adidas AG (PNK:ADDYY) Q4 2024 Earnings Call Transcript

adidas AG (PNK:ADDYY) Q4 2024 Earnings Call Transcript March 5, 2025

adidas AG misses on earnings expectations. Reported EPS is $-0.13 EPS, expectations were $0.14.

Operator: Ladies and gentlemen, welcome to the adidas AG Full Year 2024 Conference Call. I am Maura, the Chorus Call operator. [Operator Instructions] 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.

Sebastian Steffen: Thanks very much, Maura. Good evening, good afternoon, good morning everyone, wherever you are joining us today. And welcome to our 2024 full year results conference call on a beautiful sunny day here in Herzogenaurach. Our presenters today are our CEO Bjørn Gulden and our CFO Harm Ohlmeyer. And while there is actually a lot of newness in our product pipeline, as you will see and hear in a minute, there is not much new about the agenda of this call. As always, we will kick it off in a second with Bjørn and Harm taking you through the puts and takes of the quarter and the full year and explaining our outlook for 2025 to you. After that we will move to the Q&A part of the session. And also here, as always, I would like to remind you that during the Q&A session, you limit your initial questions to two to allow as many people as possible to ask their questions.

Thanks very much in advance for sticking to that rule. And now, before I’m going to hand over to Bjørn, we will start with a video to put everybody in the right mood. Let’s go and enjoy. [Video Presentation] Yes. Hello, everybody. Also from my side, I hope, as always, that you enjoyed the video showing all the things that happened in 2024. And I think if you remember a year ago when we talked to you about the year, we said it would be a year in the spirit of adidas [Indiscernible], a sports year. And we always have to remember that we are a sports brand. And we hoped that 2024 would be the revival of adidas again, given all the sports events that were happening. And I’m very, very happy and actually proud what we did achieve in 2024, it was a great year.

And the events that we talked about many, many times, both the Euro and the Copa was great events for the fans. And of course, also winning with Spain and winning with Argentina was of course, the right signal for us to you and to the consumer. And also the Euro in Germany, where there was a lot of negativity also to the jersey you see on the picture with the away jersey, we were able, despite the announcement that we will leave the FBA under 26, to actually oversell many, many times the forecast and the expectations. So it was an extremely successful summer for us when it gets to soccer or football. And then going into the Olympics and Paralympics was the same story. A lot of skepticism, but it ended out, in my opinion, being the nicest Olympics and Paralympics ever.

And again, although we wished we had even more athletes in federation, I think we showed off as a brand that we could be proud of and it came to the right time. And I think, in general, if you follow sports, we showed up both, I would say, on the footwear side and the apparel side and also outside the stadium around sport in a — yes, I would say it in a way that is linked again, to the old Adi Dassler spirit. And I would like to remind one more thing, because for me, this was maybe one of the most emotional things, especially Olympics. Although the Summer Games in Berlin was in 23, next weekend, it starts the winter Special Olympics in Italy and for me when we talk about we want to change people’s lives through sport I don’t think I’ve seen any athletes or friends or families being so affected by sports like these ones.

And I hope you have the time to follow it and support it because it’s really, really moving and again a great thing that we at Adidas are doing and a lot of our people when we now dressed up all the winter Olympics worked here on our campus and I think it was extremely motivational and a great thing. But it wasn’t only sports. I think you would agree that it was the year where we had the hottest shoes. We had talked about the so called Terrex shoes for a long time. The Samba, Gazelle, and the Spezial which we educated to you two and a half years ago is Terrex has been scaled and of course been extremely important for us and I think also for the trade to generate excitement and sales. And that was followed up during 2024. We bought the Campus, which is not the Terrex shoe, and SL72 as a classic shoe.

When you look at that picture and you see how that has dominated in many markets, we know that this has happened over the last 18 months. This is of course the reason for the brand hit again. And it shows the enormous power of our brand and our three stripes, and of course makes our job easier and makes us also proud and also optimistic about the future. We think the future will A, probably be low profile, starting when the weather gets hot. There is a lot of talk about it. It hasn’t really commercialized yet, but we and other brands of course have many silhouettes on the way to the market. And we think it will be an extension of the Samba, what should I say, trend. At least we are ready and then we will see how the consumer will react. More importantly, both short and long-term is of course lifestyle running.

We have talked about it also for 18 months, the need to get lifestyle silhouettes into the lifestyle area that can be scaled. And, I think from talking to the trade that we finally have silhouettes that are doing extremely well. On the left side you see our Evo SL, which is coming out of performance. It’s a takedown of what we did with Adizero Evo and with Pro 4. And it’s now €150 Evo SL without the carbon plate. And it’s flying in all channels. We can’t keep it in stock. And we are, as we speaking, increasing capacity, both from the tooling point of view, but also for the factory, and this will be several million pairs over the next 12 months. But not only that, we have four or five silhouettes now in the running space that are being incubated and many of them already with, I would say, good to very good results and maybe also an innovation.

You see the 4-D printed Climacool shoe, which is the first foam based printed shoe in the market, will be in the market already in April, and it’s also getting orders from the trade in much, much bigger numbers than we thought. That’s the same thing there. We’re scaling it up and it will be something that you will see in the market more and more over the next 12 months. And then already a year ago we said that after Terrex, we will then also start to scale the Superstar. We did then delay it in certain markets because there were no need because the heat of the Terrex and Campus was so high. But we have started releasing some peers in certain markets and as you can see here, a lot of collabs from working with Farrell, with Edison Chen and doing a lot of activities around it.

This will be a hot franchise. Although it will of course scale at different speed in different markets, depending on the volumes that we will then start to release in the market. And believe me, it will not stop there. There is a lot of innovation in design going into the second half of 2025 and also, of course, into the spring of 2026. And I can assure you that both in performance and in lifestyle, the pipeline is full. It’s now up to us to face it rightly together with the markets. And I hope you come here the next couple of weeks and months so you can see what we have in the showrooms. We have this luxury of being in sports and lifestyle and we say, the magic happens when we’re united. I think you were all excited to see that we brought the Trefoil back again on the pitch with the second and third jersey of some of the big clubs.

You see some of them here. And we have generated this soccer culture in the street that I don’t think we ever seen before. People are now dressing in soccer jerseys from the past, both licensed and unlicensed. And this is, of course, a direction which is very, very good for us. And we are 100% sure it would last into the World Cup next year. And it is sport footwear and apparel. Don’t forget that even the Samba is an old soccer shoe which maybe initiated this. And there’s quite some franchise sport on footwear and especially apparel that is in the pipeline going into the summer of 2026. Then new for us and probably also for you. We launched a couple of weeks ago our cooperation with the former one team of Mercedes AMG Petronas. Great. what should I say, core lab partnership that happened in a very short time.

I think we didn’t even have a year from when we shook hands till we actually have the first product. Initially doing very well, great drivers, great concept in what should I say? Market that we are new to. And don’t forget this is actually a commercial deal with us that we will make money on, and I’m very, very happy with this relationship and there might be more to come. In general, I think I told you before that we have about 3,500 partnerships either through celebrities, players, athletes, federations and teams and we adding a couple every day. And here are some of them. Extremely proud of, of course, that we have Bonmati, the Ballon D’Or winner as a female soccer player and that we were able to sign Yamal, who I think we have to agree is maybe the biggest talent that exists.

And for the U.S. Travis Hunter, who won the Heisman Trophy, which has a huge following in the street culture in the U.S. will be a very, very important partner for us. And generally you see here some of the personalities that will be important going forward. Very happy with who we have in the different markets. And as I said, there is movement here all the time. We talked to you beginning of 2023 that we had some work to do. And 2023 was of course about fixing that and then we promised you in 2024 that we’d be a better company. And as I said in the beginning, I’m proud what we delivered. You remember we grew the sales to €23.6 billion almost €23.7 billion, which is 12% of currency neutral. We were extremely happy with the development of the gross margin.

I mean, Harm will explain you a little bit more about it later. But that 50.8, 330 basis points improvement, that shows you that we have the right product in the market. And of course that our discount level was much lower than what it has been in the past. Our operating profit or EBIT ended then at the 1337 which is up 400% from last year. And I think we did deliver on all the KPIs the way we promised, or actually a lot more than we promised. And as I said again, we are proud and very happy to see that. What was cool was that in Q4, although it was a volatile market on the retail side, we did actually accelerate our growth. And you see it here that all markets had double digit growth except for Japan, South Korea, that was mainly due to a warehouse in South Korea that the roof collapsed.

So we were trapped on merchandise. So for all, what should I say, business purposes, there were double digit growth everywhere. And I hope you also note that North America for the first quarter in a long, long time are up double digit. And that gave us then the adidas brand growth of around 18% in Q4 which again was much better than we initially had expected. For the full year that gives you then basically a flattish sales number in America, plus one for the adidas brand. Remember heavily negative at the beginning of the year, double digit growth in Q4. And we told you all the time that North America is kind of lagging six to nine months behind the rest of the world. So that showed out to be true. Europe continued through the whole year with fantastic growth up 19% or 20%.

Greater China, a good turnaround. Great job of the team being up 10. Japan, South Korea we talked about up 10, despite the issues. LatAm very very strong. I think we are clearly number one in the region and most of the countries in LatAm up 28. Emerging markets. Our entrepreneurs in difficult and spread around markets up almost 20%. And that give gives you then the total growth of the adidas brand of 13 and the currency neutral growth of 12. If you look at the channels, our wholesale business grew at 14% again showing that we have better sell throughs and better performance and still have very good interest from our retail partners. Our own retail, that means the brick-and-mortar stores grew 15%. Can tell you that like-for-like our concept stores were up more than 20% and the factory outlets in the mid-single digit.

And that again tells you it was the high end and not the discounted part that was growing. And as you also know in the factory outlets we had a lot of clearance at the beginning of the year and at the end of the year we didn’t even have enough merchandise to actually do the sales that we could have done. E-com plus 6% the way we report it, if you take the easy sales out, even up 18. And again, for those of you who believe that we are not interested in digital or e-com, that is of course not true. And the investment in e-com A, from the way we present the product and the way we try to improve is of course continuing. But I think it’s important that both brick-and-mortar and e-com and especially our wholesale business is very important for us, depending on where the consumer goes in the different markets, that gives you the balance of 60, 40 between wholesale and D2C.

D2C being spread around 20 or 50, 50 or 22, 18. And again, these numbers are not targets. They move from quarter to quarter depending on where the consumer goes. And we are extremely flexible on this global number. Important is that we optimize it for what the need is in the different markets. If you look at the divisions led by footwear, again up 17, very strong number. Apparel starting with negative numbers and then growing double digit at the back end of the year up six, and then accessories, which normally is where you actually exploit the heat of your brand into cash up only 2. Of course we can do better, but as you also know, we can’t put priorities on everything. So the way this is, again showcases where we put our priorities during 2024.

That gives us the healthy balance of over 60% in footwear, 35 in apparel and 6 in accessories. Again, I think a very safe split between the different divisions. What the product is meant for or the way we categorize it. Performance up 9. So almost up double digit growing through the year. Sportswear, the lower, more commercial end of both footwear and apparel with the performance level up 6%. And then of course the higher end of lifestyle basketball partnerships and skateboarding with up 25. And to be honest with you, lead the brand by lifestyle to create heat, then exploit it in performance and then commercialize in sportswear is kind of the strategy. And again, looking back, I would have signed off for this split anytime in the last two years if we could have agreed upon it up front.

I think that was kind of the background for where we are. And then I hand over to Harm to kind of give you the results then with the different KPIs.

Harm Ohlmeyer: Thank you, Bjørn, And good afternoon also from my side. And it’s a pleasure now to give you some more details on the P&L and also on the balance sheet. And as always, I want to start with the kind of executive summary that Bjørn alluded to already. So key number here, besides the 24, almost €24 billion net sales. It’s 12% currency neutral growth. And then of course what’s important for you, the underlying adidas brand is even 13% hub currency neutral. Because I will say it many, many times, there has been €650 million of Yeezy business that of course will not be repeated in 2025 when we talk about it. As you said, very healthy gross margin. We are in control of the inventory, we are in control of the discount.

I’m going to give you some more details in a minute. That leads into an operating profit of €1,337 million [ph] up 400%. More importantly delivering a 5.6% operating profit. This includes €200 million of Yeezy profit. But I come to that later how we decompose also the puts and takes of the operating profit. But I also would like to go to the development that we had from the beginning of the year. And I know many of you said we have been very conservative with our guidance at the beginning of the year on January 31st where we said it’s mid-single digit increase and 500 million operating profit. And of course we sold some Yeezy’s and we did better than we expected. And again we changed it in April 16, then in July 16 and then October 15, so pretty much every quarter we went out ad hoc and we moved from mid-single digit increase to at the end of the day the latest guidance was around 10% and we moved from 500 million to 700 million 1 billion and then at the end 1.2 billion operating profit.

And even that compared to the guidance we beat and came up with an ad hoc, I believe January 21st. And I want to reiterate, I talk to many of you, I don’t want to be on record to do that again with four at ad hocs. Love to do it if it always goes in the right direction. But we believe you also have a better grab on the business that we know that we don’t need to go out hopefully every quarter. But of course as always we under promise and want to over deliver. So it’s not just easy. I mean how we get from the 500 million to the 1.3 billion. Underlying there was 600 million adidas brand. That is really everything that Bjørn talked about from the product momentum and brand momentum and all the work that the teams have done is seen in the adidas brand and that’s how we led to the 1.3 billion.

So it’s not just a easy story, that’s very important to bring that across. And then of course the acceleration of Q4, when you just look at Q4, you’ll see a 19% currency neutral growth. And also there many of you remember that we had readjustment of the Argentinian peso last year in Q4 and rest assured that 90% is the real currency neutral growth, and the Argentine peso has nothing to do with that one. And again, there’s some Yeezy’s still that we did in Q4. So from an adidas brand point of view, it would have been 18%. You also see all the gross profit, 520 basis points up. For the full year we had been 330 basis points up. You also see there what we always talked about, some easing of the currencies, so that even helped in the fourth quarter.

So with 49.8% and more importantly 520 basis points up. And then the €57 million in profit of course significantly better than the loss of €377 million the year before. But if you have done your homework and read through the announcement this morning, there’s also €150 million onetime cost in Q4. So it could have been €200 million operating profit as well. But that’s the acceleration in the fourth quarter that we had as well. So with that I want to decompose a little bit where we are from a gross profit and the puts and takes. And I want to go through that one. Of course there’s a positive from a product cost point of view. It’s not just the volume that we are scaling, but also utilize the capacities in our factories in Asia in a better way.

That gives us better product costing. In 2024 freight have more than normalized, so there was still a benefit in 2024 compared to the year before. The business mix, of course it’s positively contributed to tariffs as well, because you can imagine all the products that we have sold there. There’s significant business mix and benefit from the terrace setup as well. Very, very disciplined, especially in e-commerce when it comes to discounting we really controlled and that probably led to some slower growth even outside of the Yeezy business in e-commerce, but very profitable growth in e-commerce because we did less discounting. And then inventory provision, you remember, we had a lot of old inventory that we had provided for in previous years.

But we sold that successfully as well. And of course we reversed some inventory provisions from the prior years. Also in the margin that was a positive. Yeezy, you can see in the picture here, only 30 basis points still a benefit from 50.5% to 50.8% but a minimal base benefit. And again for all of you on the call, the starting point for us in 2025 to compare to 50.5% gross margin. Still very healthy, very happy with that one. And you see in the call out here, when it comes to Q4 you see no Yeezy effect in Q4. And of course the negative currency effects that we had for the full year are already fading in Q4. And I will probably talk about the dollar ups and downs later on. That will keep us busy. But I also want to give you some hint on where we will be in 2025 and what you can expect from a gross margin point of view.

So we still believe we can continue to see better product cost given the volume that we plan to grow, how we utilize our factories, how we are more agile in our sourcing approach. When it comes to freight and business mix, it’s probably more neutral discounting, especially in North America as we always said, we are six to nine months behind. We still did a lot of clearance at 24 in North America. That is mainly contributing to less discounting also in 25, so that should be a slight positive. Inventory provisions. We have clean inventory. Yes, we have 5 billion inventory at the year end, but it’s very, very clean, so do not expect significant further benefit from releasing provisions from the past. Yeezy will be gone. So that’s a negative. But only the 30 basis points.

And FX, in the past I probably talked about some tailwind, but we all know where the dollar moved, and then it moved luckily again today to 107. So credit to all the banks or not, because they said last week still it will go below parity. Then it went to 107 today and you remember I’m still praying every day that it moves to 110, but my prayers are being heard. It sounds like. So with 107 we are more relaxed on the FX as well, so it’s going in a good direction. So these are the puts and takes of the gross margin. So we are confident that this is also under good control. Moving further down the P&L, I want to highlight probably two things. One is the other operating income which is a significant improvement of 100 million in that line. And of course that is linked to the settlement that we reached with Yeezy in the third quarter.

We talked about it, but I want to remind everyone, we had a release of the risk that we put into the P&L in previous years. And through the settlement, we released €100 million in other income. That is the increase at the benefit in 2024 versus 2023. But at the same time, we put further €100 million donations in that went through the P&L that we granted to our adidas Foundation to be donated from a cash point of view in the coming years. So that’s a neutral effect. And then as I mentioned earlier, there has been €200 million onetime costs. They will not repeat themselves in 2025 million. €50 million of that roughly in Q3 and another €150 million roughly in Q4. So — and of course, there’s a easy profit of €200 million in the overall operating profit.

When I decompose that again to just be very, very clear, the starting point is €1.3 billion. We released, given the settlement, €100 million in other operating income. Then we did the donation of €100 million, so it’s neutral, both of these. Then we had one-off costs of €200 million that will not repeat themselves in 2025, and of course, the Yeezy profit of €200 million in simple math will also not repeat itself. So for you, it’s easy math for us and also for you. So the baseline in 2024 is €1.3 billion. And that’s what the starting point is also for we to compare to in 2025. I hope it’s very simple and very clear. But I just want to remind everyone what the starting point is. If I go further down in the P&L, there has been quite some talk in the past about financial income and the financial expenses.

You see that we take the benefits of higher interest rates. So we gained €20 million more through putting our cash at work as well, so higher interest, but we also had some countries where we had some financing costs where we didn’t recapitalize fully. So they are local financing their growth. And of course, in some countries, we still have to deal with negative currency effects in very volatile world around ourselves and that are the puts and takes, but also 2025 should be much smoother when it comes to the net financial expenses. There was a lot of talk last year about the tax rate of 189%. I explained that many times last year. But also here, we always said if you get to a better profitability, the tax rate will normalize and that’s what you see here.

It’s around 26.5%. And of course, our expectation is that, that will further improve over the years to come. But I would say it’s largely normalized, and now that will lead to a net income of €824 million. Going to the balance sheet, starting with the inventories. I said during the last couple of calls, we have probably seen the lowest inventory in 2024 given the growth profile that we have, and that is actually coming to fruition. We finished the year with €5 billion, 11% up. That gives you an indication based on the increase that we gave in our guidance that we needed to have that inventory to fulfill our demand going into 2025 as well. And when you see the development of that still in the previous quarters with Yeezy in there, but also there you see there is no Yeezy at the end anymore.

So there’s just, I want to confirm that again, not one Yeezy shoe left in our inventory. So it’s €5 billion of fresh inventory that is also needed to fulfill the demand going into 2025. When you go further down the balance sheet, you have accounts receivables, 26% up. That also gives you an indication on what the wholesale growth had been in the last couple of months, depending on the payment terms that we have with our customers, but very normal and very high correlation to what we are selling into wholesale as well. Accounts payable, of course, is going up as we are building up the inventory. That is what we to pay to our suppliers in Asia as they are producing and shipping the products to us. That is up 36% currency-neutral, and a highlight, all in it together, is the development of the operating working capital, which is probably the best seen in this graph here where we are coming from in Q4 2023 from 25.7%, almost 600 basis points down to now 19.7%.

I feel on record when we talk about a healthy company, in operating working capital, we are probably ahead of where the P&L is. I always said, if we’re below 20%, we are absolutely a healthy company and managing our working capital very, very well, and that’s why also gave a guidance. I’ve probably seen conservatively some of you again of 21% to 22%. As I said, below 20% is definitely best practice in the industry. We keep investing into the company as well under the brand capital expenditure. We did spend €540 million. We gave a guidance of around €600 million again for 2025 million. So we keep investing, but also not overshooting there. So also there are no concerns. €600 million on a steady state is probably a good number to have in your Excel sheet.

Where do we invest it, primarily to the brand in controlled space. So the new stores, upgrading stores, shop-in-shop in wholesale, that is where half of the investment is going into. We are rolling out S/4HANA to modernize our infrastructure on the tech side and IT side as well. And you also see in logistics, we have the capacity to grow further with the warehouses around the world. And yes, there is also the one or the other being added or modernized, but the majority goes into the brand representation at own retail or on our wholesale accounts. So also good development. Cash is important in today’s world. The world became very volatile and it’s becoming more volatile every day. So it’s good to have €2.5 billion in cash on the balance sheet.

That also gives us some higher appetite in risk that we can invest into the future. So I’m very, very happy to see that, and I’m pretty sure you have some questions, what we’re going to do with that cash in the future. But first and foremost, we will invest it into the operational business. And of course, that will lead to a better rating, hopefully going forward as well. As you see here, the cash development is very positive compared to the last couple of years. And even more important, the adjusted net borrowings has come down significantly. And I’m pretty sure we have surprised positively our rating agencies Moody’s and Standard & Poor’s as well with this number here, getting significantly below our financial policy target of 2.0, finishing the year with 1.5 on the net borrowings over EBITDA ratio, very, very healthy again.

And this gives us the foundation for further growth and investing into the right areas. So we believe it’s good to have a strong balance sheet and good leverage in our overall business. That also allows us to pay some dividend. So also here, almost 3 times up from €0.70 to €2 per share and the total payout will be €357 million. That reflects the stronger balance sheet, the cash on our balance sheet, the confidence into our outlook, and of course, we are now within the range — target range of 30% to 50%, even a little higher than the average with 43%. So pretty happy where we are with that one as well. And then hand over to Bjørn again to tell you a little bit more what we do with our cash. Thank you.

Bjørn Gulden: Yes. As we have told you, a couple of times, we created the DDRS [ph] Foundation, which are led by external people. Sylvia Schenk is there, for example, also Dr. Edward Moses is there and a group of other people. So they manage the money that we actually put into the foundation and make sure that they support projects fit for fighting hate and discrimination, sport for sustainable development and access to sport for vulnerable groups. We have through our P&L the last two years put in around €200 million, €210 million. And in addition to that, we have donated around €50 million. So the total amount of, what should I say, money that has gone through our P&L for donation is then somewhere between €250 million and €260 million.

And I think I’m very thankful and also proud of this because this is, of course, something that was made possible by some decisions that we made. ESG, of course, a topic and I want to make very, very clear that our commitment to improving the environment and also to work on everything that improves human rights in our business is still there. You can see that we reduced our carbon incentive intensity per product by a little bit more than 5% since 2022. This is in line with our targets. We are almost at 100% recycled polyester. The CDP, the organization that screens companies for what they do to improve the climate, has given us an A. That’s a up form an A minus last year. And as many companies, of course, we are changing all operations to 100% solar.

That’s for both U.S., Canada and Europe. And this is just part of what we’re doing. If you look at human rights, you can see some of the results there. The rest, you can read in 242 pages in our ESG report, which again, I would say is crazy. And I think we all have to agree we need to simplify this reporting with the interest of you and of us. I hope you guys talk to your compliance people and that we can start to work on things in a little bit more constructed way because our annual report, I think, is almost 500 pages. And I can say that I doubt if you read it in a way that you remember the most important thing in that 242 ESG pages. But it’s a different topic, but the bureaucracy to drive a business here in Europe is, in my opinion, out of control.

I would also like to say a couple of things when it gets to our employees. We are now around 62,000 employees. They come from 170 nationalities, and you see it’s a little bit more women than men, 51-49. We currently at our leadership 40.7% being women, and we still think as a normal evolution of our business, the way we drive the business that we should be a 50-50 man/women setup. And I think you will see that the development continue. We, as a management, grew more or less have been here for two years. We have talked to you as a group, at least Harm and I have since beginning of 2023. So we are halfway there and we said that we will define ourselves as a healthy company if we achieve the following, which I repeated many times, which is a double digit growth year, it’s a margin between 50 and 52.

It’s marketing around 12%. I think I said that also when I was at Puma, although I hear that I didn’t invest enough in marketing, which is interesting. But I repeat that I think 12% is enough and cost base of around 30% gives you the 10% EBIT. And Harm and me, when we met before I joined, agreed that with everything we know of this industry, if we’re doing a decent job with the current structure of the business, we think that 10% is achievable and our goal is to get there and then we can talk about what’s then after that. If you then try to explain how we got there, at least for me personally, it’s of course luck because you’re coming into a company that is not doing well. It’s of course easier than to be part of changing it than it is to actually be part of something that is very successful.

So I personally have been lucky. I think for the company timing has been positive. You’re all aware of that the big competitor is struggling. And you’re also aware that the world is very volatile. And the volatile world, where the biggest one is struggling is of course an advantage for someone who wants to change their model. And we’ll get back to that in a second. What is most important is of course, effort and attitude. And it’s obvious that many, many people in our organization have done an unbelievable effort to turn this around and that the attitude to wanting to do business and wanting to solve issues has had a dramatic change. As an example, we sourced 140 million more pairs of shoes last year than we did the year before. And of course that is impossible in a planned business if you don’t have the right attitude and the right effort.

And if it is in sourcing or if it is in sales or in marketing or in finance or in any other function. I am very, very proud of the way the people have stepped up to actually turn this company around. And that is of course what always has been the adidas DNA and which I we have woken up again. But you also have to be aware of that we had to break a lot of internal processes and rules to get there. And I think we all understand that if we want to be a 10% EBIT company or more stable going forward, what has brought us here will not be what will bring us further. So we need to do some changes to adopt our business model and our organization to achieve this. And the biggest, biggest, biggest, biggest thing is to reduce complexity. We have built an organization that is very, very centralistic.

Based on that you can actually achieve the same success in all the markets almost with the same merchandise and the same processes. And of course, the way the world has developed over the last 5, 6 years, that does work. That’s why we have brought from the market into headquarter and in headquarter works on trying to define new operating models or one operating model that then mirrors the way the world is actually developing, and very simplified. It should be a surprise, and you can call this strategy common sense. It starts with the consumer wherever he or she is. And the closer we are to the consumer by the decisions we take, both from the product we put into the market and how we market it, of course, the probability of being right increases.

And if you’re sitting in a market and a market can be a country, it can be a cluster of countries or it can be a region, of course, they have to be responsible for the commercial success in that market. You cannot do that from a headquarter. And then the headquarter, and it could be headquarters, it might be that you have functions sitting in different locations. But if we say now in Herzog — we, of course, have to build the frame for the brand. We have to make sure that we define what categories that we find what technologies that we could into research and into innovation that we also support with systems. So the headquarter roles will not be less important, but it’s not going to decide what’s we’re going to sell in a city in the other side of the world.

And this is important because it means that we have to put decisions into the immediate level of the consumer, and we have to have strong local leadership that we trust. I think it’s the same in politics and it is in the business. You don’t need rules for everything when you trust people, and you can or you have to make sure that you get rid of a lot of the bureaucracy because we have so many hindrance in our business to do business both internally in our organization, but believe me also in the market here in Germany within the EU. And I think this has to change, if not, we’ll not be competitive. So with all this in mind, we worked with different departments and different processes and identified work streams how can we reduce complexity and be more right in what we’re doing in a more simple way?

And these work streams, again, from the bottom up, not from the top down, identified that most of the complexities are actually being created in headquarter. And we did then define that we have up to 500 roles here in the headquarter that are obsolete. It’s not persons that have done anything wrong. It’s not the persons itself, but it’s actually roles. And therefore, we initiated and the program to see if we could, with the voluntary program, actually reduced these roles from 500 then to zero. The process is underway. We still have, I think, 2.5 weeks left to go, then hopefully, we have enough voluntary people in scope that will then leave adidas so that we can do this in a very, what should I say, good way. Should that not be the case, that there will be a social plan that will then, what should I say, support the rest of the levers.

Anyway, not the fun thing to do, but necessary if we want to be competitive and be the best adidas. And the best adidas in the current world is definitely a global adidas, but with a local mindset. And of course, it starts in Europe where we are sitting with our headquarter and have the longest addition. We have to be the market leader in this market. There is no excuse for us not being number one, and all functions here, including the business unit, needs to be sure that what we do in the market is the best and that we win. Do we then go to America, it’s obvious that there are differences. The American Sports, the college sports, the high school sports are all things that is very different than here in Europe. And there is no secret that the American brands are much better than the European brand in connecting to the make consumer because of this.

That’s why both in Portland and in L.A., we now have creative centers, we have business units, and we’ll be much, much more local in the way we invest in sports and much, much more American we try to connect to the consumer. And this is necessary. If not, we will not be successful. And we have to admit, of course, we don’t need to be number one in America because that’s an illusion. The competitors are so much stronger that we can definitely grow and become much, much stronger in the U.S. than we have historically been. Greater China, same thing, again. A lot of consumers that are very interested in our sector. But of course, it’s the same thing there. The sizes are different. You can produce locally. It’s only monobrand and you control the space.

The influencers are different. The sports are different. So again, here, we need to give the local management authority to go to market and produce the product that they want to have in front of the consumer. And don’t forget you can today not really export from China to the U.S. And at the same time, the China market should be supplied out of China factories. So for all intensive purposes, you have two different supply chains between China and America. We have only 3%, 4% of the products sold in the U.S. coming from China. So it’s already almost 100% different. I am extremely important that we’re growing double digit in China again. And any statistic you will, you will see that we’re taking market share. South Korea, very special market, very spend oriented, that market that started the Samba trend, but also in general, highly influential, both for the Chinese market and from the Japanese market.

We have a creation center in Tokyo that then services both Korea and Japan. I have to remind you again that we had problems in Korea in November that the roof of a major DC actually collapsed because of snow, and we still have a lot of product trapped in that inventory, which means that the growth that would normally be in there will not be so easy to do in the next couple of months because we’re working on, of course, a, separate warehouses, but also to actually get access to the inventory that has been trapped. Japan maybe the most conservative market in the world, very Japanese, very focused on having designs, materials and quality being Japanese. And we have the same thing here with new management, Japanese, that is a very, very, what you say, seniority guy in the industry.

Full freedom also in working with Equation Center and we have in very, very short time connected much closer to the wholesalers and the retailers in the market and you see it pays out. LatAm, I think all statistics I see we’re number one in LatAm, number one in most of the markets, a very agile team, very focused on servicing the market, big differences from market to market, very successful in Mexico. Even with the province in Argentina with high inflation and difficulties importing products, very successful and very, very happy with that development. And as I said, I think we are clearly number one in that region. Our entrepreneurs are, of course, the people that take care of emerging markets. New markets, Middle East, but also markets like India all the way down to Pacific.

So not really one market, but a cluster of markets that needs to be serviced individually of a group of people. And I think we have done tremendous steps in actually connecting with the consumer. The examples are, of course, the Indian cricket team and what we have done in Indian, but also prolonging with the All Blacks and focusing on the sports that are relevant. And now in Australia, after many, many years not being in the relevant sports in Australia, we are finally back again to be a real sports brand there too. Same thing here, extremely happy with the development and so much energy coming out of this team. One of the pictures here is the women only stores that we have in Riyadh in Saudi. And I think if you ten years ago had said we will have a women only store in Saudi, you will not believe it is true.

So a lot of these markets that, of course, have different systems and had a lot of problems, they are making progress. And in my opinion, sports is only helping and extremely proud of what we see in many of these markets. So 2025, we are already two months into it and yes, the market is difficult and volatile, but so far we are in really good shape and feel that we are doing the right steps. We are of course taking the success of our footwear range and the brand heat and now also transferring that into apparel. You know that if you walk the streets last year you saw a lot of three striped shoes from the tariffs, from the Compass from the SL-72 and others, but you saw little apparel. We didn’t push apparel into the stores, but we started to sell a lot of apparel through the online pure players and through our own channels.

And now you clearly see that that visibility is increasing. So you will see a lot of retro styles, you will see a lot of colors, you will see a lot of wovens, you will see a lot of new materials. And there’s a freshness in apparel that we bring to the market that makes us very, very positive of the rest of the year when it gets to apparel business. And then maybe backwards, but I’m 100% sure this is correct. When you are creating brand heat on the lifestyle side, it’s also easier to get more distribution and more sales in the performance side. Maybe on football it’s different, because it’s such a different segment. But bringing back the Predator and bringing back the F50 together with the sports and soccer culture we’ve done on apparel has of course given us tremendous growth in football.

And when originals and football works, then Adidas is doing well. And we are very optimistic about the football range both for 2025 and 2026. Running. Huge category, and there is a huge running boom around the world. And of course we have not had the right product in the right amount in the right markets. But to be honest with you, we couldn’t even do the that because we couldn’t grow more than we had because we couldn’t even, in my opinion, execute it properly. So we focused on bringing innovation, do the Adizero line correctly, making sure we were winning marathons, that we signed up the right runs, very visible in all the marathons and we are taking market share in all, I would say the performance categories where people buy shoes to run faster from A to B.

Now when you then look at everyday running and comfort running where all the brands have clearly done a better job on us, we finally have the right product range. So in the next 12 months you will see totally new Supernova range. You will see new Boost material and new Boost product which will impress you. And I’m 100% sure that we will take market share outside of the high end performance side because we have the right product. And in addition to that, the shoe you see on the screen is again the Adizero Evo SL, which is in my opinion the hottest running shoe now in the lifestyle area. Although the shoe is also selling in a specialty side and in the sporting goods stores. I think we have it now in 92 different colors and materials. So a wide array of different looks on the same last in the same material in a very, very comfortable form.

Basketball, surely the most difficult category to be big in, given the strength of our major competitor. On the other hand, with the athletes we have, with the design direction we’ve taken and the price points, we clearly see that we finally are starting to get better results. And again, the business unit sitting in LA is for the first time real, what should I say, operational and the things that are coming out of there makes us also positive And you know we need visibility with players and products in NBA to sell other classics. So this is a major part of our strategy for the U.S. going forward. And again, we will not be a market leader, but we will take share, and we are going definitely in the right direction. A category which we should be strong in, training.

We are making huge progress in markets like Europe and in LatAm. We have not made the progress that we need in America. And again, we all know that this is a major focus for us going forward. We know that all the brands, new brands are very successful in the U.S. We have seen new Collabs, which I’m sure you read and locked upon. And of course, we are working on Collabs, different distribution and I would say, the key for the American market because going forward, training will be crucial for us, both in apparel and fitter. The good thing is on footwear, we have now 3 franchises that actually were bought in Asia in America and Europe, so there are positive signs. But on apparel, we still have quite some work to do. And then outside these categories because I kind of mentioned many, many more, including Golf, including U.S. sports, including tennis, but of course, you don’t have all that time.

What is important is that we will continue to invest more in the width of sports and in the depth of sport. That also means in smaller sports that are not commercial. And this is, again, in the spirit of Adi Dassler. We want to go back again to be the sports brand of choice for the athlete. Also in smaller sports where it is to get visibility and credibility and necessarily not to get the commercial success going. This creates energy and innovation. It creates fun for the designers and the cost of being in this smaller sports is not necessarily huge, but I think we, as adidas should not even look up on the cost and Harm have given me money, so we will continue. And you will see some announcement where you will probably be surprised but is in the spirit of getting credibility, visibility and fun with sports and athletes.

And then of course you ask what kind of events can you then copy what they did last year? There are no events this year. Of course there are. The Women’s Euro in Switzerland will be, in my opinion, a great commercial and image event for women’s football and football in general. There is huge interest increase and the offer coming out of us and other brands is much better than before. The television coverage is better and that’s why that is a huge event for us. The Women’s Rugby World cup with the All Blacks is fantastic for us. And you will start to see a lot of campaigns also going towards women’s rugby. The women’s Cricket World Cup will be hugely important for the Indian market. And again of course then we support it. And then, then you have kind of the test for the World cup next year, which is the club World Cup that is going to be in the U.S. this summer where we of course are the major sponsor and will have many teams.

And then I can promise you anything that brings us closer to the consumer, to American sports. Being in high school, being in college, being in any of the American sports has high priority for us. And you will see that every month, every quarter going forward. So finally we talked about this many times. We cleaned up our logos. The performance logo on the left side, the three fold on the right side. We took adidas away because the logos are so strong by itself. We created a visual language for results, which you see here. You will see doesn’t matter if it is in Tokyo or if it’s in Europe or America. The visual language is the same, but the content might be different. It might be local celebrities, it might be local products. But wherever you go in the world, this is how we look.

And I think it’s time, right? It is us and very proud of it. And when you then get to performance, we change the impossible is nothing to you got this. Why? Well, we think the attitude of you got this is much more right. It is trying to take the pressure away. It is having an attitude that I think we all would like to have that we don’t need to worry because you should just do it. That’s not ours. Because it is not only about winning, it is also about enjoying sports and enjoying what you are doing. And the attitude of this chapters have in my opinion been done extremely well by our creatives. And I’m going to play a couple ones because they really touched me. And if you’re an athlete, you will now get goosebumps. [Presentation]

Bjørn Gulden: I think we all need someone to make us believe. And as I said, if you’ve been an athlete and are an athlete, I think you know what we talk about at least. I think this message is so right. I think we made 52 of these stories and they’re all authentic. So you will see stories with stars, you will see it with not so famous athletes and they all authentic stories which is again in these days so important. And I know who my plus one was. Maybe you know too. So where does this bring us? As always, we give our guidance and as you can see here, excluding Yeezy, that means for the leaders brand, we promise you double digit growth. If we have Yeezy into the base, then of course it is first only high single digit growth because we need to replace the €650 million Yeezy product that we sold in the year of 2024.

And if we add that all up under those circumstances, we promise you an EBIT and operating profit of €1.7 billion and €1.8 billion. I know you very well, you will say why so low? And you get concerned, of course our ambition is higher, but you know that we will never go out and promise you something that we cannot deliver. And again, you’re sitting in February and you look at the market and you say, are we going to have tariffs in the U.S. or are we not going to have tariffs? Are they going to be tariffs of all the countries? What is this inflation going to cause in the markets? I think you need to give us a quarter or two before we start to talk about what the potential are. We feel very comfortable with this guidance and then it might be, even if Harm doesn’t like to do an upgrade, that we will allow ourselves one later in the year.

But again this is what promise you and that is in the environment that you all know that we cannot, what should I say, guarantee what will happening in the world. We can guarantee you once, that is we will take market share, our order book is good, our sales is good, but we cannot control what is happening with total retail. And I hope as good long term shareholders you will agree to that. So we have been through this many times. We think we are on the way of delivering the 10% EBIT in 2026. This is what we have said. This is the math. And again, everything being equal, the time for us is now and I hope you then have some good questions. Only two at the time.

Sebastian Steffen: Thanks very much Bjørn. So the time is now for your questions.

Q&A Session

Operator: Maura, over to you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Piral Dadhania from RBC. Please go ahead.

Piral Dadhania: Good afternoon. Thank you for taking my question. My first one is just on the wholesale channel. I was wondering if you could give us an indication of whether there was any timing effects related to the delivery of wholesale orders, particularly in Q4 where the channel accelerated to a mid-20s run rate of growth versus a low teens number in Q3 and whether that would have any impact in Q1 of 2025? And then secondly, just within wholesale, just to understand, the European regional guidance is high single digit after a fairly strong 2024, partly supported by football we understand. Is there anything you’re seeing in the wholesale order book for autumn/winter 2025 that gives you any reason to be cautious on the European regional outlook?

And then my second question is just on the buyback, which is very nice improvement in the free cash flow generation and very nice improvement in lowering the debt load on the balance sheet. So congratulations on that. I think historically, Harm, you’ve talked about the ability to revisit the share buyback should the net debt-to-EBITDA leverage ratio go below one times. And on our numbers, we think that happens in 2025. So is there a scenario in which you may reinstate the share buyback perhaps in 2026? Thank you.

Bjørn Gulden: The way I count, that was three questions, but I’ll answer the two first one and then Harm takes the third one. Nicely done. On the wholesale channel and Q4 impact on Q1, the answer is no. There was nothing pulled forward. There was just either preorders placed and then a lot of reorders. So no impact on Q1, no. The wholesale number for Europe, which is high single-digit, which could be 9.9% theoretically, we haven’t seen any slowdown other than a lot of European retailers struggled in general with, I would say, volatile demand. We have seen strong numbers, but we are in an environment where we have to take into account it’s not only us. So given the growth we had last year of 20%, and given that quite some of the retailers were flagging that they were nervous about the economy and the traffic and actually even through the last couple of weeks, the weather I think that coming out at a high single digit was kind of smart to do.

But there is no — the order book is strong, and our performance at the beginning of the year is strong. So there’s no red or orange flags on that. Harm?

Harm Ohlmeyer: Yes. First, Piral, thanks on credit on the free cash flow generation. I appreciate that. And yes, I mean, first, it’s very, very good to have a strong balance sheet in today’s world and a more volatile environment where every morning, you wake up and see some new news. So we’re very, very happy that we made good progress, and there is a strong balance sheet. Now we’re using that cash to build up our inventory as well. We shouldn’t forget we have some seasonality as we go into more double-digit growth again into 2025. That’s what we want to see happening first. I’m pretty sure you will generate a lot of free cash flow again in 2025. And we talk about a share buyback or not, there’s definitely nothing for 2025. If the world is normalizing, we might look at that in the second half what we want to do with the capital allocation.

But rest assured, the capitalization is first, investing in the operational business, than paying dividend to our shareholders and then we might consider a share buyback, but that is our topic purely for 2026.

Piral Dadhania: Great. Thank you.

Operator: Next question comes from the line of Edouard Aubin from Morgan Stanley. Please go ahead.

Edouard Aubin: Yes, hi guys. Thank you for taking my questions. So my first question, Bjørn, is on the competitive landscape. Obviously, you don’t have a crystal ball, but do you expect the competitive landscape to be more adverse than in 2024 or less? I mean if we look at the industry leader, it has been quite disruptive in terms of discounting and still today, but hopefully, things should normalize, but at the same time, they may also get more shelf space in the second half of the year. So just your view overall on the competitive landscape? And then on the gross margin, so really impressive numbers in 2024, given limited EC benefit and less benefit from China than historically. But if we look, Harm, at 2025, so you kindly broke down kind of the moving parts in terms of headwinds and tailwinds and the 30 basis point headwind from easy, the market seems to believe that kind of the tailwind in terms of the product cost and discounting would be about 102 — sorry, 50 to 100 basis point benefit offsetting again part of the offsetting the easy headwind.

Does that seem correct? Obviously, you don’t guide, but in terms of your gut feeling, if that makes sense in terms of the magnitude of the potential improvement? Thank you so much.

Bjørn Gulden: To be honest with you, I don’t think that the competitive landscape will change in a way that they will have impact. I think the only thing which worries me maybe in general, be what happened with inflation tariffs in the U.S.? And how is the retail landscape in general. I don’t see our competitors’ actions having any short-term impact on us. There has been quite some discounted product in the market for a long time, and we still did very well on full price. And I haven’t seen any product launches or anything that I heard about that should have a material impact on what we are doing. There are, of course, the running brands that we talked about many times that are doing well, and they will probably continue to do well, but that doesn’t really have an impact on our business.

And I’m sure that the major player will work through his issues, but I’m sure he also needs some time to fix things. So I would say that we’re not really looking at competitors and getting higher heartbeat, but we are, of course, not aware of what will happen in the retailer market should this tariff thing start to move left and right. Because it’s obvious that, that will make the retail market in the U.S. go down when it gets to volumes. But again, no one knows yet. As I said, if it is China only, it won’t have any impact on us isolated because we hardly use China for the U.S. But there are many people who’re using China, though it will create inflation anyway and then we don’t know what’s happening. So — but no, we focus on the consumer and the different clusters and markets and feel that we have the answers for 2025, and then we will see if competitors are doing something, but we feel pretty confident right now.

Harm?

Harm Ohlmeyer: Yes, on the gross margin, it’s a really good question. And what I need to remind everyone, we normally hedge 80% of the U.S. dollar in the euro or other currencies as well. And we all see that the spot rates have been rather difficult for us in the last couple of months. Now they became very favorable today when you look at some of the spot rates or how we need to hedge for the future as well. So what I’m saying is it’s a very volatile environment from a currency point of view as well. And I can’t confirm what you calculated there, Ed, but what I can confirm, pending something, forget about easy the 30 basis points, we will definitely cover that. But I’m also very, very confident that we will exceed what we have done in 2024.

So definitely, we are targeting to improve what we delivered in 2024 at 5.8%. So we are confident about this one. And of course, there are always some external factors. I mean, you have a midyear election in Argentina where we don’t know what’s going to happen. If Milei [ph] is going to be confirmed that it could be even better. So — but the main message is without going to all the puts and takes, we are very confident that we can improve compared to 2024.

Edouard Aubin: Okay, thank you.

Operator: Next question comes from the line of Aneesha Sherman from Bernstein. Please go ahead.

Aneesha Sherman: Thank you so much. Bjørn, a question for you around tariffs. So you’re going into your third year strength. You talked about it being scaled up. Where do you think you are in the cycle for tariffs? And are you still seeing double-digit order book growth? And kind of how much longer do you expect tariffs to keep growing above the market? And then one for Harm on your margin guidance. Can you give some color on how you’re thinking about sensitivity to top line performance. So for example, if the top line growth were to actually come in at double digits for the group as per your ambition, what kind of leverage would you — incremental leverage would you expect on the kind of 6% to 7% operating margin guidance? Thank you so much.

Bjørn Gulden: You have to remember that two years ago, when we started December and we — I think we indicated your tariffs because I don’t think it was something that people knew what was. There was, in the beginning, no volumes. So as the real volumes that have gone to the market has really been scaled for the last, I would say, 16, 17 months. And you have to remember that tariffs is just a subsegment of classic court shoes. So both the Superstar and also the Campus is not the tariffs the way we classify it. To the three shoes that are in the tariffs area, the Spezial, the Gazelle and the Samba, they are in different life cycles in different markets. And we manage these franchises, not as global franchises, but we manage them market by market.

So it’s obvious that the Samba are in certain markets at a level where we manage now the volumes. Although the order book demand is still up, we are starting to manage that. The Spezial is not at all what should I say, manage because the demand is increasing in all markets. And the Gazelle is a shoe that is very good in some markets but not really relevant in other markets. So it’s a pretty, what should I say, mixed setup of how we manage them. Important for you is that we don’t manage this global because global is average, right? I mean if you sell 100 in one and 0 in another, the average is 50%, and it is meaningless, so we put all the issues available for the market. And then the markets are selling them both from a preorder and also from a reorder with forecast, and then we adjust that from a month-to-month and in certain markets, even from a week-to-week.

The full what should I say, block of tariffs is still not saturated, meaning that there is still growth in the area, but of course, at the level we are you need to manage that. That’s why it’s important, for example, in the U.S. to start to scale the Superstar over time because that’s a much more American shoe, especially for the male consumer than any of the 3 coming out of tariffs. And remember, Campus came as a surprise and was also scaled in many markets. So we’re not worried that 3-stripe classic shoes, the way we manage them, still has legs to walk on. But of course, we need to make sure that we also put other products on the shelf. That’s why the Evo SL, which doesn’t come from court, but come from running was such a nice surprise for us because it took off like a rocket, and it’s scalable into millions of pairs, which we hadn’t planned it to.

In addition to that, you have the 3D printed shoe out of Climacool, which was also only meant to be a small thing, which had turned into be a monster. I mean, we can’t produce enough of it. But it’s an interesting thing because it’s gone commercial in the retailer’s eye. Then you have the first running shoe coming out of the LA center, which is a shoe called Kokana, which all the American kids that comes out of American football loaves, which will start to hit the market. Then you have, the Mega ride, which is our VStech answer to what is happening in the market. And you have the old Climacool and the equipment shoes that are trending. So we have a big group of running shoes that are in different phases of what should I say scaling them into be commercial which is completely different than 12 months ago when we basically had SL72 as a test.

So we feel when we talk to retailers that we can now fill the classic wall terrace and other styles and we can start to fill the running wall in addition to the basketball shoes that are starting also to do better. So we feel we are in a much wider shape than we were a year ago. And should we get to the stage that we feel that we need to discount any of the terrace shoes, we will of course reduce the volumes. And remember, we do not allow discounting of the standards colors, only seasonal scholars like everybody do on franchises. So with that tik, I give back to you. Harm.

Harm Ohlmeyer: Yes. Aneesha, on your question on the margin. And of course, if you get to our ambition to grow double-digit reporting and you compensate for the €650 million Yeezy business, that will be incremental profit in absolute terms to the business as well. And that will be over proportional to what we are guiding right now. So there will be a benefit. But secondly, you also to look at how the currents are developing. I mean, if the dollar is getting to parity, we have a higher top line, probably on the same absolute profit, so it might have an impact on the percentage profit. The other way around, if the dollar is getting really weaker and the RMB would be weaker, then we have a higher percentage for profitability.

But first and foremost, the absolute profit would be favorable if we get to our ambition of double-digit growth and compensate for Yeezy. And then we always said we want to have a linear development towards our 2026 target of 10%. So that is part of our ambition, and you can do the calculation of where we’re coming from in 2024. If it would be ideally linear to get to the 10%, that will be a good indication as well if you get to higher net sales. That’s pretty much where we are.

Aneesha Sherman: Thank you. Really helpful.

Operator: The next question comes from the line of Warwick Okines from BNP Paribas. Please go ahead.

Warwick Okines: Thanks very much. Good afternoon. Two questions, please. Firstly, when you talked about the need to simplify the organization. I don’t want to underplay it, but it’s removing 500 roles in headquarters enough? Or is that the extent of what you’re doing? And then secondly, in your annual report, it shows that the cost of promotional and advertising commitments increased nearly 30% to €8 billion. Does that indicate rising costs in maintaining your authority in sports, or that you’re just signing up your partners who longer contracts?

Bjørn Gulden: Well, the second one is just long-term contracts that have either been renewed or added. So there is not anything else to that. And as you probably know, we have resigned some of the big ones. There are some announcements around the corner. So when you know all those, you will know where the math is coming from. The 500 roles, does that — is that enough? Well, it isn’t of the way we looked at it now. Remember that this is to reduce, what should I say, the complexity and headquarters. It doesn’t mean that we’re not going to add people in the markets. So when we did this analysis — and again, we’ve done it pretty thoroughly, this was what we identified to be the necessary steps in Herzog. That again does not mean that we don’t need to do things other places in the world, but it starts with headquarter.

And most complexity starts with that we’re doing things in headquarter that hinder also doing things simpler in the way we go to market in the market. So I would say yes. I mean and then you know we are moving people around on other, what should I say, programs and we are hiring people in the market. So we don’t say every little detail we do in the organization, but this in Germany is a major thing, right? Taking 500 rolls out of a headquarter in Herzog. So you don’t win the popularity price when you do that, right? And you shouldn’t. But it is necessary, probably not short term, but it’s necessary for us to start to work in a way that we get the best out of this brand. And I think both Harm and me agrees that even if it has a cost impact, we have accrued for this, and of course, in Germany, getting rid of people cost something, we take the hit now.

I think there is a quote that you should change the roof while the sun is signing. If it’s not too late, and we feel at least we have some sun, and that’s why we decided to do it now. But not pleasant, I mean, as you can imagine.

Warwick Okines: Yes, got it. Thanks a lot.

Operator: Next question comes from Geoff Lowery from Redburn Atlantic. Please go ahead.

Geoff Lowery: Hi there team. Just one question really. Can you develop your thoughts about the future marketing model a little bit more? I’m quite struck by your observations about needing to do more and more sports and more locally and yet you’re recommitting to the 12% of sales number for marketing, which kind of suggests the return on that marketing is as high despite the evolution in model. Is that a fair way to think about it? And how do you think about it in coming years?

Bjørn Gulden: Marketing, there’s no formula of what is right in marketing. 50% is the emotional and 50% is rational. What I’m saying is that you cannot only invest in the big sport that are commercial, at least I think so. And I think adidas need to be different. I know the brands by having the Adi Dassler attitude of being visible also in smaller sports and being, therefore, the athlete, not only because of marketing the way you look, but also internally in creation. Innovation people and design a love to work on things that are different. If it is a ski jumping boot or a bobsleigh shoes, or it is a riding boot or whatever, if we can work on creativity that are outside things that you need to brief in to be commercial, you’re creating this excitement, which adidas used to have.

And I think we want to bring that back. And now you have to remember that if you’re signing a soccer startup can be €1 million, €10 million, €20 million, there’s enormous investment in it. If you’re signing a skier it’s not even the shoe laces of soccer player, right? So the point is that when you’re doing €3 billion in marketing, you can find money to do things a little bit different than only doing running, basketball, soccer. And that’s what we’re trying to do. The 12% in marketing is not scientific. It might be 11.5%, it might be 12.2%, but I think what we try to tell you is that we think that 52% margin, 13% marketing, 30% cost gives you 10% EBIT. There are variances in this, maybe we do 52.5% margin, and then you can do 12.2% marketing, and you still at 10.3% EBIT.

So I think this is not a simulation of exact numbers, but it is a philosophy. And I think we have an agreement about this. I hope you agree that doing cricket in India makes sense, both from an image and commercially. Having the All Blacks in Rugby we don’t play Rugby Germany makes sense. Mikaela Shiffrin is the biggest ski star in the world, we can use them more. And you can go on and on and on, and you can find ways that can combine the emotional and the commercial in a way that it fits our, what should I say, adidas’ vision. Don’t forget that should you grow 10% every year, that’s €2.3 billion or more, 10%, 12% of that is €250 million. So even if you keep your , what should I say, percentage flat and you keep your long-term contract, there’s always flexibility.

And again, we have a snowboard in China, which is the biggest one in China, who would have thought that. So we have a breakdown or in China who is great. So again, this is a moving thing. And I don’t have the answers, but I have hungry people that are trying to find things that are relevant, and that’s what we’re trying to do. There is no more scientific to that because the ROI in marketing in your models, if they really worked, they wouldn’t work again because then we will all do the same. I haven’t seen one model on ROI on marketing that works. So again, Nike paying 3 times more than we did for the DFB. I mean how do you find a model that says that’s the right? They still do it, right? So again, there is a subjectivity in this, and there’s an emotional part.

And the important thing is that the leadership and the markets agree upon the direction that we kind of are backing up the investments that we’re doing. And at least, I feel over the last 18 months to 24 months, we all have agreed to this. And any big investment we discussed in a bigger group. So I really, really feel that it is good. And in a couple of weeks, you will see a couple of announcements that I think you all agree to. And they are both rational and emotional.

Geoff Lowery: Thank you.

Operator: The next question comes from the line of Erwan Rambourg from HSBC. Please go ahead.

Erwan Rambourg: Yes, hi good afternoon. And congrats on the journey so far. So I’ll stick to thanks a lot for the useful reminder of the framework for margins. To get to 10% EBIT margin, I think you said you needed 50%, 52% gross margin, 30% SG&A, 12% marketing expenses. You’re already there on gross margin and marketing expenses. So should we understand that you’ll get a lot more operating leverage on SG&A in the next year or two? And if that’s the case, why do you get more operating leverage this year or next than you got last year despite very good growth? Is there a reason for an acceleration of that operating leverage? And then secondly, on the U.S., you saw a pretty fierce rebound in Q4 last year. I don’t want to sound too short term, but the past few weeks have seen a few macro headwinds accumulating.

At the same time, you’re saying the U.S. is lagging 6 months to 9 months relative to a few other markets. So should we expect — or is it your assumption that the U.S. outperforms other markets this year, sort of playing catch-up relative to Europe or other incredibly strong markets last year? Thank you.

Bjørn Gulden: Well, the second one is, of course, that our assumption is that we should grow double digit in the U.S. starting now and forever. I have to do a disclaimer though because we don’t know what these tariffs will cause in the whole market. But with the lack of market share that we have in the U.S., but still, in my opinion, with a great infrastructure and the right focus, of course, our goal must be to grow double digit every quarter or at least every double quarters or half year because you can all have variances within the quarter. So the answer to that is yes. And again, we believe that we should have the ambition to be number one in all markets except for the U.S. Why not number one 1 in the U.S.? Well, we are so far behind and our competitors are strong that I don’t think we should even say it because it’s an illusion, but we should have a clear, clear goal with our management to give the tools that we can take market share constantly and become a much bigger sports brand in America because that is doable.

In all of the markets, I don’t see any rational reason that we shouldn’t have the ambition of being number one. That doesn’t mean that we will reach it in all markets. I know that would not happen. But I think any GM that works for the leaders in the market should be asked, what do you need to be number one, if you are number two or if you even worse are number three. And then we should try to give him or her the tools to be number one. That must be our ambition with a brand that is 75 years old, who has an awareness in the high 90s and have a global infrastructure. That’s how we think. And then when it gets to the U.S., again, I don’t know where you’re sitting, but there is, of course, now the big question mark, should he put tariffs only on China?

Okay. Then we will not really be impacted in the beginning from our own margin because we don’t source from China. But the people that do source from China will, of course, raise prices and then you have inflation. And when inflation goes up in a segment, then volumes go down, so it might also have an impact on us. Everything else being equal, we still have to take market share. So if the market is up, we will be up more. Should the market be flat, we can still be up. Should the market be heavy down, we should be less down. That’s kind of the math on this, but we don’t have any numbers on it. To your first question, on your leverage, yes, I mean, it’s pretty obvious that the leverage in the beginning of a turnaround is more difficult to get because we haven’t really looked for any cost cutting or real efficiencies.

We have been looking at making sure we produce what the consumer wants. Service the retailer and growth in front of the consumer has been important. Going forward, of course, we should try to find the leverage much more specific. So your assumption is correct.

Erwan Rambourg: Okay, thank you so much.

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

Adam Cochrane: Good afternoon, thanks guys. The first question, given the external volatility that you’re talking about, can I just check, is that more macro-related in the last few weeks than adidas specific? I just wanted to clarify when you’re talking about some of these concerns, whether it’s something that you’re seeing in your numbers or is just something that you might theoretically see in the wide…

Bjørn Gulden: No. I’ll stop you. There’s no adidas. So we don’t get the misunderstanding. There’s no volatility on us, but there has clearly been if you follow retail has been some volatility in traffic and conversion in the U.S. uncertainties. And there has been some uncertainty in Europe because of the weather and general consumption, but not with us. There is nothing that worries us internally on our own development, zero.

Adam Cochrane: Okay. That’s great. And then what I was going to ask, given volatility, can you just remind us how much you can flex your production and your capacity either up or down given the volatility is question number one?

Bjørn Gulden: Well, last year, I improved my volumes in footwear by 45%, 140 million pairs. And I think in apparel it was 25 million was something. So my flexibility upwards is always there. Flexibility downwards is different because then you have to, what should I say, work I would say, by extending your delivery times, but it’s all doable. And the way we work with our suppliers and the transparency we have with then, we have a great deal of flexibility right now, to be honest. And don’t forget that we have been a hot brand now to work with because we are growing €2.3 billion. So the growth in percentage might not be so impressive, but the volume for the suppliers have been very impressive. And you know how that works? They will tend to drive towards the people they believe will increase volumes, right?

So if all the brands are growing 20%, 30%, but the base of, I don’t know, €2.5 billion, that is, of course, in the big scheme, a lot, lot less for the supplier than for us. So right now, I would say that the demand, or what should I say, the request from suppliers to work for us is pretty high, which is very different than it was 24 months ago where we have cut capacity. So I think we are in good shape when it gets to having the flex that we need to do to control both demand from a positive side and then also to control at least midterm inventory should there be a real problem in retail. But again, we are not at that stage yet. We haven’t cut any orders yet at all and have an order book that has been growing until yesterday for both Q1, Q2 and into Q3 of this year.

So there’s nothing in our numbers that worries right now, but we all see the news, right? So…

Adam Cochrane: And the second question is one that — I’m sure you won’t give me an exact number, but the success that you’ve had in increasing the full price sell-through, would you be able to indicate how much more there is to go in terms of full price sell-through? And then you talked about the U.S. still having an opportunity. As a benchmark, how far behind the other market is the U.S. in terms of its full price sell-through? Thanks.

Bjørn Gulden: I can’t give you any exact numbers on that because it’s impossible. We have more than halved our discount on our direct channels. So that tells you what has happened in our own stores. And the like-for-like performance we had in all our own channels was very strong. When it gets to the retail partners, you remember that our retail partners can discount whatever they want. We don’t have the power to do that. But when we look at their margin with our product and their sell-through rate, it’s enormously good. And then you know that even if should something slow down, I think we are far away from getting a lot of discounts because there are other brands that are on the shelf with much worse sell-throughs that we are having.

So right now, we still feel very, very strong when it gets to us having products where the retailers will make money with it compared to other brands, and we don’t feel that we are under pressure to discount in our own channels for the time being. I don’t think we really have inventory issues anywhere, to be honest. So right now, knock on the woods, should the world be okay, and should your friend not install tariffs in a way that it will create a lot of noise. I think we are in very, very good shape to be honest. But again, we don’t know.

Adam Cochrane: All right. Thank you.

Sebastian Steffen: Thanks, Adam. Mora, we have time for two more questions.

Operator: Thank you sir. The next question is from Jürgen Kolb from Kepler Cheuvreux. Please go ahead.

Jürgen Kolb: That Frankfurt, nothing to do with tariffs. Just a quick one for Harm. You mentioned that your expecting or hoping at least that the rating agencies may increase or may look deeper into the financials and potentially upgrade the rating. What impact would that potentially have, let’s say, 1 notch or 2 notch improvements here? And then the second one, for Bjørn, probably. You mentioned it that you have good transparency in the order book until Q3, and I was wondering if you could maybe fill us in on a little bit more details in terms of how is that broken down into lifestyle, leisure, performance, category-wise, region-wise? A little bit more color on the order book, that would be helpful. Thank you very much.

Bjørn Gulden: When I start to break that up, it gets complicated. What I can tell you is that we have no markets that doesn’t have a positive order book. And we have no categories that is not a positive order book. I think that shows you where we currently are the flex between the different order books, we need to be careful about. Because in 2025, you can imagine, we had a huge order book on soccer for the Euro which, of course, is not there now, but then we have all the soccer products. So I don’t think I can give you anything else that we clearly see we’re growing in both performance and lifestyle. And we have an order book which is positive in absolute all markets.

Jürgen Kolb: Good enough.

Harm Ohlmeyer: Yes. When it comes to rating, Jürgen, it just confirmed that we have a healthy P&L and a healthy balance sheet, but there’s nothing we can really buy for this one unless we go to the next crisis that we have a better, better rating. But at the end of the day, we don’t plan financing. We probably pay back the bond that becomes due at the second half of the year. And at the end of the day, confirmation of our road map, and it’s a very good factor overall. But there’s nothing that fundamentally changes our P&L or balance sheet just confirmation.

Jürgen Kolb: Understood. Very good. Thank you guys.

Operator: The last question from today comes from Robert Krankowski from UBS. Please go ahead.

Robert Krankowski: Hi, hello. I’ve got like two questions. The first one will be on top line. I just wanted to check the start to the year. The commentary was very reassuring, but I just wanted to see whether it’s still double digit as we saw in Q4? So that’s the first one on top line. And the second one, I just wanted to come back to gross margins. I appreciate that you guys expect an expansion versus 2024, but it’s quite impressive to see that Q4 2024 was ahead of Q4 2019. Should we assume that this kind of trend of narrowing the gap versus margins pre-COVID in 2019 can continue in Q1 and 2025 and Q2 2025? Thanks.

Bjørn Gulden: Well, the first one, I don’t think I should answer. But yes, the growth so far this year is double digit. And then Harm. I didn’t say that officially, right? It just slipped my tongue.

Harm Ohlmeyer: Well, we shouldn’t forget when you talk about the first quarter, we are probably on record right now. They’re a really good start, but we shouldn’t forget that we sold some Yeezy’s last year in March and we are comping these. So that’s always the question with Yeezy, without Yeezy that still keeps us busy when we talk about it. But yes, very good start to the year. When it comes to the gross margin, yes, the corridor is narrowing. That’s what you can assume. We made good progress in Q4. That’s a good assumption. But I want to reiterate again what I said earlier. FX is probably neutral, but again, we are very, very confident that we make further progress. And just summarizing again what Bjørn said earlier, we are in the corridor with the gross margin.

It’s always not that difficult to spend 12% on marketing. And rest assured, you will see leverage on the operating overhead in 2025. And I just want to restate it again. We will not repeat the €200 million onetime cost. And of course, we see complexity reduction programs that we have. We accrued for most of that already in 2024, So there will be benefit as well. And we will make good progress from where we finish 2024 with 34% to also make there hopefully linear progress to what we need in 2026. So expect that to be a focus for us and the one KPI in our little formula that we haven’t achieved yet, but that’s what we’re working on.

Robert Krankowski: Great. Thanks.

Sebastian Steffen: Thanks, Robert. Thanks very much, Maura. Thanks very much to Bjørn and Harm and also thanks very much to all of you for participating in our call today. As always, in case there are any further questions, please feel free to reach out to Adrian, Philip, myself or any other member of the IR team. We’re also very much looking forward to seeing many of you over the next couple of days and weeks as part of our road show activities. And with that, thanks very much again for your participation. All the best. Bye-bye. Take care.