Adidas Ag Ord

Ladies and gentlemen, welcome to the Adidas AGQ1 2024 conference call and live webcast. I'm Alice, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference will be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sebastian Steffen, Head of Investor Relations. Please go ahead, sir.

Thanks very much, Alice. Hello, everyone, from sunny Herzogenaurach, and welcome to our Q1 2024 results conference call. Our presenters today are our CEO Bjorn Golden and our CFO Harm Ohlmeier. Before Bjorn and Harm will take you through the puts and takes of the quarter and explain our expectations for the rest of the year, I would like to ask you once again that during the Q&A session you limit your initial questions to two to allow as many people as possible to ask their questions. Thanks very much. And now, without any further ado, over to you Bjorn.

Thanks and hello everybody. I hope you're all in good shape and good mood. I think the picture on the screen is an important one. It shows both the men and the female team of Real Madrid playing in the Y3 Yamamoto designed. And I think that mirrors a little bit of what we are trying to do to merge lifestyle and sport and the Coma Hot and Good Brand again. And of course, tonight is a special night with Bayern playing Real. And I hope you all cheer for the Bayern, because that's where we are a shareholder, as you know. You saw our numbers already a couple of weeks ago, where we went out with an ad hoc. And you know we went out with an ad hoc because the year has actually started better than we have expected. I won't try to take you through the story why, and then look a little bit more into the details now. Our sales were all currency neutral, up 8%. If you take the easy business up, which was $150 million, it's around 5% up. And that is stronger than what we had expected, given the order book and where we were at the beginning of the year. That was positive, but what was even more positive was that the gross margin reached 51.2% of 640 basis points. And again, I think everything that we had an impact of was positive. And the only negative thing was, of course, the currency, which is still pulling us in the wrong direction. The easy effect on the gross margin is about 70 basis points. So that tells you that The underlying Adidas gross margin is already above 50%, and as you know, that is very important for us to get to the profitability that we want mid-term. If you put that all together, we then had an operating profit of $336 million. That's up from $60 million a year ago. And the same thing here, the contribution from Yeezy on the profit line was a little bit less than $50 million, so it shows you that the underlying Adidas contribution is then around $290 million. What is very important for us, and you know was one of the major targets when we met first time a year ago, was to get our inventories down. And as you can see, it is now at 4.4 billion, which is a reduction of 1.2 billion. And, of course, this is the underlying thing that can, what should I say, support both our growth with fresh inventory where we can have good sell-through, and, of course, also extremely important for our gross margin. And, again, I am actually very proud of what Arthur and the sales team and what my friend here has done on the financial team here. to actually have a discipline to get this executed in the different markets. If you put it all together, we then also said we increase our guidance, the top line from mid-single digit to mid-to-high single digit, and the operating profit, the EBIT, from around 500 million to 700 million. When you then say why have we had this improvement, it's obvious that our franchises in FUTURE LIFESTYLE is continuing to do very, very well. We started talking about the Terra side, the Gazelle, the Samba and the Statial a year ago. And what has been added afterwards is the campus, which are now outselling the Samba in certain markets, and lately also the SL72, which you remember is also a Paris style, but on a running midsole, and it's the Olympic shoe from Munich in 72. So this is what I've turned the brand around on the lifestyle side. But it's not only the old franchises. It's also the new products. We've had the most successful soccer launch, I think, ever with the Predator. We are very happy with the jersey sales and the launch for both the Euro and the Copa. We have successfully launched the Supernova Rise, which is our answer to running specialty, on top of the very successful RD Zero range. We have launched the most innovative trail running shoe, the Agravic Speed. And we've had certain successes with our two franchises, Anthony Edwards and Harden in the basketball arena. And then we have started doing collabs with the superstar. Here you see the Edison Chen cloth collab that we have done. So many new things that is added to the lifestyle area that has helped us getting the numbers as positive as they are. If you then look geographically, we start with the only negative number. That is North America down four. And again, we have said all the time that we believe North America is lagging six to nine months behind. We believe that America will turn into positive in the second half. And one of the reasons why we are optimistic is that the inventory in the U.S. is now down 41% compared to a year ago. So we are much cleaner, and we also start to see that our retailers are getting cleaner with our inventory. If you then look at our whole market in Europe, up 14% and very, very happy with the development in Europe. And I think it's fair to say that our sell-through is even higher than our sell-in. So the growth currently with the consumer is even higher than the 14% you see, but a tremendous success. in Europe in the turnaround. If you look at integrated China, plus eight, I think we've spoken about China many times, and we have said that we think we can grow double-digit already this year. Eight is a little bit shy of double digit, but not a lot. There is a lot of energy in the market. We are doing a lot of activities, both in performance and lifestyle. We are very happy with the performance of the team, and we feel confident that we will end the year of double digit, despite, I would say, an economy that is maybe not as hot as many people would have hoped for. If you then look into Japan and South Korea, two markets that are very dependent on trends. South Korea is probably the market that is leading trends currently. We are up 7%, and also here we start to see that demand is higher than supply, and we are very optimistic about the mid-term development of those important markets. Remember, these markets were earlier into the Southeast Asia market, And it's now separately managed of local people reporting straight into headquarter. Latam still a very strong quarter plus 18. And that is despite all the issues we have in Argentina and also in Brazil. A difficult economy, high inflation, the team doing a great job. And then finally emerging markets where our entrepreneurs, you know, running the smaller and the newer markets are doing a great job and where we are making the progress that we had planned. That gives you the 8% growth. And as I said, excluding EC, which was around 150 million, it's then 5%. Why do we have this growth? I think one reason is that we continue to invest heavily in marketing. In September last year, we launched the original campaign. And during first quarter this year, we have launched the You Got This campaign, which is replacing impossible is nothing as our tagline. And I do think that when you see how we look around the world, we have a global frame, but we fill it with local content, both on the lifestyle area and on the performance area. And we are very, very happy with the way the new Adidas actually looks. In that line, having global credibility and being locally relevant is very important, and that means that we're working with local brands for collaborations. We are localizing global product lines, like you see in Korea, and we're doing a lot of big activations in markets like China. You see here on picture our original apparel activation, which is a huge activation and also very, very successful. In general, localizing our go-to-market processes is very important. You see here examples of stands in Mexico and actually doing activations there. You see Pharrell together with Edison Chen actually doing an activation in Japan for the collab around Superstar. And then also in America and Latam, very, very active with, what should I say, what is relevant for the consumer in our approach to be very relevant in the local market, but within the global frame of the brand. We do not only invest in marketing, but also in infrastructure. Here you see the new distribution center in Saudi Arabia, and you see our new distribution center in Europe. We call it Campus South, which is actually in northern Italy, and I think it's one of the most automatic distribution centers in the market. And then maybe more emotional, but I think extremely important for the brand, we do have our shoe factory in Scheinfeld, 40 minutes from here. We are using that to produce our original soccer shoes, the World Cup and the Copa Mundial, but are now also doing lifestyle products on the high end of the market. And I think because it's so important, I would like to show you a little bit of video that we've done for one of our collabs. because it is really something special for us and it shows the importance of footwear and the manufacturing process.