Adidas AG Q1 2025 Earnings Call Transcript

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

Question: Ed Aubin - Morgan Stanley - Analyst : So two questions. First of all, Bjorn, some of your peers in the apparel and footwear world have been talking about some consumer weakness over the past few weeks back, particularly in the US. Have you seen any weakening of demand at the sector level, number one? Number two, on the 10% tariff increase that you just talked about, just to understand, if you wanted to fully pass on this 10% price increase, everything else being equal, what type of prices -- price increase would you need to take? And assuming that tariffs would stay at about 10% for the remainder of the year and forgetting the indirect tariff -- impact of tariffs, would you be in a position to meet your EUR1.7 billion, EUR1.8 billion operating profit guidance? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 29, 2025 / 1:00PM, ADSGn.DE - Q1 2025 Adidas AG Earnings Call

Question: Piral Dadhania - RBC Capital Markets - Analyst : So my first question is just in relation to the formation of the wholesale order book for the autumn/winter '25 product, which I imagine you're currently taking orders for. Could you just give us a flavor as to the kind of discussions you're having with your retail customers in relation to forward-looking orders? Is there any change in their sentiment or their approach towards placing large orders in anticipation of potential changes to the tariff regime in the US, for example? And then my second question just is a clarification, Bjorn. In your prepared remarks, you talked about the 10% EBIT margin target as being a midterm target. If I'm not mistaken, I thought previously, we were sort of trying to work towards that 10% by 2026. Is there any -- just to clarify, is there any change in terms of the time frames that you're working towards, notwithstanding, of course, any potential headwinds from US trade policy? Thank you.

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

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

Question: Warwick Okines - BNP Paribas Exane - Analyst : The first is back on tariffs, please. If I understand you correctly, you're saying you don't plan any price rises at the sort of current level of tariff. But if tariffs do go higher and you feel you have to raise prices, would it make any sense to spread those globally? Or would they all fall in the US? And then the second question is, could you just give us a bit more flavor about the conditions in Latin America? And how much of your growth is being driven by volume? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 29, 2025 / 1:00PM, ADSGn.DE - Q1 2025 Adidas AG Earnings Call

Question: Thierry Cota - BofA Global Research - Analyst : Two of them, please. First, we've seen very low OpEx inflation ex marketing in Q1. I was wondering whether you think that overhead expenses could be flat or down in your terms for the rest of the year given the nonrecurrence of the one-offs in H2, the overall cautiousness of the spend and the appreciation of the euro? And the other question, just for clarification, you reiterated the full year guidance. I was wondering whether in the recalculation that you've made, you include any tariff effects, price effect or not. Or you're just basically comfortable with the full year number target given the strong Q1 that you've just reported? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 29, 2025 / 1:00PM, ADSGn.DE - Q1 2025 Adidas AG Earnings Call

Question: Thierry Cota - BofA Global Research - Analyst : And just maybe as a follow-up, so the 30% that we've seen in Q1 effectively, supposedly could be maintained in the coming quarters, do you think that eventually, you'll be able to be at 30% for the whole year, not this year, naturally, but for whole year, including a higher number in Q4?

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

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

Question: Robert Krankowski - UBS - Analyst : So first one, I just wanted to clarify because we mentioned the US, no change in demand. But, Bjorn, could you talk about the beginning of the Q2? Have you sustained double-digit momentum? And is it both including/excluding Yeezy? And then the second question is more about the other regions. I think we focused a lot about the US, but I just wanted to touch on other regions. Like four of your six regions have already delivered or exceeded 50% gross margin. And I understand there's a lot of seasonality in your business. But looking ahead for the remainder of the year, do you see a reason why Greater China and Europe could not reach the -- or even exceed the 50% to 52% or upper end -- exceed the upper end of 50% to 52%, while emerging markets in Japan/South Korea sustain these high gross margin levels? Thanks.

Question: Robert Krankowski - UBS - Analyst : And on the second --

Question: Adam Cochrane - Deutsche Bank - Analyst : One quick question for me. In terms of the performance that you've seen in the marathon and the happiness that you've got with the product lineup, is now the time that you think you can really double down and win in the running category? Thanks.

Question: Adam Cochrane - Deutsche Bank - Analyst : As I've got you, one more springs to mind for Harm maybe. Do you think given the scale of the euro-dollar movement that will enable you -- given the lower cost of goods sold across the rest of the world, if you were to hold prices in the rest of the world, would that subsidize anything that you need to do in the US? And is that something that you would consider as a lever?

Question: Monique Pollard - Citi - Analyst : So two from me just focused on the US. One's a quick clarification question. I'm a bit confused by the North America Yeezy sales that are implied in the 1Q '25 data because it seems different to the North America Yeezy sales that were implied in 1Q last year. From the 1Q data last year, it looked like North America was under 50% of Yeezy sales, but this data suggests North America is sort of over 60% of Yeezy sales. I didn't know if there's been a change in reporting of those Yeezy sales. And then the second question I had was just on North America. So ex any potential impact from tariffs and second-order implications on the consumer demand, I guess I'm thinking about lifestyle and performance in North America. You've got the AE2 launching with AE1 having been such a big success in basketball and then the Superstar, I guess, starting to scale. So do you think the North American momentum ex anything from tariffs could actually accelerate as we go through the rest of the year?

Question: Jonathan Komp - Robert W. Baird & Co., Inc. - Analyst : Certainly, helpful today. I understand that you're embedding a lot of new uncertainties while maintaining guidance for the year. If I could just ask to try to understand the seasonality of your margin performance that you're expecting for 2025. First quarter, a 9.9% operating margin. Typically, the first quarter is near, or even above in most years, the full year operating margin that you deliver. So I'm just trying to understand, as we think about the balance of 2025, why that may look different based on the assumptions embedded in your guidance?

Question: Jonathan Komp - Robert W. Baird & Co., Inc. - Analyst : Yeah. That's very helpful. And then just one follow-up. On the footwear business, the three main growth drivers that you're working to scale up, low profile, lifestyle running and Superstar. Bjorn, could you maybe just give a little more context and road map in terms of how you see those models starting to contribute over the next few quarters and over the next couple of years? A little more detail there would be helpful. Thank you, again.