Full Year 2024 Adidas AG Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Piral Dadhania - RBC Capital Markets - Analyst : 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 '24, 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 1 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?

Question: Edouard Aubin - Morgan Stanley - Analyst : So my first question, Bjorn, 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 '24 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 '24, given limited Yeezy 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 points headwind from Yeezy. 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 points benefit offsetting again part of the offsetting the Yeezy 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?

Question: Aneesha Sherman - Bernstein Societe Generale Group - Analyst : Bjorn, 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?

Question: Alexander Okines - BNP Paribas Exane - Analyst : 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 EUR8 billion. Does that indicate rising costs in maintaining your authority in sports, or that you're just signing up your partners who longer contracts?

Question: Geoff Lowery - Redburn Atlantic - Analyst : 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?

Question: Erwan Romberg - HSBC - Analyst : 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 US, 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 US is lagging six to nine months relative to a few other markets. So should we expect -- or is it your assumption that the US outperforms other markets this year, sort of playing catch-up relative to Europe or other incredibly strong markets last year?

Question: Adam Cochrane - Deutsche Bank - Analyst : 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 --?

Question: Adam Cochrane - Deutsche Bank - Analyst : 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?

Question: Adam Cochrane - Deutsche Bank - Analyst : 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 US still having an opportunity. As a benchmark, how far behind the other market is the US in terms of its full price sell-through?

Question: Jurgen Kolb - Kepler Cheuvreux - Analyst : 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, one notch or two notch improvements here? And then the second one, for Bjorn, 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.

Question: Jurgen Kolb - Kepler Cheuvreux - Analyst : Good enough.

Question: Robert Krankowski - UBS - Analyst : I've got 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 '24 was ahead of Q4 '19. Should we assume that this kind of trend of narrowing the gap versus margins pre-COVID in 2019 can continue in Q1 and '25 and Q2 '25?