we actually have the best of the best is actually much higher than that. So there is clearly, what should I say, a consumer that goes back again to Audi on a higher level than it was a year ago. I think when you look at Q4 in China, you have to be very careful because there's many movements in the wholesale business there. We take backs of inventory and how do you actually push in products for Q1 and not. So I'm not going to give a number, but the Chinese number will at least be up double digit, regardless how high it's going to be. And it's the same thing there. We will see how 11.11 goes, which, you know, we are in the pre-selling right now. And then we will adjust, you know, all our wholesale business according to what we see. We will not push anything into the market in Q4. I can promise you that. And then, of course, we will hope that the market will continue to develop the way it should. We will overinvest in marketing and then continue to see a growth in the Chinese market, but not to try to get it very, very quickly up to the previous levels because the risk then again is, of course, that it crashes quickly. We have moved 75% of our volumes to local sourcing, and we are doing 30% of our product at what we call quick response replenishment. So the pre-orders that we're taking with all our partners is going down substantially because we don't want to push it in and take back. We want to deliver in and then replenish both with new product and with old product. So the business model is changing. And I think if you ask our local team, they're very, very happy with the way we're developing when it gets to the business model. And with that, I hand over to Harm.

Yeah, Erwin, on the gross margin, very good question. And, of course, I'm not going to give you any guidance for next year, but you can assume that FX is probably the only track going into next year and that FX is probably – more negative in the first half, and then it's turning neutral and maybe even positive in the second half. That's where we are from an FX point of view. When it comes to all the other elements, freight will be positive for the full year, probably more positive in the first half, and then more neutral in the second half as well. And then, of course, as Bjorn alluded to, have more trajectory with our terrorist products and lifestyle overall. Lifestyle presents also with an attractive margin. So the overall business mix, you know, will turn positive as well. And this is where we look into next year. So the combination freight positive, given the scaling of some of the products that we have, we hope for normalizing our benefits on the production cost as well. So simple terms, FX is a negative next year for the full year. More the first half than the second half, everything else should turn slightly positive. That is also something where we will leave in the midterm. We always said we want to get to a 50% or plus margin, and that's required. If you look at our Q3 again, if you get to a 50% margin with some of the directs going away over time, we would plot the 50% margin already. And then having a normalized infrastructure given the growth that we have on the top line, we have shown in Q3 what's possible, and we can build on this one. So that's roughly where we are.

Thank you so much. Best of luck.

The next question comes from the line of Susanna Puls with UBS. Please go ahead.

Good afternoon, everyone. Thank you for taking my questions. I'll stick to two. So first of all, maybe to follow up on gross margin. Thank you, Hamza. That was very helpful to understand the drivers for next year. But I also wanted to follow up and see how we should think about the gross margin in Q4 because obviously we are coming from an extremely low base, which had many one-off items last year. So I mean, I think it was 39% last year. So I was just wondering whether, you know, the Q3 XEV is the right way to sort of think about the gross margin or what are sort of the puts and takes we should consider when we look at the Q4 gross margin. And then... a question maybe just for Bjorn on the performance in Q4. And I think it's very clear and I understand that you say you don't want to pull forward any business into Q4 because that's not the point of your strategy. But if I'm not wrong, I think the business in Q4 tends to be a little bit more retail driven, at least has been in the last two, three years. So I was just wondering if you could maybe comment on the current trend you're seeing I think some of your peers have mentioned that actually weather had a negative impact on, at least for them, on Q3, and October was seeing an improvement. So, you know, any comments you could make on how sort of, you know, retail is developing so far, if that sort of double-digit growth you're seeing in your own stores is something that could continue into Q4, that would be very helpful. Thank you.

You know, Q4, I think historically with Adi, and it was the same with Paul, was almost never a profitable quarter because there's so many movements. And where we're sitting right now, we will have improved business in our D2C when it gets to the sell-through of the product on full price. I'm 100% sure because we see that trend already. But you know that two-thirds of our business is a wholesale business. And for us to get into a more structured business and not, what should I say, hunt the business that is in demand, we would rather have the pre-order for Q1, Q2 be fulfilled in a way that we can plan the business than now trying to stress Q4. And that's why, to be very honest with you, for the story of Adi going forward, how we perform in Q4 doesn't really matter. I hope you agree. And that's why we're very relaxed on what numbers we're showing. And again, we can talk about it at the end of the quarter, how our sellout and how our new franchises is working. And I'm very convinced they will do well because they're doing well also in October. But in the big scheme of things, then what do we do? We take back some retailers and how do we, what should I say, deliver maybe demand that is there out of the order book of Q1? I think we've been very careful. And then You know, the whole easy thing is also that we could easily have said, let's make a drop in Q4, so we look good, but we're not doing that because we have to really build stone by stone and do the things that are right for the business into 24 and 25, and we will do that also in Q4. The demand for the new product is actually very good. So, you know, the sell-through thermometer on what is hot is good. And we also clearly see, you know, a demand for three stripes now also going into apparel, which, you know, the high-low effect of what's happening on the footwear side. And again, you know, the order book for Q1, Q2, which wasn't that great either, is now building. The order book for Q3, Q4 will be very good. And then the question is, how much stress are we putting into this to short-term, you know, try to impress you? Or are we now trying then to do what is right for the business also going into 25? And you know me, that we're now trying, you know, to promise you things that we can deliver and making sure that we build stone by stone. And that's why Q4 looks the way it does. And then I hand over to Harm for the margins.

Yeah, Susanne, when it comes to the Q4 margin, unfortunately, I'm not going to give you a lot of more detail than what you heard before. But the key drag in Q4 will be, again, there's no easy business planned. And then secondly, there's significant FX headwind that is coming towards us. But you also need to understand, given where we are after nine months and having made some progress also in the underlying business and made tremendous progress on the inventory side, on the total level of inventory, Now, looking into 2024, we want to make sure that we do the utmost in Q4 to have a higher share of good product versus bad product in the inventory, and that's where we take advantage of it and then get better prepared for 2024. That's the plan, and I will leave it there.

Thank you.

The next question comes from the line of Jurgen Kolb with Kepler Chauvin. Please go ahead.

Thank you. Björn, first question for you. Again, around the order book. Thanks for mentioning also Q1 and Q2 order book. When you last time talked about the order book for the H1 next year, it sounded at least as if that That's a negative one that was down because of especially very reluctant retailers specifically coming from North America. And I was wondering, as you said, this is building. Are we in positive territory, especially also maybe with a little bit more optimism coming from North America? Moving on to the second half, very strong, as you pointed out. Maybe one indication on price and volume. Is there a price component included in this order book or is it more like for like? And again, also here on North America, if you could give us an indication if you're seeing good demand from North America also in the second half. And the second part of the question, fear of God, good news. It's coming to the market. I was wondering if you could share with us some thoughts as to why that took a little bit longer and if maybe any of the plans related to that category has changed or if that still is as initially planned, but just a little bit of delay here and there. Thank you.

Well, the fair or gold thing, I think, is a good example for working with a partner and not having a clear setup what is expected. You know, I wasn't part of the first two years of this, but I've been part of the last year. And I think it's, you know, wrong expectations. And again, not having the LA office up and actually a lot of misunderstandings of what it means to work on a performance product and then on a lifestyle product with a guy like Jerry Lorenzo. That's now fine. I mean, as I said, there's about 42 articles that have landed in the warehouses. There's performance products ready to go on the pitch or on the floor. There's lifestyle products both in apparel and footwear ready to go. So I think those, what should I say, problems are over. And now it's for us to, what should I say, get the heat going and then commercialize it and sell. And from the feedback from retail and also from the fashion show in L.A., it's been actually very, very positive. When it gets to the order book, I think it's fair to say that the order book for Adi has been negative and heavily negative for a long time, especially for the second half of this year when we started. It was a terrible order book. And we have been able then to replace that with replenished business. And then, of course, also pushing, you know, the lifestyle things that has worked and chased the business. You remember I said to you, we need to fight and we found the things that we could fight with. And I think the team has done a great job. The order book initially for the first half, as I told you, of 24 was also negative. That's now starting to build to a positive order book. And I expect the order book for the second half of 24 to be very good positive. I'm very careful with the order book in the US because the order book there doesn't really mean anything other than we need to go by account and look at what inventory do they have. And if we give them a positive order book, then we need to make sure that we either have clearance plans or that we take inventory back because it doesn't help to have a high order book and then deliver into a store that is full of old merchandise. So US is lagging, I would say, six months behind the development that we see all over the world, not from a heat on the product, but from an inventory level in general and the amount of discount also on Adidas product, but not only Adidas. So again, if I should build a scenario, I think when we end the year, we will have a positive order book globally for Q1, Q2, and we will have a very good positive order book for Q3 and Q4. And then we will see how much we then have to chase on top of that order book. The growth numbers on the five shoes I showed you in the presentation is of course much, much higher currently than the trend that we have in the order book. And we are actually not taking orders on many of the franchises because we want to manage it. So this is now a cause also for us to show that we can be disciplined and not overheat some of the franchises. But again, I'm extremely proud of the team, what they have done for go-to-market for autumn winter 24. The way we have treated the customers, the way we have now done all the prelines, the quality of the samples, the amount of samples. And I think all retailers worldwide will say, wow, the service we feel now from Adi is great. And I think they want to do more business with us. And that was the goal nine months ago to get there and And then we will have to show that the product we are doing is also selling and knowing that our D2C business in the full price stores is up already like for like double digit, that gives us a good, what should I say, indication that the right product in the right location with the three stripes and our logos works.

Very good, understood. Just a quick one on pricing in the order book. Is there a component of price increase or is it rather flat?

Well, it's obvious that if you're – I think I showed you that the growth in our lifestyle business is in originals higher than on sportswear, then it's obvious that right now the order book is on a higher price. But that also has to do that we haven't chased the order book yet on the more commercial side the way we should probably. So right now I would say that there is a higher demand on the higher product, but that's not necessarily – because the demand is like that from the retail is more the way we have, you know, been able to sell it. You know, any trend we do upstairs, like all the tariff shoes also have takedowns. We are in this crazy situation that the higher end has much higher orders now than the lower end. And of course, in a normal franchise, that's not the way it is. This is more to do with where we are in the cycle and the, As you go through next year, I think you will also see that the lower end and the sportswear side will start to grow as we scale up the same silhouettes. So this is more just a view if you look at it right now. But we don't see average price increasing as much as it currently looks in the order book.

That's a nice problem to have, the higher price and the higher demand.

Yeah, but... Yeah, but you would like to do both, right? So there's a good thing and a bad thing. So it's like in a perfect world, you would do both. And then we will be closer to our 10% EBIT, right? You have to remember where we're coming from. So it is good right now that we in all categories have higher demand on the higher price. I agree with you because that's the same as we have in running. But of course, you need to commercialize it. So there is a job to do to get where we want to go, right? But Rome was not built in nine months, so we need a little bit more time.

Excellent. Thank you very much.

The next question comes from the line of Jeff Lowry with Redbird. Please go ahead.

Yeah, hi, team. Two questions, please. Firstly, can you give us some feel for how many units associated with Terrace you will have sold in 2023, do you think? And the second one is a slightly bigger picture question. How far are you in getting the wider management team where you want it to be? I don't know whether you think in terms of top 50, 80, 100 leaders in the business, but how deep and full is the bench right now? Thank you.

The tires are millions of pairs. I think I have to be careful with mentioning the exact number because there's also a uncertainty what is tariffs and not tariffs. But the court side will be tens of millions of pairs when you get through 2024. It's a big, big category. If you look at the team, also a difficult question. I mean, you've seen that we have changed most of the board. So that is a check. Then, you know, when it gets to the rest of the team, there are changes. You've seen a couple of them today. And of course, there will continue to be changes, but most of those changes is actually elevating internal talent. I think what we have seen is that we have a lot of good people in the second, third and fourth string internally. And the goal is clearly to recruit less outside, but then to give our, what should I say, talented database hold back the chance to get into higher positions. And I'm very, very impressed actually from what I've seen in the nine months, how much talents we have. And again, you know, give us some time and then we will look at structure again during 2024. You have to remember that this year was about attitude and what should I say, take away a lot of hinderness and breaking rules to get quicker and go to market quicker. We still have a lot of work to do when it gets to actually formalizing that into processes and and structure, but, you know, attitude and results first, and then you can make it more professional afterwards. Great. Thank you.

The next question comes from the line of Edward Aubin with Morgan Sunday. Please go ahead.

Yeah, good afternoon guys. So just one question on China, one question on sales next year. So on China, Bjorn, so just some clarification on the back of what you just mentioned earlier. The NIO line, are you looking at completely, you're downsizing the business, are you looking at completely kind of discontinue this line in China? And also related to what you have said in the past in terms of, you know, designing product in China for China, I think you gave the target of about 30% kind of if you could give us an update in terms of that objective and kind of come back on why the need to design product locally in China. And then just lastly related to that, you know, Is the push kind of designed to compete more with the Chinese brand in lower-tier cities, or would you rather compete more with making higher-tier cities, or you basically want to compete with everyone in China? So that's that for China. And then just on next year, I see you kindly commented on the order book. If I look at your total company sales next year, I think ConsenSys is looking for about 8%. You're going to lose the benefit of Yeezy, which is adding, I think, 3% or 4%. So basically, ConsenSys is assuming kind of a very low type of double-digit type of growth next year underlying. Do you think that's kind of – I know it's a bit premature. You're not going to give us any exact figure, but – Is it in the realm of possibility a low double-digit organic growth given what you've printed this year or not? Thank you.

First of all, China. All products in China are different than the product you have in a different market on the apparel side because they have Chinese spec. So the sizing and the spec are different even if the product looks the same. So you have to think about it. the product is different anyway. And what we have said is that if it's different anyway, then why don't we let the Chinese decide also more on the design? So we have now 50 designers sitting in Shanghai, which has the freedom to add, supplement, or create something that we haven't done before on apparel from all the collections. If that is 30% or 40% or 20%, I don't really care. It is the Chinese organization that is deciding on that. On footwear, it's a little bit different. But on footwear, we can produce locally all styles also in China, which is an enormous advantage. And that's why also there... We give the Chinese the possibility then to add SMU's material components, do changes to the collection and produce it locally, which on the landed costs could be cheaper now on duty. And of course, from a lead time, when it gets to boat transportation and production gives them advantage. That's why we're stopping this selling in as much as we can and take back what we cannot sell. to a planned business where we say that we only sell in 70% and then the rest we actually will replenish or put new product into the store during the season of the quarter. So this is a new kind of way of working. When it gets to the market, I think on the performance side, we have been competing, I would say, only against the Western brands. And you're right, especially Nike. But the local brands, the Linnings, the Antons and stuff have created, I would say, performance segments underneath 100 euro, which still people are running marathons and playing basketball with. And I think that's the market that we strategically now are looking at to build, I would say, high technology product, but at the price point also below what we normally would do for the Chinese market to make sure we're competing for a bigger piece of the pie. When it gets to the cities, we are obviously competing in the major cities. You know, that's where we lifestyle wise, I think for a long time, a market leader. And that's something we want to grab back again. And there we are competing both against Nike, but also all the brands. And in the lower tier cities, you know, the distribution is thinner. We have closed, I think about 3000 stores with our partners to kind of clean up a lot of bad distribution. And that's where NEO played a big role. So currently NEO will be reduced to a very, very small part of the business. The brand NEO itself will then disappear. And then we will have partners that will then attack the smaller cities with a special, what should I say, offering, but in a much more narrow, what should I say, process than what we used to do. It is a little bit, what should I say, more details than what you asked, but in general, you will say yes, NEO will disappear. We will find or have found retail partners that will attack the smaller cities with a specific range, and then we will focus with our major partners on the bigger cities and D2C. Don't forget that our D2C business in China is pretty low, and then we will try to balance and optimize the offering as good as we can. You know, you have a tendency to try to get a top line guidance, and that's the way you set up the question. And of course, your math is correct, but it's very difficult now to say, are we shooting for 7, 8, 10, or 12%. As I said, the first half, and again, we haven't even decided what to do with Yeezy. The first half will have a lower growth than the second half, just naturally. And that's because the order book, of course, is building as we go from quarter to quarter. The U.S. market is lagging behind and will probably not grow at all in the first half. I think we can look at some growth in the second half. And then, of course, it depends on what we do with EC. But underlying, we will have growth for sure. But I think we should prove to you that, again, the growth that we're having is a profitable growth and it's a growth that we can build on instead of trying again then to convince you with some numbers and then run into overheating the market again. Right now, I think the demand for the second half is going to be very strong. And then the question is how do you face the first half and how do we make sure that we don't overheat franchises but that we manage them properly? And I hope you saw... that, you know, Taras, then into Campus, then into Superstar, then into 70s Running, and then we have a new Lifestyle Running products behind that. And then all these trends you will then, what should I say, copy down to all the price points. So we have all the ingredients that we actually need to improve during 24, but remember the goal is to be really profitable in 25 and 26 and not try to overheat in 24. Thank you.

Andrea, we have time for two more questions, please.

The next question comes from the line of Andrea Freeman with OdoBHF. Please go ahead.

Good afternoon. First question on fall-winter 24. You said this is the first collection from you and the team, Björn. And we know you want a more local product, you want a bit more wholesale, you want to cover more niche categories. So what strategic aspects are already reflected in this fall-winter 24 product? This would be the first question. And somewhat linked to that, my second question, other than China, what are the countries where you see the biggest need for a more local Adidas product?

Thanks. Well, I think what I tried to say is that the 24 autumn range is the first, what should I say, range that we go to market in a way that I think is right. Remember, I've been here for nine months, so actually setting that up with what products are we showing, what customers, how do we show it, How do we sample it? What kind of dialogue have we had with the retailers before we make the collection? How do we go with SMUs and how do we go with inline product? I feel that autumn winter 24 is closer to what I see as optimal and it's the first, what should I say, go-to-market process where I can say, yes, this is the way it should be and I feel good about it. The other quarters before that was chasing business to fill a gap because the order book was down heavily. So that's why I'm saying I feel comfortable sitting, looking at Altimeter24 because I've seen the reaction. I've been in many of the meetings. And with everything we see in the market, God forbid that the world goes into a crisis again, I feel good about that. When it gets to the markets where we need local products, I mean, you definitely need it in India. I don't know if you know, but the Indian government has put in new regulation that actually forces you to do a lot of local sourcing. And when you do local sourcing, why then also do local product? I mean, there's no need to force designs on people when you have to source it there anyway. Then you can also try to do designs that is committed to that market. So India will have a lot of local. China we already talked about. Then there are needs, especially in Japan and Korea, to do trend stuff in a different way. And then I think the big difference and the biggest discussion many retailers have, and I guess brands, is what is the difference between the U.S. and Europe? And we know that American street culture is different than the street culture in Germany. What should I say? The basketball and hip-hop influence in the U.S. is different than what it is in Europe. And the differences are bigger than you think, and that's why for us, We have set up this process in the office in L.A. to target very specifically the street culture in the U.S. If that product then can go to Europe, fine. But if it doesn't, then we develop product also here. So in the future, the sum of, I would say, what we do in China, what we do in India, what we do in Korea and Japan, and what we're doing then in Herzog, together with L.A., is then the total of what we do. And then the balance How much is then global or how much is local doesn't really matter because we have the resources. It's mainly different factories. And again, I think that we can get closer to the consumer and we can get quicker when we do it that way than trying to sell one collection to everybody. So I don't think there's a big disagreement on this. And I think the retailers in the different areas loves us for doing this approach. So I hope that answers your question.

Yep. Thanks for that, Carla. Yep.

The last question comes from the line of Cristina Fernandez with Telsey Group. Please go ahead.

Hi, thank you for taking my question. So following up on that comment around the U.S. market and consumer, I wanted to ask, how do you feel about your wholesale distribution as far as the doors and the points where you are in? If you think about the strategy, do you feel like you need to make changes to the partners where the product is showing up at?

Well, again, all good retailers should have more Adidas products. That's number one. I think that the share we have with some of the retailers is far too low, and that is a consequence of us focusing on D2C. And also, I don't think during the last couple of years focused enough to work with them. That's changed dramatically. Most retailers that you know in the world are interested in a strong adi, and that's why I feel that the feedback we have with them and the process we've had with them over the last nine months has developed more and more positive. But again, the real result of that is first visible in autumn-winter 24, because that's the timelines that you're working to, and that's why I'm very optimistic about your order book. I think we will see growth in the wholesale business also in the first half, but then less than what you see in the second half. There are segments of retail that we have totally, what should I say, gone out of. I mean, running specialty is one of them where, you know, we divested from physically servicing them and we thought we could do it only digital. We're changing that. The good thing is now we have the product. As I said, I think we have the best running product in the high-end market, but we lack distribution. So that is one area that we need to win back again. There are areas in special sport, tennis, for example, where we need better distribution, where we have the product, but it's almost not visible. And then in the U.S., all the U.S. sports, if you do American football or you do basketball or you do baseball, it's obvious that we, from a performance side, both distribution-wise and, what should I say, partner-wise, have a lot to do. When it gets to all other general sports distribution or sports fashion, I think we're working with all the partners. It's just that they haven't felt that we service them properly. that's why the share of the wall is not what it used to be with many of these retailers we have half of the skews on the wall now than we had 10 years ago but the good thing is i haven't met one retailer yet who doesn't say that they want to grow fast with us and it's now up to us and to show that we can give them the product and the marketing and the heat they need so they can make real money with us because Remember, the only reason for a retailer to buy a brand is that they can make money with us, and that's what we're trying to do. And over time, I'm very, very convinced that that will happen.

Thank you. And one other question I had was on the On the inventory, if you're not going to have a Yeezy drop in the fourth quarter, do you still expect improvement in the terms of year-over-year decline in inventory, or from here it's really more about the composition of the inventory until you decide what to do with Yeezy?

If you take Yeezy out, you have $4.5 billion in inventory. I think that's a healthy level. There is, of course, some over-inventory still in the U.S., but that's, you know, I would say if we can keep this inventory level but have a high quality of the inventory, I think we will be in good shape. And then remember in our guidance, you know, it is then the assumption that the Yeezy inventory is going to be written off in the current status, right? And we will make all the necessary analysis to see how we will treat that inventory. And should we decide that we will sell it, then, of course, we will not write it off. So that you also have to have in your mind when you look at the value of the inventory.

All right. Thanks very much, Christina. Thanks very much, Andrea. Thanks very much, Bjorn and Harm. And also thanks very much to all of you for joining the call on this very busy day and for mostly sticking to the two-question rule. This concludes our Q3 2023 conference call. If you have any open questions, be it today, tomorrow, or over the next couple of weeks, As always, please feel free to reach out to Philip or myself. We will be happy to connect with you. And with that, thanks very much again. Have a good remainder of the day. All the best. Bye-bye and take care.