Adidas Ag Ord

Ladies and gentlemen, welcome to the ADIDAS-AG Q1 2025 conference call and live webcast. I am Moira, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been 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. Webcast viewers may submit their questions in writing by their relative field. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sebastian Steffen. Please go ahead.

Thanks very much, Maura. Good evening, good afternoon, good morning, everyone, wherever you're joining us today. And welcome to our Q1 2025 results conference call with our CEO, Björn Golden, and our CFO, Harm Ohlmeier. Before Harm and Bjorn will talk you and 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, as always, once again, to limit your initial questions to two during our Q&A session in order to allow as many people as possible to ask their questions. Thanks very much. And now, before I'm going to hand over to Bjorn, we will start with a video to get everybody in the right Adidas mood. Let's go.

2024 was just the beginning.

The way we showed the brand to the world during sports was fantastic.

When we believe in who we are, there's nothing we can't do.

Okay, let's ride.

Always innovating.

I want you to picture pure comfort. The number one shoe of the year is the Adidas 8-1.

And inspiring the world. If you're looking for a one-hiking shoe that can do it all, Skychase is your shoe. From sport.

Women's Euro 2025. We're going to get you, we're going to get you.

To culture.

To the runway.

And back again.

Finding joy on the pitch.

The track. And in each other. Embrace it. You're here for a reason, baby. You are here for a reason. Making an impact globally.

By winning locally.

and showing up everywhere.

That is the power of our brand. The best sports brand in the world.

Yeah, hello, also from me. I hope that you enjoyed the video showcasing the feeling we currently have in the brand. The picture you see on the screen, you probably don't know, but it's Mad Bunny, our hero in the Latino countries, and he is helping us selling a lot of different products, also low profile, as you can see on this picture. We have talked about low profile for a long time, and we now see it also moving into the male consumer, and then also helped by an artist like Bad Bunny. But mostly we are a sports company, and also you followed us this weekend. We had a fantastic weekend, first with Road to Records here on campus, where we had about 200 professional athletes running different distances, and as you can see, even setting world records and national records. And then we also celebrated together, the Adidas family. We had 2,500 people running 5Ks in different speeds. And again, it showcases the enormous power of what we are doing and the spirit we are creating here on our fantastic campus. But even better was what happened then in the other competitions. You probably saw that we won both the men's and the women's London Marathon, and where Asafa actually won with a new world record. In addition to that, I think we won both in Madrid and Hamburg. So there's no doubt that we currently not only have the best athletes, but also probably the best shoes. And, of course, that is very, very important for us. Important is also that, as we promised you, we feel we had a very strong first quarter. To be honest with you, it was actually stronger than we expected. I think partly because we have very good product that we have launched, and secondly, that both the brand heat and the operation in the different markets is actually working better and better. And that despite, of course, the challenges that we have talked about and has now been accelerated by the U.S. tariffs. We will get back to the tariff issue at the end of presentation. The numbers I'm sure you've seen many times, but of course we have to give them again. Net sales reported on currency neutral of 13%. If you look only for the Adidas brand and take easy out, it was even 17%. Very proud of the development of gross profit, more than 52%, up almost 100 basis points. If you look at all the Adidas business, up 160 basis points. And again, it showcases, again, the strength of the current line and the fact that we're able to sell it both D to C and with our wholesale partner with very little discount compared to what has been done before. So that all gives us then the EBIT or the operating profit of 610 million, which is then almost the 10% that we talked about we would like to achieve in our business model, and as you can see, almost a 400 basis points improvement. And again, I know it's only a quarter, and I also know we're only two years into our four-year plan, But I think you can see that in a decent quarter with decent operations, we are able to deliver 10% EBIT. Of course, we will not do it this year, but we think in the midterm, we are actually able to do that. And I think the first quarter actually is the proof that that is achievable. We are a sports brand and the culture that are born from it, but performance is very important for us. We have talked about this for a while, that we changed to you got this. We have been running a lot of activations and a lot of campaigns over the last three months, and what is very, very important is this local execution. I think you all agree that the world has become more local, and that's why we have put a lot of energy on talking to the consumer locally. That means in the global frame of the campaign, but always with the mind of hitting the consumer with what is locally relevant, and I think you see those examples here on the screen. Same thing goes for performance. Although we have a huge, I would say, heat on the lifestyle side, our performance launches become more and more important, and we are in all the category launches, launching products that are both innovative and good-looking, meaning that we are taking a share. Here, the same thing, the sports that are relevant are not only the big sports, but also the local sports, and we have the same strategy in our product offer as we have in our marketing offer, that we allow the markets then to focus on what is important for them, and are executing that as good as we can. In general, we have said it for a while that visibility in sports is important, And when we are visible in competition, we should also talk about it. That's why the digital content is important. And if you follow us or you follow sports in general, you will see that three stripes on our logo and our athletes are more visible than ever. And that's a clear strategy that we think is currently important. But I said, you know, brand heat and the culture born from sport is important. And we also know the industry would never be as big if it was only performance. So lifestyle is very, very important on the commercial side. Same thing here. Since 18 months, you know, we have changed the visual language of our lifestyle business. We have simplified the Trifor logo. And it's the same thing here. We have a language, which is global, but the execution is extremely local and And when you look at these visuals, you see the energy that the different markets are doing and the different tools and the different avenues they take. Extremely proud of the local energy when it gets to actually pushing the brand for the right culture locally. And the same thing here, you cannot create brand heat if you don't create a lot of new products. We have, of course, certain franchises that are doing extremely well. But the heat is being created by updating the franchises, by giving new materials, by doing limited additions, and, of course, a lot of collabs. And the activities that we had in the last three months has been very, very, very high. And it is the same thing here, very strong activations locally, both when it gets to the product and, of course, also the activations around the product. On this screen, you have to notice one thing. Up in the right corner, you see animal print. Every style that is currently going lifestyle-wise with animal print is doing extremely well, and it's one of those small things that is actually creating an enormous heat right now, and where we have probably been leading the trend. When you then look at the sales numbers, again, very, very happy to see that all markets are growing. North America, you see the Adidas brand up 13%, the whole business up only three, but that is, of course, that we missed the Yeezy business that we had a year ago. And as you know, there's no more Yeezy business. There's no more inventory. That whole thing is history. Europe, on top of very strong growth over the last 18 months, another 16% for the Adidas brand. Greated China up 14. There's no doubt that our Chinese team are taking market share. Extremely happy with the development there. Japan and Korea, we talked about that we were a little bit skeptical about the Korean business because of the destroyed warehouse and the trapped merchandise. They have been able to turn the business into growth despite this, although we have a couple of million units actually trapped in warehouses. but same here, and the brand is trending positive in both the two trending markets in Asia. Land time been on fire for a long time, same this quarter with up 27, and the same goes for the emerging markets being up 25. So, all in all, currency neutral up 13, and the DS brand up 17, and as I said, higher than we had planned, higher than we expected, but of course, also, an attribute, again, to the great work that our teams are doing. Look at the channel. Wholesale, up 18. Our own retail stores, up 13. Ecom, down three, but you see that excluding Yeezy, meaning for Ditas brand, up 18. And this is, of course, the $150 million we sold in March last year of the Yeezy product that is missing. And as you can see, a very strong development digitally then for the Ditas brand. That gives us the 65-35 split this quarter. Again, this varies from quarter to quarter, depending on where the consumer is. And as you can see in this quarter, brick and mortar then growing stronger than e-com, and that gives the 21-14. I'm sure that when you get to next quarter, the wholesale business will probably be a little bit lower and the DTC higher, but that's the fluctuation that you see. And we don't have a global target for this balance. We will in the individual markets be where the consumer is. And as you can see, that is currently then between 60-40 and 65-35. We continue to invest in our, what should I say, flagship stores and stores in general. I think we have opened around 70 stores in the last 12 months. opened next 70 stores. We have opened, I think, 230 and close to around 160. And as you can see, we really tried to modernize our fleet. The last one we did was actually in Las Vegas. I think you see it here on the screen on Friday. And, you know, showcasing the brand with great stores and great merchandise is, of course, part of the strategy, and that will also continue. When it gets to the division, footwear leading again with growth of 17%. Apparel gone from, you know, almost negative numbers to now almost double digit. And accessories also now following the trade at plus 10. Again, we are starting to sell more apparel and there's more demand for apparel. But as you said many times, we need to manage apparel more carefully because of all the apparel in the market and all the discounts. But again, you start to see that getting close to a double-digit growth as well. That gives you the almost 60% split footwear and non-footwear, 61 footwear, 32 apparel, and 7 accessories. I think you all agree that is a very healthy, I would say, split. That was kind of the intro, and then I'll hand over to Harm, who will take you through the details of the quarter financially.

Thanks, Bjorn, and good afternoon, good morning from my side as well. And as always, I shed some more light into the P&L and the working capital and the balance sheet. And as you are very familiar with the P&L already, as we, you know, pre-announced last Wednesday, I gave you just the highlights of the net sales again. Bjorn talked about it, so 30% both nominal and currency-neutral growth. And again, very clearly the Adios brand growing 17%, which is a more meaningful number. And again, for the last time we talk excluding Yeezy, that's why it's a 17%. The same you also see on the gross profit. that we could compensate for the margins that we generated with Yeezy last year as well. So we are 90 basis points up. And if you look at the Adidas brand, again, an indication for the future, we are actually 160 basis points up. How did we do that? With some more details. Of course, as we are selling more and drive more volume all through our factories in Asia and are better planning for these things, the product costs are favorable for us. Freight has been planned better and has normalized, so there was a slight positive again in Q1. The business mix and the currencies have been neutral. We continue to have strong demand from the consumers and from the retailers out there. So the promotional cadence has been limited. So that has been a positive as well. And then, as you can see, Yeezy, of course, is a negative, but could be fully compensated. And again, FX, since some quarters, has been neutral. I'm going to continue with that one. We keep investing into marketing. As we said, always plan your models around 12%. You see here, it's almost 90 million more in absolute terms, 14% up. Even more important is the operating overheads. I know we had 200 million of one-offs in 2023 and 200 million of one-offs in know 24 again but now as we are you know driving towards a healthy company being a good company and then 25 you see that the leverage is coming now it's pretty meaningful in the first quarter with you know three percentage points only three percent growth despite the 30 percent currency neutral growth that we have and we always said that we have an infrastructure and organization that can cater for a $30 billion business. So that's where you see that for the first time in a very solid way in Q1. That, of course, leads to a significant operating profit, and Bjorn mentioned it, 9.9%. It's of course not 10, but a good indication that we are clearly on a progress to be a good company and it shows the potential to be a healthy company. And 26, yes, only one quarter, but more to come. So it gives us a lot of confidence, regardless of the tariffs, that we are on the right track to become a healthy company again. When you become a good company again, you also see in the more details, when I go below the operating profit, which is probably news from today, when I give you the details towards the net income, that the financial income has normalized. We actually participate also on the cash on the balance sheet that we get some interest on, so 41% more on the income. And even more important, we are avoiding some of the expenses that we had last year. I mentioned that last year we had some repatriation of cash from countries in Latin America. And of course, we had to deal with hyperinflation accounting treatments here in financial expenses, primarily for Argentina and Turkey. That is largely behind us, at least not in the dimension that we had last year. And you see also here the normalization. That's what we always say going forward. If you have a net financial expenses of 30 million a quarter, it's probably something you can play around in your models. That leads to significant increase of 139% in the IBT. And then also the taxes, what we kept saying, when we have a normalized profitability, we get it to a normalized tax rate again, around 25%. That leads to a significant increase of the net income of 155% to €436 million and the basic earnings per share of €2.44. That's the P&L. When I come to the balance sheet, you'll see the inventory is up 15%. This is, again, according to the plan, as we want to be a growth business, especially with the IDLS brand. We said we want to go to double digits, so that is just needed in order to fuel the growth and the demand that we have in the future. When you look at that from the development point of view, as Bjorn said, Yeezy is behind us. You still see that last year we had some Yeezy stock still in our balance sheet. We finished with $5 billion at the year end, now at $5.1 billion, and it's still probably slightly growing into the future, also linked somewhat to the TerraSet. Some will come, some we don't know, but expect that to grow slightly as well to the end of Q2. But again, no worries. The aging is very, very solid. It's a fresh product, and it's definitely a benefit right now to have that inventory, especially in the U.S. When it comes to receivables, that is a reflection of the growth that we have with our retail partners. You have seen that we are growing significantly with our retail partners, and that is reflected in the accounts receivables. The same on the accounts payable. That is reflecting what we owe our suppliers in Asia. That gives an indication also that we are sourcing much more, not just in value, but also in volume. Of course, that is reflected in the inventory, as you have seen earlier. That all leads to operating working capital that went up slightly as well, but that's where it's probably more important to look at the ratio. I always said we are a healthy company if we drop below 20 percent of operating working capital over net sales. If you're around 20% to 22%, we are a good company. And as we are building up inventory for the future growth, expected to be slightly above 20%. But again, a healthy company means that's our ambition to be below 20%. So also that, very, very good development and very, very strong on the balance sheet. That's being rounded up with cash and cash equivalents, $1.4 billion. You might remember that we finished with around $2.4 billion at the end. We used that to invest into the working capital for the future growth, but on a like-for-like from last year, it's $400 million up, or 32%. Also, very, very solid development, and also good to have that in a volatile environment that we are maneuvering through with calm hands. That shows you on the left hand side that we are making progress on the cash on the balance sheet and more to come and of course the same thing adjusted net borrowings are going down as we keep paying back our long term debt through our bonds that we have taken in the past. So that is also according to plan. And our rating agencies, Standard & Poor's and Moody's, will be quite happy to see the next chart because also we came down from a net leverage ratio from 4.7 times in Q123 to now 1.6. And our internal target is to always be below 2 in our financial policy. So we have some flexibility, but that shows you that not the P&L is in good order, but the balance sheet is in good order as well. And that is, you know, we are well set up for the future. And with that, handing over to Bjorn again. Bjorn Nielsen Thanks, Harv.

So that explains to you where we are currently after one quarter. Harv Nilsson That explains why we are where we are after one quarter. You know, we have two more years to go before we are kind of at the end of this phase of our plan, and it's time then to tell you where we think we are going. First of all, I think you agree, we feel we are and have been the hottest brand for a while. It started, of course, with the Taras, but you also know it's not only the Taras. We have extended, you know, the Samba Gazelle and Special into Campus and SL72. And again, for those of you who think that this is dangerous, don't worry. The heat of these styles is being managed. And of course, if you now go into the retail environment, you will see that we're selling on a much wider scale than what we did about 12 months ago. The next thing in the marketplace that you will see grow is low profile. Talked about it for a while. We clearly see, globally now, that especially for her, different styles are taking off. And we clearly, clearly see that she's adding this to our locker, but we even see it, as I said in the beginning, on some of the mail styles and especially with what we have done with our friend in the Latino markets. The next thing which is important for us and, of course, value-wise is going to be very, very, very big for us is lifestyle running. Lifestyle running either comes from you activating old shoes again or coming with technologies that you kind of tweak What has happened now is that shoes that were meant to go in the performance side have gone lifestyle. And, you know, we've done a lot on the RDC range. We have this Evo 1 and Evo 2, which is the lightest and probably the best running shoe in the world, winning marathons. We put that together with Pharrell in the opening of the Olympic ceremony. We have done takedowns like the Pro Four, which is also winning marathons. And then we ended with a training shoe that you see here, the EYSL, at 150 euros selling price. That's suddenly, because of the design, the comfort, and I'm sure also because of the activations that went also lifestyle, And it's currently our best-selling shoe in many, many markets, in many, many retail, what should I say, channels. And we will extend this into more material versions, a lot of colors, and it's a shoe that you will see very, very visible. But as only one, the lineup on Lifestyle Running is huge. Here you see some of them where we combine classic silhouettes like the SL72, but also the LA Trainer. We have the old Comfort area, where I urge you to look at Adistar. That's also inspired by the yellow fish that Pharrell did for us, you know, a couple of months ago. We have in the VisTech area on the right side, the new Climacol shoe, which is a 3D-printed shoe, which was meant to kind of be an incubation of a technology, but suddenly goes volume. So, across these nine models, you will actually see them being quite volume drivers in certain markets. You will not see these as global trends, meaning one shoe goes everywhere, but you will see some of this being very, very commercial in some of the markets and other styles being in other markets. And I think this is so crucial that you also understand that the localization of the offer becomes extremely important these days. When we then go to the classics again, we talked about the Superstar as the next movement out of Taras. Then we did tell you that it was not necessarily for us to launch it, given that the classic shoes that were already in the market were doing so well. So we have faced the launch of the Superstar from different markets to different timings. And you will continue to see a lot of activations with our partners like Pharrell. And you will see activations like going back to when I was young in the 70s to roller skate. And this is just one example of what you will see with Superstar. And don't forget that Superstar in white, black, and black, white are the biggest shoes that we ever had. So you will, over the next two years, see that the street... will be clearly have the superstar being extremely visible. Apparel, you know, we have told you for a while that apparel was doing extremely well with the pure players in the digital world, but not so visible in brick and mortar. That has started to change, and I think it's fair to say that track tops, bottoms in all kinds of materials and shapes, we are now very hot And you see it now in the streets in almost all the markets. And the demand for apparel right now is also much, much bigger from our retail partners than it was only three to six months ago. Important is also that it's not only in the higher end of the market, but also on a wider scale. And we clearly see that this casual look combined with the retro look, and especially with three stripes, is high in demand. From the lifestyle side, always important to remember we are a sports brand, and the strategy we started out with, you know, two years ago was, of course, to try to create heat. I think we've done that successfully. I agree that some of it is luck, some of it is timing, but it's also hard effort. And then to take the heat that we now have created both in footwear and in apparel and the commercial visibility and to then drive performance. I think you all agree it's easier for a consumer to buy our running or training shoe if she's already positive to our brand from the lifestyle side than it is opposite. And that's, of course, what we are now trying to do. And we see we're making great progress in all markets with almost all retail partners. And I can promise you that we are and will invest more money into sports and more resources into sports because we are, of course, aware of that that is our future and that we need to have the background in performance to continue to be strong, both in the lifestyle area, the comfort area, and in the more commercial area. The four sports or the four categories that we need to be visible and successful globally are, for me, football. I think we are the leader, and we are very, very optimistic what's happening next year. We are making huge progress in running, both on the performance side, especially when it gets to running fast and winning and running from A to B as fast as you can, but also in the everyday low running and in the comfort area we're making progress. And as I already said to you, to figure that into the lifestyle area is for us very, very important because that's something that has been missing for some years. Training, I mean, everybody around the world that is doing sports needs to train. We have to be aware that the training market is not necessarily global, meaning that you need to approach it both marketing-wise and to a certain degree product-wise more local. That's what we're now doing. And then basketball will continue to be important, especially for the U.S. market, but also in many other markets because the culture coming out of basketball is actually global. And then in addition, we talked about this for a while, we think we need to be visible across many, many sports, both global and locally. And as you know, there are many, many sports that are extremely important in certain markets, although they don't have the global appeal that some people are talking about. What is also a little bit cool, in my opinion, is that this image of not having a lot of, what should I say, innovation, which Adidas had, was in my opinion wrong. We have a lot of resources focusing on innovation. It's therefore a little bit cool to actually be named a fast company when it gets to innovation. And when you see the innovation that we are bringing in running, which probably is the most technical category, proud to see that the Pro 2 now also won the men's marathon in London, although the female winner, which also set the world record, was actually running the Pro 1. So we have two shoes out there which are setting the best times in the world. The Women's World Cup in England will be a launch for us on women-specific rugby cleats. Same thing there, a lot of energy and innovation going in to serve her the best. And going to the Euro in Switzerland, same thing, very specific product made for her, both from a fit but also from a plate point of view to avoid injuries and increase performance. So, again, very, very focused innovation on the athlete that is going to perform in three stripes. We talked a lot about football. You know the World Cup in the U.S., Canada, and Mexico next summer. We already did our launch. We were in L.A. a month ago with about 500 guests showcasing all our products, both from the performance and from the culture side. What should I say? The Adidas family with Messi and Mahomes, with Infantino and other people were there to kind of celebrate it. And I think it's fair to say it's probably the best launch that I have been to ever when it gets to a collection and a concept for a big event. And needless to say, although we now have the tariff issues, we really, really look forward to showcase our brand in the U.S. next year because we think we should be the clear leader in that tournament. What is also cool and new is the way football culture has now spread around the globe. Although many people are not necessarily soccer fans, the soccer culture, meaning old and new soccer strips, product coming out of the soccer, what should I say, area, are now going fashion. I have never seen this before, both for male and female. And, of course, this plays straight into our hands when you see what is going on in the market. And, of course, we think that will even strengthen towards the World Cup in U.S., Mexico, and Canada. Going forward, how do we then think we can use all this to continue to grow double digits? As you know, it's our target. Well, we need to be a global brand with a local mindset, and I say local again and again and again. The world is developing in a way that you need to be successful locally, and locally it always starts with the consumer and the athlete. We need to give her what she wants and what we can give her within our frame. The markets are responsible for the offering and the marketing that we're doing in the market, and a market for me is a cluster that can own the inventory and can actually find the synergies in the best possible way. And then headquarter, the global side is, of course, to set the strategy, to give it the frame, to fund the projects, to come up with innovation, and, of course, make sure that Adidas has a future that is going to be in line with what we have promised it. To do all this, it is very important that we need the best people in the markets in China and in India and in the U.S. We need the most talented people that can take all the tools that we give them and actually use them so we're winning in the market. A local strategy does not work if you don't have the best team and if you don't give them the freedom to move, and that is what we are currently doing. So all of this, you remember a couple of months ago, we gave you the guidance for this year. We said that if you exclude EEC, we should have a double-digit growth. If you include EEC, it will be high single-digit. And with everything we knew, we thought we would then promise you an operating profit on EBIT between 1.7 and 1.8 billion. We did, though, tell you that there was some uncertainties around the world that you should be aware of and that could have an impact. on the full year and surprise, surprise, that came and as you can see on this a little bit messy screen, it shows you in green what the current increases are in the duties compared to when we talked to you the last time. You also know that on top you have the duties or the tariffs that were initially initiated by the U.S. and then suspended for 90 days. So currently on the import, we have the green duties on top of what we had when we set our guidance and when we actually did our planning. But of course, there is a danger that we will go back again to the top of the screen to the higher duties when the 90 days are over and we don't really know. So, what have we done? We have, of course, cost them clear as much as we could before the two days when the different duties were activated. We have, of course, and we are still analyzing all kinds of the different scenarios. We have rerouted products out of China that was meant to the U.S. market then to other markets. And we have, of course, done different pricing reviews. I have seen that certain press is writing that Adidas is raising prices. That is of course not true. What we said is that should the duties stay, then of course there will be price increases in the U.S. market, and that we will not be the first one to move on prices. We would follow what the market leaders are doing. So should the duties go away again, there will of course not be price increases. But I think we all agree that should this duty stay or even be higher, then of course it will cause a price increase in the market in general, not only in our category. What we also did was that we got all the major suppliers together here in Herzog. We had about 300 guests here for three days, which we do every year, to be honest. But of course, this was also then a topic How can we in the chain between the suppliers, also the brand and the retailers work in a balanced way so that we all can get through this uncertainty the best possible way that is in our opinion almost always the best way. So back again to the guidance. We do actually confirm the guidance the way we initially gave it. But you need to consider the following. The better than expected Q1, the strong order book, and as I hope you also confirm, the strong attitude towards our brand globally would, in a normal world without the tariffs, have caused us to raise our guidance, both top line and bottom line. But given the direct impact of the current tariffs that we see, and the danger of these tariffs going even higher after the 90 days period, plus the possible negative impact on the consumer in the U.S., we warn that there might be some negative pressure on this because we don't really know. But again, we confirm under the things that we know. We believe that we can currently gain more momentum in the other markets. And remember, U.S. is only about 20% of our business. So we can kind of finance the losses that we're doing on margin in the U.S. by then overachieving in the other markets. That is the current outlook that we give you. And then, you know, whatever happens, we do believe that we have, you know, the brand, we have the talented people, and we have the resources to manage through uncertainty. We are focusing very, very much on achieving, you know, the best success that we can in the other markets. And again, for 80% of our business, these tariffs have no impact. And then the whole service organization is, of course, focusing on helping the U.S. so they can make the right decision. I think with that, we think, as always, that in sports we should be a winning team and feel that at least we are on the right way. And with that, I hand over to Yousef for the next step.

Yeah, thanks very much, Bjorn. Thanks very much, Harm. And Maura, we're now ready to take questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from Ed Aubin from Morgan Stanley. Please go ahead.

Yeah, good afternoon. Thanks for taking my question. So two questions. First of all, Bjorn, some of your peers in the apparel and footwear world have been talking about some consumer weakness over the past few weeks, particularly in the U.S. Have you seen any weakening of demand at the sector level, number one? Number two, on the 10% tariff increase that you just talked about, just to understand, if you wanted to fully pass on this 10% price increase, everything else being equal, what type of price increase would you need to take? And assuming that tariffs would stay at about 10% for the remainder of the year and forgetting the indirect impact of tariffs, would you be in a position to meet your 1.7, 1.8 billion operating profit guidance? Thank you.

To answer your last question, I think you had three there if I'm really honest with you, but yes, we think that we can achieve our guidance with those duties for the rest of the year. That's what we are currently working under that assumption. On your first question, when it gets to the demand, we have not seen any, what should I say, direct change in demand for our product in the challenge that we are. You know at the beginning of the year there was some, what should I say, weaker demand due to different things. But we cannot say that we over the last eight weeks have seen any lack of demand because of this. And then the third question, the price increases, you have to remember the two things here. I mean, one is what price increases do you need to actually pay the duties? And you can do the math on that. But then the question is, what is then needed to actually keep your margin, both for us and the retailers? So, of course, the real increases are higher than the duty. But again, I don't want to give you any numbers because you can do the math yourself, because there are many ways of putting the assumptions in here. We feel that we have the tools to get through this the best way. You probably know we have reduced China export to the U.S. as a minimum, although China as a country of origin, when it gets to production, is actually up for the rest of the world and, of course, for the local business. And then when you look at the other countries, the duty increases that are there are currently at 10%, so it's the same. So there's no reason to change any strategy. But should the duties for the different markets, Indonesia, Vietnam, or whatever, be then difficult, different, then of course we will then start to allocate product in a different way. But currently we keep the plan, China for the U.S. to a minimum. We keep the production where it is from the other markets. We have not initiated any price increases, but are of course observing changes. what the market are doing, and then we will inform you as we go.

Okay, thank you.

The next question comes from Peral Dadania from RBC. Please go ahead.

Thank you. Good afternoon. So my first question is just in relation to the formation of the wholesale order book for the autumn-winter 2025 product, which I imagine you're currently taking orders for. Could you just give us a flavor as to the kind of discussions you're having with your retail customers in relation to forward-looking orders? Is there any change in their sentiment or their approach towards placing large orders in anticipation of potential changes to the tariff regime in the U.S., for example? And then my second question just is a clarification, Bjorn. In your prepared remarks, you talked about the 10% EBIT margin target as being a midterm target. If I'm not mistaken, I thought previously we were sort of trying to work towards that 10% by 2026. Is there any, just to clarify, is there any change in terms of the timeframes that you're working towards, notwithstanding, of course, any potential headwinds from U.S. trade policy? Thank you.

No, there is no change to the 10%, 26, 26 is for all speed term. So I think that's in, depending on when you were sitting, when we talked in 23, 2026 was midterm. So it's just, you know, a way of talking about it. When you look at the order book for the second half, globally, there is no change in the order book, meaning that there's no cancellations. Every retailer outside the U.S. has no reason why they should change anything, and there is no change in the direction of the order book. The U.S. order book is full for Q3. It's still going on for Q4. And it's the same thing there. There is no changes in the behavior other than people are uncertain, meaning we order and then we see, right? But we have no cancellations. So currently it's business as usual. expecting then a confirmation of what's going on. And again, regardless what the retailers are nervous about, they will need good selling product, right? And we think we are in this unique situation that we have also in the U.S. now a good momentum, meaning that they will need our product to sell. And then together with both the suppliers and the retailer, we then have to agree upon what are the prices and what are possible discounts if duties should then change or be confirmed. I hope you have the understanding that to give straight answers is very difficult when you don't know what the duties are tomorrow. I mean, you can imagine that there are so many scenarios. So we feel very calm. We focus on the 80% that is doing well. We focus on delivering the product to the U.S. that we think we can sell. We talk to the trade. We observe any price changes. And as soon as we see something we act on, we will act on it. I think that's the only way you can act today. And, of course, we talk about this every day and feel that we have a very good, what should I say, communication internally on different activities. But it is uncertain, which it is the way it is.

Yeah, hence the question. Thank you very much.

No problem.

The next question is from Erwan Gromburg from HSBC. Please go ahead.

Hi, gentlemen. Well done on a very strong beginning of the year. Two boring questions. Pardon me. First of all, could you give a bit of details in terms of the split of regional production going into the U.S.? I think you said China was minimal, but Can you quantify that and maybe give out the two, three countries of origin that count? I imagine Vietnam and one or two others in Asia. And then secondly, can you give us the percentage of dollar hedging that you have? What level is that in 25 and 26? What percent of invoicing is hedged and at what level, please? Thank you.

For the North American market on foot, where I think I've told you before that North America is having China sourcing around 3%, going, of course, now towards zero, that the balance between Vietnam and Indonesia is very much the same. It's about a third. And then the rest is spread around the many, many markets. I would say Vietnam a third, I would say Indonesia a third, and the rest spread among the other markets. I think that's the split. On footwear and then on apparel, it is actually no dominant markets. I think Vietnam is around 15% and the rest of the markets are around 10% and it's spread between countries like Pakistan, Egypt, Indonesia, even Europe. So it is very, very different and very balanced. And the China sourcing for apparel is less than 2%. So I think, again, having to be careful because I don't have the insights on the other brands, but I think we have taken care of. Whatever you can do on sourcing as much as you can and reduce China for the U.S. to, as I said, almost nothing. Some specialty issues are still there, but I mean, we will work on that. And then the rest of the portfolio is very balanced. And I don't think that there will be something now that will make us have to change a lot on that, to be honest. But again, who knows? Yeah. And for the currency, I look at harm, and he will give you that.

Thank you. Yeah, I've got, of course, a good question with the volatility of the dollar as well. So a short answer to this one, when it comes to spring, summer, 25, of course, we are done with our hedges. And you should be aware that, of course, some of the hedges that we closed, you always know that we normally hedge to the beginning of the production season up to 80%. And then we did close the remaining hedges during a time where the dollar was still stronger. So you would see some headwind in Q2 when it comes to that expect. And we have some more volume that we sourced as well, give our growth trajectory. We are still having some open, you know, hedges for fall winter 25, where we take the benefits of a weak dollar right now. So that should offset each other pretty much for the year. So that's how we look at 25. So definitely some headwinds in Q2, some tailwind in the second half, That's largely how we're looking at that. When it comes to 26, of course, there's more open opportunity and as the dollar would stay where it is right now, we took advantage of some forwards already. So that should be a tailwind all along as the dollar stays where it is. And then again, we always said we are praying for a weak dollar, you know, for the future that will definitely help us in 26 and also in 27. What we should not forget, however, there's always translation impact as well. And it's good to have a weak dollar in general for us, but it's also from a translation impact. When you have a strong euro against all the other currencies, you also have some translation impact, right? And normally these things come in sync, but sometimes you have one quarter where you have a double VEMI in one direction and then a double VEMI in the other direction. But overall, don't expect too much in 25 from a weak dollar, but definitely opportunities in 26 and 27.

Very clear. Best of luck, gentlemen. Thank you.

The next question comes from Jurgen Kolb from Kepler Chevrolet. Please go ahead.

Thank you very much. Indeed, two questions a little bit away from all the tariff questions. First of all, on markets, emerging markets continue to be extremely strong and that now over quite some time and also from an absolute level have reached a quite attractive level. I was wondering if you could maybe talk a little bit about the top three markets as to what you're seeing there, what the drivers are or what makes really this overall market and then specifically the top three markets so attractive for you and what's the driver behind it. That's the first one. Bjorn, you mentioned the four categories that you think Adidas should be very strong in. It's, again, number four, basketball. Still relatively small, if I'm not mistaken. How have you developed here? How is the current performance, specifically in the U.S., obviously? And how is Jerry Lorenzo helping you or not helping you? And what's the plan to attack this category even more aggressively maybe than in the past? Thank you.

Well, first of all, in basketball, you are right. The performance category is not as big as people think, but it has a huge impact on your connection to that street culture. And eventually, if you do well in performance, you will sell more of basketball classics, right? So that's the recipe. We have the luxury currently to having at least two players that are doing extremely well. We have Anthony Edwards, you know, which is currently with the Timberwolves are up against LeBron and the Lakers doing extremely well and as you probably know his shoes has done extremely well and we are now launching the number two also and it seems from the reaction that it's very positive and then we have Harden playing at the Clippers and believe it or not the Harden 9 is the best selling Harden shoe that we ever had and that's also developing very positive and if you look at the design of those two shoes is a little bit the new language of Adidas basketball and it's obvious that that is doing something because we're taking share and we're getting more distribution. From the same time we have changed the management so we have a new manager for basketball that has come in. We have been able I think to really get some activities going in the LA office which is producing a lot of creativity and that's why we look very positively into basketball for the future The way you measure basketball is of course very difficult because some brands put the classics into it and we are now splitting between performance and classics, not to confuse them. And we see good growth now on the performance side and especially on the signature side, which I think we are almost the only one who currently see. And then you know that the basketball culture from a lifestyle point of view goes into many markets and especially for us, ironically, It's been very strong in the China market, which right now is a little bit ironic, but it's a fact. So we feel we're on the good way. I can hear in your tone that you don't believe in Adidas basketball as much because we probably talked about it many times. But I do think we have now an American group. We have American creative, American leadership sitting in LA, and we give them the freedom from Germany, so they should have all the tools to be successful. When it gets to the emerging markets, I think we need to first agree that emerging market is not one market. It's a cluster of many markets. And we have put it in the hands of a management team that are a little bit entrepreneurs. They're sitting in Dubai and are running markets from the Middle East into markets like Australia and New Zealand and all the way to India. So it's a very, I would say, diversified group of markets. But we need to cluster it somewhere, and instead of clustering his headquarters, we have then Thomas Davis and his team doing it. David Thomas, Thomas Davis, Tomo, doing it. And I think they found this, what should I say, balance between creativity, energy, and local freedom within a frame, and that's why it's working. And to be very honest with you, it works in all the markets. It's not like there is one or two or three markets that you ask for. We have a very strong development in the Middle East. We have finally a strong development in India. And we have a turnover business in Australia and New Zealand. So it is a very, I would say, interesting group of markets that are playing a little bit different than what we do in the big, what should I say, classic markets. I think that's how I should answer it. We could go into each of the individual markets, but I don't think really it matters. But for example, we talked about India and cricket for many times. Now it's the same thing happening in Australia where we're going to netball for her and we're doing also real football for him. So we're kind of adopting to the things that we have talked about also in those markets. And needless to say, that's what you need to do to be a sports fan. And with the power of the three stripes and the global assets we have then, On the lifestyle side, it's certainly the recipe then that the right management gets attention on. So that's the reason for it.

Very good. Super. Thank you very much, and all the best for the future.

Same to you.

The next question comes from Warwick O'Keen from BNP Party Bike Sound. Please go ahead.

Thanks. Good afternoon, everyone. The first is back on tariffs, please. If I understand you correctly, you're saying you don't plan any price rises at the current level of tariffs. But if tariffs do go higher and you feel you have to raise prices, would it make any sense to spread those globally or would they all fall in the U.S.? ? And then the second question is, could you just give us a bit more flavor about the conditions in Latin America and how much of your growth is being driven by volume? Thank you.

Well, there is no reason to raise prices outside the U.S. because of the tariffs. I mean, there's always a discussion about what is the right price level compared to your heat and your selling. So there might be markets where you say you can take higher prices, but they're not initiated of the tariffs. So the discussion we're having on the tariffs is only for the US. And again, we have said that we will not raise prices right now, but we will see what happens in the market. We do know that there are brands that are more dominant and more dependent on the US market than we are. We also know that there are brands that are more dependent on China sourcing for the US market than we are. So we do expect that people will start to raise prices should these duties or all the duties be confirmed. And that's what we're following. And we are then in a reactive mode and not in an active mode. I think that's the only way of saying it. So again, we do not plan to raise any prices outside the US. We do not currently plan to be a price increase leader in the US, but are following what's happening in the market. And then I think we both know that should the duties stay at 10 or should they be even higher? then, of course, price increases at the end will be there because there's no way that people can swallow this through the industry, neither the brands nor the retailers. And, again, don't forget that when you talk about this, it's not only our sector, right? It's all sectors. So I think we are doing the right thing, having 20% of our business in a market where we don't need to lead, but we can wait and, what should I say, then react to what we see in the market.

Well, when it comes to Latin America, I know a lot of people ask the question whether the growth is only coming from the value through hyperinflation in Argentina. But I can tell you first, we are clearly the number one brand across all of Latin America, almost in any market in Latin America. and we are growing volume in every market in Latin America as well, including Argentina. Yes, of course, it helps to show the value growth as well from an inflation point of view, but in a hyperinflation environment, consumers are buying actually, or they pull forward their buys, you know, given the inflation, so the volume goes to significant also in Argentina. So everything very solid, and similar what Bjorn said to emerging markets, we have a very, very solid management team in Latin America. These are entrepreneurs, and they find solutions in different environments, but very clearly, we're the number one brand in Latin America, and volume grows in every market.

Thanks very much. Best of luck.

The next question is from Thierry Couta from Bank of America. Please go ahead.

Yes, good morning, gentlemen. Thank you for taking my questions, two of them, please. First, we've seen very low PIX inflation, X marketing in Q1. I was wondering whether you think that overhead expenses could be flat or down in your terms for the rest of the year, given the non-recurrence of the 1-0s in H2, the overall cautiousness of the spend, and the appreciation of the euro. And the other question, just for clarification, you reiterated for your guidance, I was wondering whether in the recalculation that you've made, you include any tariff effects, price effect or not, or you're just basically comfortable with the full year number target given the strong Q1 that you've just reported. Thank you.

Well, in our guidance, we have put in the assumptions of the things that we now know. And we think we have, you know, the momentum in the rest of the world and to actually accelerate both the bottom and top line so we can achieve it should the duties then come in, regardless what happened to prices. You can calculate this in 100 different ways, but it doesn't really mean anything. We will fight to reach our guidance as long as we have the chance to react within the frame that we currently see. Should all the duties be 49% and 125%, then of course we will have to talk, but we can't imagine that that will happen. I think that's the only answer I can give you. With everything we need, we still promise you that we will deliver our guidance. And then hopefully there are some good news coming around in a short period of time. And shouldn't it, we will have a discussion. But don't forget that for the rest of the world, this has no impact. So 80% of the business is business as usual. So it is currently a local problem that we need to solve. but we don't have the facts that we can solve it yet. So I think I leave it by that. And on the overhead, Harm, I give it to you.

Yeah, and of course, we shouldn't forget when we talk about the operating overheads, first and foremost, our focus is on leveraging our infrastructure and not necessarily declining the operating overheads. And we shouldn't forget, excluding Yeezy, we have been growing 17% currently in the first quarter. And again, with that growth, Assuming that the operating overhead in absolute terms will be flat or negative is probably a little bit too ambitious. We did a lot of measures in the markets and also in headquarters to prevent the cost increases. That's what you're seeing in Q1. But again, the focus is to get the leverage right. and do it right also for the organization over time. But you have seen in Q1 that we're on the right track also to what we believe is our formula for 2026, that we get to an operating overhead ratio around 30%, ideally below 30%. That's where we're right on track. With the growth trajectory that we have, but again, the focus is on leverage. And we shouldn't forget, we just talked about emerging markets in Latin America. If you grow like 20% plus and you're an inflation market, you also have inflation on the cost. And that's where you expect salary increases in these markets as well. So that's part of the reality. They become bigger, but the discipline is in our new operating model that the central costs are higher. well managed, well under control. And then, of course, we are growing in the markets with some cost as well, but leveraging the top line that we have. So again, the focus is on leverage, not on declining the operating overheads.

And just maybe as a follow-up, thank you very much. So the 30% that we've seen in Q1 effectively supposedly could be maintained in the coming quarters. Do you think that eventually you'll be able to be at 30% for the whole year? Not this year, naturally, but for a whole year, including a higher number in Q4?

Well, of course, it's getting easier, especially when we talk about Q4. But again, our goal is not to get to 30% in 2025. A lot of things are still happening with the growth that we have. But again, we are on the path to get on a full year to the 30% number in 2026. That would be the expectation. But right now on 25, we're not going to give a quarterly guidance. But you're absolutely right. In Q4, with the one times that we had, it should be easier to leverage over that sales growth.

Great. Very clear. Thank you very much.

Next question comes from G.J. Lowery from Redbird. Please go ahead.

Yeah. Hi, Betting. Just one question, please. The discussion around increased localization of your business, Can you give us some thoughts about what that means for the longer-term financial model? Do you think it means more sales volatility or less, more working capital or less, more marketing budget or less? I'm just intrigued by the sort of deglobalization that you appear to be talking to, and I wondered how you thought it joined up with financials.

Well, to be honest with you, I think it will actually help profitability at this scale. You have to remember that, for example, the U.S. and China now have two complete different supply chains. I mean, you clearly see that the U.S. cannot source from China, and China should source local for local. So the two biggest markets, when you exclude Europe, are independent anyway. And I actually believe that the scale that we have let's say with 30 billion, then it's better to have three dedicated. What should I say? Go to market processes with a supply chain that are each doing 10 billion than having one that is doing 30 because the synergies in the 30 billion are lost in the complexities. So I don't see any way of, or what should I say? Growing double digit on a stable base, making sure that we are efficient on marketing and even on working capital. unless you go local. The worst thing for a brand is to push product into a market that the consumer doesn't want because then you know the discount is killing both your brand heat and your profitability. So, you know, the SKU counts and the standard going in margin that people calculate and you say you can save 10 cents on a shoe or whatever is irrelevant. compared to the discount rate you do on the inventory that is sitting in the wrong market. So I am, since a long time, a big, big, big, what should I say, fan of going local because there's no way you can sit in a headquarter and understand the difference between the Australian, the Indian, and the Norwegian market because they're very different. So our goal is to set up go to market processes and link that into factories. So we bought from a design development and a sourcing can be more efficient for the consumer where he or she is. And I think to be very honest, we have showcased it already. I mean, the gross margin improvement that we had over the last 24 months and the success is partly because we have changed this already with the right attitude. So, So again, I see it's the opposite. If you want to have one big machine doing it all and you make the assumption that the world is global and the consumer wants the same and you put it through the same machine, I don't think you will be able to stabilize neither your growth, your margin, nor your working capital. So I don't see any other, what should I say, way. If you look at our exposure to China to the U.S. and we say it's 3%, that would not be possible if we don't think local. So I think when you analyze other brands, then you need to look upon what is their sourcing setup for the so-called local markets, and maybe they need to also rethink, because I don't see any option, to be honest.

Fascinating. Thank you.

Next question comes from Anisha Sherman from Bernstein. Please go ahead.

Thank you so much. Biren, you talked about Adidas' demand strength in the U.S. Given that strong demand position and the strong sell-throughs you're seeing, do you think you have better pricing power in the U.S. compared to your competitors and could take up prices without hurting demand as much in the market? And then... Related to that, you talked about a few different mitigation strategies for the tariff cost. You talked about consumer pricing, potentially renegotiating with suppliers. There's also the option to renegotiate with retailers, and you talked about rerouting products. How do you think about the timing and the prioritization of these? So if we hear the final tariff rates announced by the US administration in early July, how quickly will you be able to execute these different moves, and should we expect some near-term headwinds in H2 before you're able to roll out all these changes to be effective in, in 2026?

Well, I think the pricing power you have is always dependent on what happened in the market. And as I said, I think our strategy will not to go as the first mover on price, but we'll actually look at the older brands, especially the American brands and then follow. I don't think we, Being, I would say, a smaller player in the market compared to at least one brand should lead this. And I don't think it would be in our interest. And let's face it, on a global scale, we don't need to. Are there certain products that we could take up in price isolated? Yes. But I think we need to look at this in the totality and also make sure that we are a friend of the retailers and that we don't take up prices now on their best sellers so that we look good and let the burden on them. So it's, you know, a matter of managing this imbalance. And that leads into a second question. We had all the suppliers here. We have, of course, talked to all the retailers. And this is for me a little bit the same as we had in COVID is that we are moving into big uncertainties where everybody's nervous. And you cannot try just to take advantage yourself. You have to think about both your retailers and your retail partners. So, yes, our goal is with the retail partners to find a way, of course, to be more efficient for the American orders then should this duty stay. But at the same time that we commit to the quantities, both orders and forecasts that we're given so they don't need to lay off people and don't run into problems. And at the same time, we have to not forget that the retailers, should we get increase in tariffs, we cannot only put the tariffs on the wholesale price, but then we also need to increase the retail price so that they can do the margin on this. So I think this is really a situation where the balance in the chain between supplier, brand, and retailer needs to go hand in hand, and that's what we will try to do, and that's also the discussions that we're currently having today. So I don't think I can answer it all. There's how quickly can you do those things? Well, you can change prices tomorrow, right? That's not the problem. But again, you have to do it then in a way that the chain is standing in balance sourcing changes. I don't really see necessity. Oh, because as I said, we're so small in China that should the high, high, high duties in China stay. It won't have a huge impact on us in any changes. And I do assume that the deals that are being made with the big export countries will be similar. And should they be similar, then it doesn't change any allocations when you get to what country or regions we're using. And I think we told you already that in apparel, we're very balanced between the markets. In footwear, we are, of course, for the U.S. market, more dependent on Vietnam and Indonesia. But again, we feel that given that we cannot produce anything in the U.S. that is any meaningful in volumes, we will try to keep the balance with our suppliers the way we already have and then move as soon as we see what the market is giving and be very agile and fast when it gets to things that we do with speed. We did accelerate very quickly all we could when we heard about this to get, you know, custom clearance before the fourth and the ninth. So I think we've shown speed already. So I don't think I can say anything else, to be honest.

That's really helpful. Thank you so much.

You're welcome.

The next question comes from Robert Krakowski from UBS. Please go ahead.

Hello, and thanks for my two questions. So first one, I just wanted to clarify, because we mentioned the U.S., no change in demand. But, Bianca, could you talk about the beginning of the Q2? Have you sustained double-digit momentum, and is it both including and excluding EEZ? And then the second question is more about the other regions. I think we focused a lot about the U.S., but I just wanted to touch on other regions. like four of your six regions have already delivered or exceeded 50% gross margin. And I understand there's a lot of seasonality in your business, but looking ahead for the reminder of the year, do you see a reason why greater China and Europe could not reach or even exceed the 50% to 52% or upper end, exceed the upper end of 50% to 52% while emerging markets in Japan and South Korea sustain these high gross margin levels? Thanks.

Well, you know, it's always easier in Q1 to have a high margin because that's where you have most of your launches. And to keep the margin through the whole year at the same level has always been difficult. And I think we also need to be very, very, what should I say, conscious that we need to make sure that we work together with the retailers to keep, I would say, our supply clean and help them should there be inventory that is not moving. I think we need to be careful of promising exceeding margin through the year, to be honest. You also know that the margin is also a result of the mix between wholesale and D2C. As I said, we are currently supplying the wholesaler almost with priority compared to D2C to be service-minded. We had to do that, in our opinion, to get better distribution. We have quite some new categories hitting the floor. Running Lifestyle is one of them. We have more performance product on the way than we had before. So I don't want to promise you that. Is there a possibility of a long-term to have a higher margin in these markets? Of course there are, and there is an upside to it. But I think it would be wrong now to model that for the rest of the year. We think, to be honest with you, the uncertainty and the Q1 that we have shown and the fact that we're confirming the guidance is a statement that we believe in the future and want to be very careful of over-promising you in anything now and the rest of the year with the danger of then, what should I say, disappointing you, which we don't like. I think that's the only thing I can say. The current trading, yeah, again, we haven't seen any slowdown that you could connect to this, to be honest with you. I see reports and I read reports and I hear, but we can't see it. As you know, there was volatile demand in the market at the beginning of the year, and there's been many explanations for that, but we haven't seen any impact now of the tariff discussions on the sale, neither in performance. nor the value chain nor the lifestyle side because of this. We cannot confirm that. But we read about it, but we cannot confirm it.

Awesome. Thanks.

Next question is from Adam Cochrane from Deutsche Bank. Please go ahead.

Good afternoon, guys. One quick question for me. In terms of the performance that you've seen in the marathon and the happiness that you've got with the product lineup, is now the time that you think you can really double down win in the running category? Thanks.

Yeah, you know, this is a little bit difficult to answer in the sense, but, you know, two years ago, if we had the shoes that we have today, I'm not sure it would have worked because I don't think the trade was ready to take Adidas up as a running brand. But I think given the success we've had and that many, many consumers now have a positive feeling to Adidas, the interest from the trade is much, much bigger. And that combined with that we're winning a lot of marathons and rewards when it gets to the product, of course, it is the time to double down on running, definitely. So you are spot on when it gets to that this is very, very much a priority for us the next 18 months. not only in the racing community, but also in the everyday running and the comfort running segment that we have seen so many other brands be so successful in. So you're absolutely right. And the irony then is that that also leads into the lifestyle area, which you know that many running brands today that were meant for comfort has actually ended up being lifestyle shoes. So We think that a little bit luck again, that the timing of creating heat in lifestyle, then having suddenly a very good running range, even stretching into new models that you will see in the comfort range that will come in 26, we think that it is a great, what should I say, chronological set of events that will help us. So yes, running priority, and yes, we are doubling down on running in the next 18 months.

Actually, whilst I've got you on more strings to mind, for harm maybe, do you think given the scale of the euro-dollar movement, that will enable you, given the lower cost of goods sold across the rest of the world, if you were to hold prices in the rest of the world, would that subsidise anything that you need to do in the US? And is that something that you would consider as a lever? Thanks.

Well, the starting point is always whatever we do in the rest of the world, we want to run a profitable business in the US, right? So you might have in the short term that you can compensate some of the dollar weaknesses with the short term tariffs that you might have in the US. I get that question and there's a good answer to this one, but again, in the midterm, we want to run a profitable business in the US and Bjorn alluded to if the tariffs would stay or they move away, it's a different story, but if they would stay, We want to be fair to all of our partners, whether it's the suppliers, the retailers, and how we share that countermeasures. But it's not our objective in the midterm to raise prices in other markets or using a currency that might be just of short nature because it might flip again very quickly. So that's not our strategy. It can help us probably in the short term to technically mitigate. But in the midterm, again, we want to run a profitable business in the U.S. regardless of and then we continue to run profitable business in the rest of the world. So in the mid-term, it doesn't help.

Great.

Thanks. Thanks, Adam. Maura, we have time for two more questions, please.

Thank you. The next question is from Monique Boyard from Citi. Please go ahead.

Afternoon, everybody. Thank you for taking my questions. Two from me just focused on the U.S. One is a quick question. clarification question. I'm a bit confused by the North America Yeezy sales that are implied in the 1Q25 data, because it seems different to the North America Yeezy sales that were implied in 1Q last year. From the 1Q data last year, it looked like North America was under 50% of Yeezy sales, but this data suggests North America is sort of over 60% of Yeezy sales. I didn't know if there'd been a change in reporting of those Yeezy sales, And then the second question I had was just on North America. So X, any potential impacts and tariffs and second order implications on the consumer demand. I guess I'm thinking about lifestyle and performance in North America. You've got the AE2 launching with AE1 having been such a big success in basketball and then the superstar, I guess, starting to scale. So do you think the North American momentum X anything from Karis could actually accelerate as we go through the rest of the year?

Well, again, to the U.S. market, we, of course, need to invest more in American sports. So when you look at our investment into American football, baseball, and basketball, it is increasing because we know that to sell to the kid also training and other gear in the performance side, we need to be more American. So that's going on. And it is a huge target for us to get better distribution with the Academies and the DICs or the Sheilas of this world. And we feel that we now have the right products, but, of course, we need to do this over longer times. So there is a clear target to increase our performance side in the U.S. for that kid. But, as I said, that will take a long time. When it gets to the lifestyle side, we have a momentum, especially with her, and we know that we need to get more growth with him. That's why a lot of the investments now are also towards him. But in total, we feel that we have all the elements that would give us a double-digit growth in the U.S., and you saw that in the last two quarters. Again, we don't see why that should change because of the tariffs, because, you know, as I said, the trade and the consumers continue to buy something, and why shouldn't they buy us if we have a momentum? That is the, what should I say, the philosophy. When it gets to your Yeezy, I'm not sure I understand your question, but we sold in the full, what should I say, first quarter last year, 150 million of Yeezy, which is then missing this year. So when you're measuring the sales, you take Adidas against Adidas, then it's 70% up. if you take the data sales now, which is the only one we have, because there's no easy to solve it, but you take them through the combined EC and Adidas sales last year, we only have 13%. So I'm not sure what sales are missing. Um, most of that is, as you can see in the U S and most of it was in digital. That's why you see that those two numbers are different, but there's no change in reporting. Um, and, uh, If you really need the details, I'm sure that Sebastian can give it to you later, but there's no change in those numbers.

Okay, thank you.

Thanks, Monique. We'll follow up later.

Last question for today is from Jonathan Komp from BARD. Please go ahead.

Yeah, hi. Good afternoon. Thank you. Certainly helpful today to understand that you're embedding a lot of new uncertainties while maintaining guidance for the year. If I could just ask to try to understand the seasonality of your margin performance that you're expecting for 2025, your first quarter, a 9.9% operating margin, typically the first quarter is near or even above in most years the full year operating margin that you deliver. So I'm just trying to understand that. as we think about the balance of 2025, why that may look different based on the assumptions embedded in your guidance?

Well, you're right. I mean, the first quarter is normally your best quarter. If I should in my whole life say the historical, then strong Q1, weak at Q2, strong Q3, and weak at Q4. That's kind of the way the operating margin comes through a year. That's why we didn't guide 10% for the full year in 2025. And I think you will see the same seasonality now that, you know, Q1 very strong. Next quarter will be, you know, everything being the same, weaker than Q1 from an operating margin. There might be some negative effect on top of it because of duties depending on what's happening with the merchandise that are arriving, you know, what happens, but it should be that huge. Then Q3 should be very strong depending on or given the order book we have and the size of the business. I think Q4 is always depending on, you know, what is in the market when it gets to discounts, what are the take-backs that you have in markets like China, so it's a more volatile, what should I say, quarter. I bet your assumption is right. I think right now, on top of this, you have, you know, the uncertainty what could happen to the duties which no one knows, right? So we feel, when we tell you that we keep the guidance, that we're pretty, I would say, tough. I think most people will back paddle on their guidance. We don't because we believe in the momentum and we see the strength also outside the US. But again, as you can imagine, there are many uncertainties that is created of this duty thing because you don't really know what the cost of your product is tomorrow, which is very, very unique.

Yeah, that's very helpful. And then just one follow-up. On the footwear business, the three main growth drivers that you're working to scale up, low-profile, lifestyle running, and superstar, Bjorn, could you maybe just give a little more context and roadmap in terms of how you see those models starting to contribute over the next few quarters and over the next couple of years? A little more detail there would be helpful. Thank you again.

Well, I think low profile is a trend that will last for two to three seasons and go away again. Running lifestyle is a trend that has been there always, but we, for whatever reason, lost it for a while. I think when you see the effort, that should be the biggest category next to the classics that we have already success with. And again, it should be very, very specifically a segment that we continue to invest in so we don't lose it again like we did some years ago when we lost the success of Boost and NMD. So I think we are more conscious now on bringing innovation and bringing more models to the market so that we can have winners all the time and not have the volatility. And then Superstar is, of course, the biggest shoe that we've ever had It does compete with the compasses and to a certain degree even other shoes that you already have success with. But important for us is that when you go to a footlocker is that we have a good offer on the classic court side, which is currently the Terrace and the compass. Then you add low profile to it. Then you add superstar it. And then you can start to manage out of some of the volumes that you have in Terrace. that we on the running wall have both classic shoes, like the LA Trainer or the SL72, that in the comfort area are bringing in new, like we do with the Evo SL. And then on the Vistek more aggressive side, we have, you know, Clamacool, both the OG shoe, and we have, you know, the 3D printed one. And then in the Vistek side, we also have the Mega Ride, which we will start to see that we're putting even soccer up around it, because it's a trend that we see, especially with the male consumer in the U.S., And then, you know, we will come up with salutes that you haven't seen before. There is quite some, what should I say, creative work happening that uses running technologies on new offers that the market hasn't seen. And then basketball, you know, we think that given that another brand has such a market share that we should grab some of that. And we think if we use the resources that we have better, we can not only with Anthony Edwards and Harden, but also with other, what should I say, franchises be more successful and grab share that will not only sell more basketball shoes, but actually create heat also for that consumer in other areas, including apparel. So I think there is a clear strategy how to do this, and then it's up to us then to deliver it.

That's very helpful. Thanks again.

Thanks very much, John. Thanks very much, Moira. Thanks very much, Bjorn and Harman. Thanks very much to all of you for participating in our call today. This concludes our Q1 2025 results conference call. As always, if you have more questions, please feel free to reach out to Adrian, Philipp, myself, or any other member of the IR team. We're very much looking forward to meeting with you over the next couple of weeks, be it during our road shows, be it at one of the conferences during conference season now, or be it here at our beautiful campus in Herzl. We've talked a lot about the product during our call, and I can only reiterate what I said in the past. Herzl may not be the center of the universe, but I can definitely tell you it's worth visiting. We have more than 30,000 product of our spring summer 2026 season here on display. And we've talked a lot about the newness that we see in lifestyle running. We've talked a lot about the breadth that we see on the classic side in lifestyle. not starting to talk about apparel Bjorn has talked about the World Cup tent that you know we've built here so you know if you happen to be in Europe if you want to make the sidestep to Herzog you're all invited we will actually have several broker hosted visits during the month of May and June and if you want to be part of that or visit individually please feel free to reach out and we're happy to host you and show you around And with that, enjoy the remainder of this beautiful sunny day. Enjoy some of the Champions League action tonight and speak soon. All the best. Bye-bye.