adidas AG

Sebastian Steffen - VP of IR Kasper Rorsted - CEO Harm Ohlmeyer - CFO and Executive Board Member

Erinn Murphy - Piper Jaffray. Omar Saad - Evercore ISI Geoff Lowery - Redburn Jurgen Kolb - Kepler Cheuvreux Antoine Belge - HSBC Andreas Inderst - Macquarie Research Louise Singlehurst - Morgan Stanley Chiara Battistini - JP Morgan Chase Anna Andreeva - Openheimer & Company Piral Dadhania - Royal Bank of Canada John Guy - Berenberg Capital Markets Jonathan Komp - Robert W.

Baird Cedric Lecasble - Raymond James Fred Speirs - UBS

Thanks very much, Julia and good afternoon ladies and gentlemen. And also from my side a warm welcome to our second quarter 2017 results conference call.

Our presenters today are Kasper Rorsted, Adidas' CEO; and our CFO, Harm Ohlmeyer. Before I will hand over to Kasper and Harm allow me quickly a couple of housekeeping items.

Firstly, we have once again quite a few participants in the call today. So that's why I would ask you to limit your questions to two, so that as many of you as possible can ask a question today.

Thanks very much for that in advance. And secondly, as always, all figures are currency-neutral and will be discussed for the group's continuing activities.

And with that, I would like to hand it over to Kasper.

Thank you very much, Sebastian. And again, welcome to everybody.

We preannounced our numbers last week, so I assume that you've had between last week and the details today, ample of times to go through them, we look forward to take you through the details, which I'm sure will give you some more color on the numbers that we've released last week. We continued to execute upon our strategy of creating the new and making also progress against the tax versus our sales.

TaylorMade and CCM, the Hockey business has been sold and we expect the divestitures to close in the second half of 2017 and that would mean -- for everything moving forward we will be reporting numbers only in the context of continued operation, important step in our activity or focus around our portfolio. We have kicked off our One adidas initiatives that was introduced to all of you in the first quarter of 2017, but I'm sure that you will recognize many of those initiatives are very long term character and will take time before they will have an impact on the P&L and some of them will have a negative impact in the short term and positive impact in the long term.

Certainly, we have now made the final two changes to the Executive Board following the appointment of Harm to become CFO and replace Robin. Karen Parkin, who has been long with the company has now joined the Board instead of HR, and Gil Steyaert, who was also been here for a very long time is now taking over from Glenn Bennett, who has been with the company for eight years in a positive central work Glenn is retiring today after many, many years in the company.

He has done a great job, but we're happy that we've been able to make three Board appointments, all from internal people. I think it also speaks to the quality of the team and the good development that's been done in the past.

In the second quarter we saw a number of strengths and weaknesses. We continue to see very strong ongoing brand momentum with double-digit growth in all key regions China 28%, North America 26%, and Western Europe 19%.

The decision to really aggressively push eCommerce have proven to be right based on the work that Harm has done in the last five to six years and we're seeing accelerating momentum with the income growth of 66%. We are seeing also a heavy inventory -- healthy inventory position.

Some of you initially expressed the concern, we are by far not concerned about that because you have to see it in the greater context. It depends on what the 9% is against.

We believe it's reflecting a strong sell through, and of course it is also in the north of what we have in our inventory. We have guided for the second half, we believe that we have a very strong inventory position.

We're seeing strong profitability improvements stats despite headwinds in 2016 one-offs, which Harm Ohlmeyer will take you through. However, there was also things that didn't work the way we wanted.

We continued to see a sales decline in Russia in currency-neutral. This you don't see in the conversion into euro, and this will not change.

We expect the Russian market to continue contract after four years of sanctions and related to oil price, and we are also aggressively taking actions against it. We've closed our stores, which we already indicated to you, we've closed more than 100 stores so far and we will close another 50 before the year-end.

However, Russia is roughly 3% of our revenue, also stated in Q1. It's immaterial to the results of our company.

We are seeing challenges in Latin America to persist particularly in Brazil, Argentina, but also in other countries. So the revenue number you're seeing is driven by a very, very strong Mexico.

But the political climate is of course impacting the overall economic climate in Brazil and that has an impact on our business. We're seeing the top line growth in our payroll is lagging behind at our footwear and of course it's an area of focus for us.

So, it means that we have to be equal over time, needs to have a stronger growth in apparel business. And we are seeing limited operating overhead leverage despite the top line growth.

However, I want to be very clear on this, we did guide with improvement in our leverage factor moving forward not only for 2017, but also for 2020. That is continuing to be the case, so we are not concerned, so we're just flagging where we are.

On the major P&L developments, revenue increased 19% currency-neutral and 20% in Euros in terms to 5 billion in our continued business. We saw the gross margin up by 70 basis points up to 50.1 due to more favorable pricing channel and product mix.

The underlying operating margin up 140 basis points to 10.0 and this is supported by different timing of marketing spend in 2017 across all regions. So, let me just foresee it because this is a repeat of what I said in the first quarter.

I do want to repeat because we're also in a non-event year. We have a different marketing spend.

The marketing spend will happen as we've indicated and that is also included in the guidance moving forward. We have no desire to save a margin which you can see in some of the investments that has also recently been announced vis-à-vis the investment in the MRS [ph] in North America.

You will see aggressive marketing spend taking place in the second half. Net income from continued operations increased to 16% to 347 million, and basic EPS from continued operations at 14%.

On the adidas brand we saw a growth of 21%, very strong North America 33%, and Greater China 18% -- 28%, and Western Europe 18%, so our three major regions between 18% and 33% from the adidas brand. And we also saw the women's business outperforming with growth of more than 30%.

And if you look upon the women's business, which continues to outperform the overall growth for the company shows that we are making progress. We saw particularly in North America a growth of 77% and Western Europe 27%, so a very strong growth in our women's business, which is key for us as this is one of our strategic areas of focus.

Our sports performance grew 7% versus 4% in the first quarter. Running revenues up 27%, driven by the success of our Boost franchises, and I want to stress the following, we are still in a constrained operating environment for the Boost -- the fact that we grow out of those business with approximately 100% in the second quarter.

We are in a constrained environment and we will continue to be in one until 2019. Training sales grew 9%, reflecting exceptional growth initiatives in athletics.

Football and basketball are still in decline, but let me just state with football for a second because this is an important part. Our footwear business is now -- footwear and football is growing 13% and our major club franchises are all growing.

What is not growing is apparel business, which is impacted by the Euro Cup and the Chelsea termination of the contract. The basketball business is in decline, it's solely driven by the end of the NBA partnership.

Our footwear business and basketball is up almost 50%. So, also strong underlying performance in many of our sports areas.

Originals and neo continue to enjoy very strong brand key. Originals was up 36% driven by strong double-digit growth in all key regions and the modern franchise has increased more than 60%.

And here I would like to stress again, many of you had a lot of questions not only following the first quarter, but also on road shows that Harm and I had with you where we continued to reiterate that despite a declining growth rate in Superstar and Stan Smith, we were able to offset those by growth in our new franchises. I hope you can see that what we said also came true.

We continue to see a decline in growth rate in Superstar and in Stan Smith, at the same time we're seeing our newer franchises like NMD, Tubular and EQT being more than able to offset the declining growth in those franchises. Adidas is more than a white tennis shoe.

Neo business grew 45% reflecting more than 50% improvement in footwear. Coming to Reebok, we see the growth of Reebok continuing with 5% and sales increase driven by our strong double-digit growth in Classic.

We saw significant increases, significant growth increase in many regions, but also a significant decline in North America. And let me again here define, we proactively went and addressed before needed, growth -- sales with low or no marketing businesses in North America to ensure that we're getting to the core of our business in North America.

We're doing this at this stage, because we believe we can afford to do so. That is impacting our growth rates in North America.

We have closed 35 stores in North America and we still have approximately one third to go, no, we've about a half to go, excuse me. So we believe that we are making progress in Reebok business.

We approved 13% in the first quarter due to early announcement of products and also to sales in our Chinese business. So we are saying to you we feel comfortable with a 5% growth, we proactively grow negative growth into our business, and clean our businesses in the second quarter because we believe doing it quicker is better than doing it slowly.

And before I hand over to Harm, we particularly, I wouldn't say thought because that is the wrong word, but we are satisfied with the progress that we're making in our e-comm business through the acceleration that we're seeing; North America almost growing 80% and China more than 100% in our e-comm. It's clear that the consumer is moving online and the importance of online will be immensely important moving forward.

We also over allocate resources in terms of money, we -- third parties but also product allocation to online business. And while it was a good number, we still believe there is tremendous opportunity ahead of us to ensure that we build the right digital franchise for our consumers to address, but first six months, we've grown more than 6% on our online business from a basis of 1 billion and making the first while minor steps towards our target of 4 billion in 2020.

And now I'd like to hand over to Harm Ohlmeyer, who will give you the details of our financials. Harm, please.

Thank you, Kasper and warm welcome from my side as well. Ladies and gentlemen, it's now my pleasure to present the more details and financial highlights of the second quarter.

And I want to start with the regional review. So as you can see on the map there is a broad based top line momentum.

Kasper already mentioned about the momentum in our key markets, whether it's North America, Western Europe and Greater China. Just focusing on North America, clearly the details are primarily driven by the adidas brand and as Kasper already mentioned planned decline on the Reebok side.

Western Europe, we're definitely proud of that on the double-digit growth accelerating momentum from Q1. And the only region that is declining is Russia and as we already mentioned we are managing that with up to 160 store closures for the full year.

There are still some to come, which will result by the end of the year to a number that is below 800 for the full year or at the end of 2017. Then we move to Western Europe, again currency-neutral sales increased by 19% in the second quarter, a double-digit growth in most of the countries.

The adidas brand up by 18% on top of a 30% increase last year in the second quarter. And then the Reebok brand specifically increasing 33%, which is one of the highest growth areas that we have for the Reebok brand and the growth is going across all the key categories now.

We're also proud of the gross margin growth of 80 basis points and this is coming on top of FX headwind of almost 300 basis points. That is definitely a testament of the sell-through that we're enjoying and invest in Europe specifically.

And due to the effective operating margin, despite the FX effect is up by 280 basis points, also through the leverage of operating expenses. In North America, currency-neutral sales for the region are up 26%.

There specifically the adidas brand growth was 33% and also that 33% comes on top of the 32% in the second quarter of 2016, and that of course is as you all -- we had a very challenging retail environment in the U.S. Strong double-digit growth in key categories like running, training, but clearly as you've seen overall in Originals and neo as well.

And also let me highlight that we want to continue to invest into that market. We announced yesterday the new partnership for MLS, which is going beyond the league, this goes deep into the next generation and beyond the league's holding to grass roots, but we definitely go deep into that one.

And we continue to invest as much as in our global headquarter Herzogenaurach, when it comes to new offices, buildings, facilities, but definitely we're expanding in Portland and our headquarter for the adidas brand and for the company overall, significantly and that's why part of the CAPEX guidance is being invested into. On the Reebok side, we mentioned it.

It's primarily based on stock closures. We are rightsizing the retail fleet that we have for the Reebok brand and as Kasper mentioned the focus is on -- more on profitability than on growth and we want to have quality growth and that is a plan decline in the U.S.

There is no surprise on the Reebok side. When it comes to Greater China, currency-neutral sales increased 28% in the second quarter and it's a same number also for the adidas brand, 28% up and its growth in all of the key categories.

The Reebok brand enjoys also a growth of 20% that is primarily in the running and the training category. And the gross margin had some pricing mix effect in the second quarter and it's down by 70 basis points.

And due to the effect also the operating margin declined by 140 basis points, so there's no leverage in the operating expense. But we are investing significantly in our brand led retail operating model in China.

And we mentioned many quarters already that the profitability that we're enjoying in China, which is still the 35.8% is a very healthy profitability and it's not necessarily sustainable profitability for the long-term. So that's why we are also not surprised about the temporary decline of 140 basis points that is something we are definitely expecting.

When it comes to Latin America, we are still enjoying overall as a region, a healthy growth of 14%, but as Kasper mentioned also it is primarily driven by Mexico, which is over-proportional growth and there are definitely challenges in that market when it comes to Brazil specifically amongst others as well. One challenge of course is on the gross margin, where we have significant FX headwind more than in Europe and that's why the margins, gross margins slightly down by 190 basis points, but through the operating leverage we are definitely keeping the operating margin stable.

Moving to the gross margin overall, which is definitely of interest for many of you, when we look at the Q2 development of an overall margin of 50.1%, we are clearly seeing roughly 170 basis points of FX headwinds that is a combination of previously hedged rates, but spot rates as well as we're not going to hedge every currency. So it's a mix of both effects.

But you see on the 240 basis points improvement, it's the minority of that is category channel or product mix and the majority of that improvement is underlying pricing improvements, whether it's higher sell-through. It's definitely less clearance as well.

These are elements that we're definitely seeing in Q2 and that led to an overall improvement of 70 basis points in the second quarter. Now it's a pleasure for me to explain the Q2 P&L, which is somewhat more complicated with the divestitures.

So in the green box you're seeing what we had reported in Q2 2016, including TaylorMade and CCM, so a top line of 4.422 billion, and the net income of 291 million, and in the blue box you see now the continuing operations reflecting our continuing business excluding TaylorMade and excluding CCM. And when I talk about TaylorMade, we are also talking about Ashworth and Adams Golf, and then of course the CCM Hockey company and the adidas Energize is still being retained in our business.

So the underlying comparison is EUR 4.199 billion in Q2 2016, and the net income of 301 million. So that's what you see on the top line, a healthy 20% growth nominal, 70% basis points improvement, and then on the other operating income you see the one-time effect from the termination of the Chelsea contract in Q2 last year and also the divestiture of Mitchell & Ness.

That's where you see the decline from another income of 159 million to 24 million in Q2 2017, which is then driving the underlying operating profit being up 18% from 429 to 545. And the operating expenses in between are growing 13%, which is a mixture of operating overhead and marketing working budget, and as Kasper said, we have a different timing, so we are definitely catching up in the second half when it comes to our marketing investments in that line resulting in a net income of 347 million or 16% improvement on net income in the second quarter.

When it comes to the operating profit, the starting point is again on continuing operations 429 million, as you saw on the previous page. If you are deducting the Chelsea one-time effect in Q2 2016 of 70 million and the Mitchell & Ness proceeds that you've reinvested in 2016 as well, you get to an adjusted operating margin of 360 million in Q2 2016 or 8.6% operating margin.

And that's where we are seeing comparing it like-for-like excluding Chelsea, it's actually not a 20 basis points decline in operating margin, it's actually 140 basis points improvement of an underlying margin in the second quarter. Now let me explain briefly the discontinued operations.

As I mentioned earlier, as we want to focus on the continuing operations, this is the divestiture of TaylorMade and the respective brands and the CCM Hockey brand and partly a little number on the Rockport side as well. So this is a one-time hit in the second quarter of 189 million in discontinued operations.

It's a non-cash item and that results on the next page to net income then of not 291 million comparable, but to a 158 million comparable deducted in discontinued operations. So again when you see it end-to-end 20% growth, net income of 347 million, 16% up as a continuing operations and then deducted 189 million one-time non-cash effect into the second quarter, reporting a net income attributable to shareholders of 158 million or down 46%.

When it comes to inventories, we are in a very, very healthy situation and the 11% that you see at the end of June, if you compare the number like-for-like it's adjusted for a TaylorMade and CCM and it's currency-neutral so it’s a 11% growth over Q2 2016. And let me be very clear on that 11% given our guidance for the second half, we are definitely very happy with inventory position that we have.

There has been a lot of effort put in over the last six months, a lot of discipline to get to the position where we are today. And please also compare that to the 24% increase that we had last year in Q2.

So definitely in Q2 last year the position was not as healthy as we have it today, so you need to look at that as a mixture. But rest assured as we got some calls from you already today that this is a very healthy position and we'll be very confident that this is filling the demand that we have in the second half as well.

When it comes to the operating working capital, the combination of inventory payables and then I want to highlight the receivables here as well. We have non-operating working capital of net sales of 20.4% and that is 100 basis points down from the previous quarter and 22% up in receivables.

It is pretty much in line with our net sales growth as well, but also there is a one-time effect from Chelsea in that number as we have the P&L effect last year in Q2. But now we just had the receivables effect as we are settling the contract in June 2017.

Also that is an adjusted number and would be more in line with the net sales number. Alright with that, I want to hand over to Kasper again to explain shortly what our outlook is for the remainder of the year.

So thank you very much, Harm. I know you've seen the slide many times querying renewable, and we continue to show that slides to you for the next 3.5 years, because that is what the company is about and that is what we're trying to do.

Drive brand desire top line and market share growth, expand the gross margin and drive operating leverage, that is the business model of our company and that is what we are pushing very hard. We see strong growth momentum to continue in the second half and we will drive a lot of investment into our brand to make sure that we sustain the brand heat, but also make sure that we have enough support to support the sell-through of our new products and product launches in the second half.

We believe we will start -- be able to capitalize in the World Cup 2018 by the end of the year and thereby continue the growth that we're seeing in the first half and leverage our top line growth to drive operating overhead efficiency. And that means that we change the guidance for the year 2017, and we are now guiding of an increase between 17% and 19%.

Similar to the growth rates we've seen in the first half and a net income growth of 26 to 28 so adopting [ph] the net income growth to 13.60 to 13.90 coming from 12.0 to 12.25. So a healthy growth in the top line, but also on the bottom line.

This gives us a different outlook for the full year and I've mentioned some of the points, but you are seeing we're taking the guidance of our gross margin up, the operating profit up as I just spoke about before. And also taking our operating or operating margin up to a guidance up to 9.2 starting from 7.7 last year.

7.7 of course contain CCM and TaylorMade, but we did pay the price and liquidity [ph] for you for having a lower margin now we dealt with the portfolio and that's why we are getting to the 9.2, and it's moving in the right -- the company in the right direction towards the 11% plus that we're aiming for by 2020. So we've updated the guidance for the full year based on our strong second quarter, but of course also the outlook for the remainder of the year and our backlog that we have.

The key takeaways from the second quarter are ongoing momentum in key growth areas. We are growing where we need to grow.

We are seeing profitability gains despite headwinds and difficult comps. Difficult comps in the context of the one-offs which are significant and I think that one of the key takeaways as Harm very clearly articulated is a 40% growth in the underlying income if you start doing the adjustment for the Chelsea one-off.

The full year outlook increased, we're seeing further progress on our portfolio initiatives. We spoke about TaylorMade and CCM that we've divested.

We are seeing signs of progress along the expectation we have with Reebok and when we come to full year results in March next year we'll give you detailed overview of where we are with Reebok. But we are making the progress along the areas that we are striving to make.

Cargo business and long-term project, this is another short term projects. And we are getting a very high level of focus on getting the job done on execution and at the same time ensuring that we're making the right investments for the long-term, particularly around One adidas that will ensure that we will be able to also present following 2020 an attractive longer-term outlook.

As I said some of these investments will have a negative impact in the shorter-term, and when we give also the guidance and the details for 2017 and beyond in March next year we'll give you insight to what we're doing with One adidas. With this I'd like to close the call from our side when it comes to presentation and we now look forward to taking your questions.

Okay Julia, we're now happy to take the questions from the call participants.

Great, thanks, good afternoon. A couple of questions, just first on the updated guidance Kasper, I mean what has been the biggest driver in the last three months that has really given you the confidence to raise successful 2017 guidance by almost EUR 1 billion?

And then connected with that, could you just help us understand what are the key growth assumptions across North America, Europe and Western China in that for the back half of the year?

As you're seeing we are continuing to see very strong demand for our products both in the Europe, U.S., and in China. Let me start with the profitability, we saw a high level of full price sell-through, which is of course due to the brand heat that we have, we assigned the right products through the right channels.

And we've taken also the appropriate price initiatives on our key products. So these are some of the key drivers.

We're getting slight operating leverage, but I am saying slight operating leverage that's why we said that we had on the right hand side. Based on the backlogs that we have and I would say unchanged brand heat, we have no reason really to believe that a slowdown will occur in our key franchises across the board.

And we are also getting by the end of the year closer to some of the key events taking place in 2018 that will start driving business in 2017. So at this stage we feel obviously confident with the outlook that we've given and have no reason to believe that, that should not be taking place in the second half of the year.

So confident with that, but also really confident because we are growing in the right categories and with the right products.

And then just to that end just on the three key regions, I mean should we continue to expect a very similar growth rate that we saw in the first half and the second half of both North America, Europe and Western China or -- China -- Western Europe and China?

We really don’t want to the go detail. We are expecting to see double-digit growth across all regions in this stage.

But as you can see we are guiding at 17 to 19 so double-digit is the low end of it because if not then we wouldn’t get to that. So, we expect high growth rates out of China and the U.S.

particularly in the Autumn moving forward.

Okay, and then just my second question is on the women's business, clearly an area of outperformance. Could you just help us understand that outperformance by product category splitting between footwear and apparel?

And then could you just talk more about your marketing approach in this category that gives you confidence to continue to drive outsized growth? Thank you.

We don't split our women's business in footwear and apparel, so apologies for that. I think that the most important part is that we are now trying to get a more competitive product set and also better display in our stores, our products for female consumers.

And also the way we communicate to the female consumers are becoming better. We're very clearly realizing, not now but a while ago the most effective way to females are not through the major sports franchises but probably through very different channels and different individuals, and that we've changed in our marketing approach to ensure that we get the right interaction with our female consumer through bloggers, through fashion and through other influences.

And less through sports idols like we do to the typical male consumer.

Got it, wish you continuous success.

Thank you for taking my question, fantastic quarter. I wanted to ask about the DTC acceleration, I think it was up 66% in the quarter and so really big number.

I think it was more in the mid-20s in the first quarter. What's driving that, is there an inflection in certain product categories and is the DTC overall growth acceleration more on the digital side or the stores are evenly balanced between the two?

Thanks. That's my first question.

Yes, Omar. This is Harm speaking.

First and foremost, when we talk about DTC it's actually our physical stores and eCommerce and the 66% growth in the second quarter was just a digital fee, so it's just eCommerce. And on the overall combined, we're talking about a 21% increase in the second quarter, so 66% is just the eCommerce fees.

Talking about the eCommerce fees it is an acceleration over Q1, but it's also a reflection or consequence out of the clear prioritization that we set out in 2016. We want to allocate more products through that channel, we want to focus upon the content point of view, we want to focus upon the launch point of view, and what you see from a category point of view is pretty similar to what you have across the other markets as well when it comes to Originals, when it comes to running, and to key franchises overall.

So there is no difference to what you see across the markets.

Thank you. And then if I could just ask a question on social media, it seems like you guys are doing a really good job effectively using some of these new marketing strategies, brand building techniques, social media, partnering with some of the digital ad platforms, maybe you could dive in a little bit deeper on why that's working so well for the adidas brand globally it seems?

Thanks.

Yes, definitely. I mean you can't grow the eCommerce business if you don't have a better understanding where the consumer's living nowadays and that is in social media.

So it's still important to have as a major partners that is reflecting our brand on field. But we are -- as we also mentioned with the digital initiative, we are investing over proportional in the digital side of the brand.

So everything across social media, there is nothing specific that I want to highlight, but having understanding what the consumer -- how the consumer is consuming brands today is fundamental to the growth not just in digital, but for the brand overall. And I have to refer to my colleagues on the brand side.

I can only echo what you said, you're doing a fantastic job, but we don't want to go through the details of what we're really doing there other than connecting with the influences and the bloggers in these new -- not really new media, but for some people new media. But this is where the generation is already on for many, many years.

Thank you.

Yeah, hi team. Could you talk about your attitudes towards eCommerce platforms and in particular what your approach is to Amazon both in North America and the rest of the world?

So clearly we need to be where the consumer is and that is a starting point for our entire things and we got to be a consumer obsessed when it comes to products and engagement with consumer, that is point one. Point two is, we also believe that it's essential that we have a direct relationship with many of our consumers, thus the push to engage directly through our dotcom platform.

And we'll continue to push that. Certainly we don't believe it's a one or the other, we believe that you have to be as I said where the consumer is, and that is in physical stores.

It's in partnerships with companies likes Zalando and in the U.S. we have a partnership with Amazon.

We continue to evaluate partnership opportunities with different partners across the globe. In China, in the U.S., and in Europe, and many of those partnerships of course will be online partnerships, whereas in the past they were brick-and-mortar partnerships and that's a natural evolution of the market.

So we are very happy with the relation we've had with Amazon. We had a two year relationship in the U.S., and U.S.

only. Right now we're not contemplating changing the set of that relationship to expand to other parts of the world, but as we stressed very clearly, we want to make sure that the consumer can buy the products where he or she wants to buy our products, but we believe that we need to have a personal and direct relationship with our consumers in order to service them the best.

Right, thank you. And can I ask a second one, what do you expect your U.S.

dollar Euro hedge rate be for this year and next year, and as we stand today what would you expect the FX impacts on the gross margin to be in the second half of this year?

Yes, Geoff, I mean I'm not going to give you the details of what our hedge position is, but you can assume as we always said that the second half of 2017 is slightly better than the first half. They're clearly saying that, that's how we get to the up to 50% gross margin for the full year.

So it's slightly better, but it's not a revolution and also for 2018 based on our hedging or treasury policy, we are hedging out up to 18 months. So we are pretty significantly hedged into 2018 already.

So what we are seeing right now, we might get some of the benefits, but not the full benefits of it in 2018. Again 2019 is a different story.

We haven’t even started looking at this is one. So we are just starting to look into that, which pipe of opportunities, but for 2018 and the second half in 2017, definitely no further headwinds, but some easing but it's not significant.

That's great. Thank you.

Thanks very much. One question, coming back on the whole topic on eCommerce., Kasper, in one interview, recent interview, you mentioned that you are not just looking to hire the best designers but also the best IT people.

I was wondering if that also leads to kind of IT labs, the same setup that you have with some of the design teams in different places so that you can may be get even more attractive as an employer in destinations that right now might be a little bit more of the hotspots being it Berlin, being it some of the other markets or is that all concentrated in the headquarter in Herzogenaurach? Thank you.

Of course, in our business model moving forward digital plays a very, very key role and that's why we need to make sure that we attract the right people. Maybe just as an example in the U.S., in the first six months we had 330,000 applications alone in the U.S.

Last year we had more than a million for the company, and clearly the brand is helping us to do so. So we need to continue to attract and built more knowhow in our organization when it comes to digital, not only e-commerce.

It's big data, it's analytics, etcetera. Location does not have to be Herzogenaurach.

Today we have a very large setup in the Netherlands, we also have a setup in Spain. So clearly we're not seeing that the people for the digital space, the hubs or the centers of expertise needs to be in Herzogenaurach, we will make use of our global presence and create the hubs where it's most appropriate to get hold of the right talent.

Clearly we need to have hubs, we have no intention to have 25 different hubs. But as I said today we have a very large setup in the Netherlands and Amsterdam.

We have a strong setup in Zaragoza in Spain and we'll continue to ensure that we have hubs where the right level of talent is to ensure that we did actually hire that talent into our company. We are a global company.

We don't believe that global means that everything has to come out of the headquarter.

Okay, understood. Thank you very much.

Yes, hi. It is Antoine Belge at HSBC.

Two question, so first of all I know that the debate going into the results about the U.S., but actually it's more Western Europe, that I think Spain, most of the big surprise is the consensus. You had a basis of comparison last year with the Euro, some Chelsea shared etcetera.

So can you may be elaborate a little bit about what's driving that extraordinary high performance in Western Europe and should we expect that to continue? And my second question, I think you were quoted on I think on Reuters mentioning extra marketing of 700 million to 800 million with no particular time frame, so maybe a bit of an explanation there on how that fits into the everything that you shared with us at the Investor Day and the sort of leverage that you expect on marketing spending?

Thank you.

Yes, the leverage is very easy. We do 18 billion roughly based in real mathematics when you take TaylorMade and CCM.

We guided around 25 to 27, that's 8 billion, 12% on 8 billion is 800 million and 12% is our spending. So that's how the 800 million came out.

So simply you are saying we expect as we said approximately 12% margin working budget by 2020. We guided 25 billion and 27 billion, that's how we get to the 800 million.

And there is no change in that so you see, we have significant opportunity to invest moving forward, and you can do the same. If you do take our guidance this year that also indicates that we'll be spending up to 300 million more this year compared to last year, which for some of our competitors is about 75% of the total marketing spend.

So we will use the size that we have as a competitive advantage. For the European growth, I'll hand over to Harm.

Yes, on the European growth, I mean given that size of the growth is 19%, it's of course widespread across many categories. It is across Originals, neo, running, but also training is in the double-digit area, so apparel is significant part of that as well.

And it's definitely market share gains in some of the larger accounts. So without going to the specifics of that Antoine, it's definitely broad based as I mentioned earlier.

It's across most of the countries in the double-digit area, some only few exceptions and it's across many categories and across most of the accounts.

Thank you Harm. May be since you mentioned running, which was I think very strong, I think you also mentioned this morning some kind of issues of capacities with -- on Boost, may be a word on that?

Yes, the Boost capacity constraint is not new, we just continue to mention to be consistent. We are in a very strong position, we grew our Ultra Boost business more than 100% in the second quarter, but we'll continue to see demand is outdriving supply.

We have a great relationship with BSF [ph], that continues to put more supply online. It takes 18 months to build a line.

On previous calls both Harm and I have said that we expect to be in a down situation between supply and demand by 2019. But the good part is that we have been really able to establish the Boost franchise as a very viable franchise in our sports business and in our performance business.

So it was not a surprise for us, but of course it does limit some of the growth that we're getting. But I just want to say from a constraint standpoint we grew out Boost business by a 100% compared to the same quarter last year.

So, great growth but there is more to come and probably continue to make the brand hard and the sports franchise with Boost also a very desirable one.

Thank you very much.

Yes, hello everyone. I have two questions, the first one on the gross margin, your full price sales improved significantly according to your opening comment, where are we in terms of full price sales right now, may be you can quantify that and then maybe you can give us an update on the medium term target?

And the second question I have is on the apparel category. Clearly it is footwear let out performance right now.

But still apparel was robust despite the high comps and the tough closing market. What is your take on the overall opportunity in apparel for the medium term, what are the key product launches in the next six to 12 months, key initiatives, may be beyond the FIFA World Cup?

Thank you.

So we've stated apparel to be self-critical because apparel grew less than footwear and clearly a big part of our focus since 2013 has been really driving differentiation and consumer obsession through innovation on our footwear. And what has worked very well in our footwear business and I think you can see that has been active management of the different franchises.

We believe the franchise opportunity also exists within the apparel business and that gives us the opportunity to drive that further ahead, the higher growth that we're doing today. Clearly some of the events that are coming up now will help us, but these are "of course one-time events" because they only appear every four years, but innovation does also has a place in the apparel business.

I think the Hoodie has been a great example of that. We have not been able to do that consistently and good enough and building a really strong pipeline to drive consistent high growth to the same extent as we've done in footwear.

I would say, fairly just to try to put it in the right context, so it doesn't seem over critical. We have had and still have a greater focus on footwear because we believe that you drive high level of differentiation through the footwear part of the business.

And that's where we see if we can apply some of the same mechanism to the apparels we can probably get more out of apparel. So that's where we see an opportunity.

It's not going to happen next quarter, but it's an opportunity before us because in order to get a balanced or more balanced growth portfolio, like we are right now seeing from a regional standpoint, it will be good for the company and in the medium term to may be have a I am not saying 50-50, but may be one thirds, two thirds of the growth balance between apparel and footwear. But this is something we are just highlighting because it's apparent when you see the numbers.

On the gross margin, I'll hand over to Harm.

Yes, Andreas thanks for the question on the full price of sell-through percentage. We always said it was below 50% in the past, it's definitely getting above the 50% threshold right now.

But there is a data challenge on this one as we're talking to our key accounts or some other wholesale accounts. We don't have a good data bases, estimates, but given where we are from a sell-through point of view and where our inventories are right now, it's a combination of better pricing, less clearance, definitely working through the trade terms as well amongst other thing.

So it's a combination of many things, but definitely the underlying result is we're growing into above 50% territory right now and we are working hard on that in the future. But the data quality will remain a challenge for all of us.

Good, thank you.

It seems we lost Louise or she is muted.

Hi there, can you hear me.

Yeah, now we hear you.

Great, thank you. So good afternoon and thank you for my questions.

I'll just ask one if that's okay. Around the U.S.

margin progression and thoughts around the speed of the expansion I guess balancing the investment with the high growth of the business where you're clearly taking big share, I think Kasper, you mentioned earlier this year more scale, better return. I guess what we're trying to figure out is that the pace of the margin expansion and the thoughts around sponsorship deals or I guess the U.S.

will take a bigger proportion of the overall marketing part? Thank you.

So on the U.S. 2015, 2016 and 2017 we clearly articulated that we will spend an additional 100 million every year in the U.S.

And you are seeing us doing that not only in terms of sponsorship deals like the MLS or athletes or of indicators of our brand in the U.S. We're also doing when it comes to infrastructure physical and non-physical infrastructure.

The margin in the U.S. was around 13.4 I believe and it was about 35 in China.

That shows a dull side, I don't think we'll ever get to the 35. But clearly we have no indication of a quick fix in the U.S.

And I think that it is the most important market. We have a long term view in the U.S.

this time we have to get it right, and as you can see right now we are getting the momentum. The momentum has been now for I think three years.

Three years is by far enough where it needs to be, so you're not going to see us push aggressively on the margin side to make short-term gains to the margin. The assumptions were that we've not disclosed, is a long-term view and getting to the 2020 position, but we'll continue to over invest also with the dilutive margin impact from the U.S.

Although, we believe we can increase the margin vis-à-vis our guidance, but don't expect us to drive it aggressively forward, that is not the case. Of course it will be much better margin in 2020, but it will most likely continue to be dilutive to the group.

May be one point just for clarification to my previous answer, so it doesn't go into the books as an answer. When I said one third apparel and two third footwear, it was an illustration of what it could be, it was not a guidance.

When we have a guidance on the growth contribution from apparel we will come with the guidance, it was not a guidance, it was an illustration.

Thank you. And in terms of the MLS deal that I think was announced yesterday, I didn't see any financials around it, but can you talk about the underlying inflation that you're seeing in terms of some of the big sponsorship deals?

So clearly I would neither confirm or unconfirm the number. I think it's the first point.

The second point is that the deal we have signed it's a much more attractive deal I think both for the MLS and from adidas, because we can get much more ROE. We can get access to youth teams, the league is getting better -- bigger, it's getting better, so we are very happy with the construct of the deal.

The bigger franchises will continue to increase in price, but we're also seeing the bigger franchises being more financially attractive for both side. So while there is an inflation we probably will continue to see an inflation on that and the losers are going to be the smaller franchises, because it's going to be less money, but the bigger franchises whether it's individuals, leagues, or clubs we'll probably continue to increase in price.

May be not at the rate that we've seen in the past, but we are also getting much more out of the deal particularly the MLS deal, and I want to reiterate we have been very happy with the deal we've signed. It's an important step for us and shows our commitment and our willingness to invest long-term in the U.S., in a major way.

Great, thank you. We look forward to following the U.S.

market shares story. Thanks.

Hello, thank you for taking my questions. A couple of these, the first one on the North America opportunity, could you please give us more color on how to think about increasing the penetration of shelf space, I think more shelf space and actually, and versus the growth of the like-for-like in the existing space you have?

How much of that is driving the growth now and now do you see that evolving going forward? And then on the gross margin for the second half, I think your guidance -- the updated guidance implies around 100 basis points improvement in the second half versus the 240 basis points ex-FX for the H1, so besides the FX impact in the second half, should we think about there are headwinds for the second half?

Thank you.

Yes, I'll do the first one and Harm will do the second one. In the U.S., as you know we have a plan to do 5 billion with the adidas brand by 2020.

We've been clear about that. And we'll continue to see an expansion online and offline, but we've seen 400 new doors with Dick's and Foot Locker so far this year, so you're going to see a greater expansion of our products, a wider distribution, which is also needed.

So we are coming from a position where certain areas have been under distributed, this has in certain areas into our branches, because we have not been impacted by the more closure that some of our competitors have been impacted by. But we believe that in some areas particularly in Foot Locker and Dick's, we have not had the appropriate distribution.

At the same time as you heard from some of the previous questions, you should also expect an expanded distribution, particularly in our own store and see above market growth in our own store. And with some of our online relationships, online with our brick-and-mortar, but also online with Amazon with whom we have a relationship with the U.S.

And second part of your question, I'll hand over to Harm.

Yes, first of all, we don't see more headwind in the second half than the first half. But we are seeing -- we want to accelerate some of the rightsizing for the Reebok brand as I mentioned earlier.

It comes to further closures in the U.S. It definitely comes to further closure in the CIS, and it comes to rightsizing in Latin America as well.

And then that one piece on the market level or brand level. And secondly we will accelerate the investment of the brand as well.

So we will over proportional invest into second half compared to the first half, like in the events that we had last year and that we will have in 2018 as well as a non-event year. So there's more into Sports 2017 and reason to believe for the brand in the second half, it will be significantly more than in the first half.

And that's the direction that we are going to go, there will be continuation of investment into our DC infrastructure to fuel our digital growth, our eCommerce growth, and so these are the investments that we are planning for the second half, that we already planned in 2016. But sometimes these are dropping into second half, if we can't go fast enough in the first half, but definitely no operational headwinds.

But on the gross margin instead beside FXs, we shouldn't expect anything different from what we've seen in H1 on an underlying basis?

Yes, pretty much. I mean the price that we have in the market are pretty much unchanged in the second half compared to the first half.

And as you saw the first half was 49.9%, and we're getting to -- approaching 50%, so it's on a similar level to the first opportunity in the second half. And as I mentioned earlier the hedging benefits in the second half are easing, but they are not significantly different to the first half.

Understood, perfect. Thank you.

Good afternoon and congratulations to the team for a really stellar performance. Two questions from us, you mentioned the less favorable pricing in North America on the grosses, was that largely a result of the Reebok activity on the gross margin line and what are you seeing in terms of pricing in the marketplace, you mentioned the competitive backdrop of course in the region, the adidas brand is certainly still executing extremely well?

And then secondly with Kasper onboard for the past year now, may be talk about the opportunity to lower expenses across the organization, any specific buckets we should be thinking of?

Anna, let me take the opportunity to talk about the expenses first. I mean, as we mentioned at the beginning of the call, we are not happy with where we are with the growth of our operating expenses and that's right on the right hand side of our chart that we always will execute and the best things.

So that's why we do a deep dive into the One adidas initiative, whether it's non-trade procurement, whether it's leveraging our infrastructure. We're overall investing and continue to invest not just in the first half, but on the second half into an infrastructure that is more scalable for the future.

So very clearly as we state again it is one of my key priorities besides generating the cash in the future, being disciplined on working capital, cost discipline and I'm not saying cost cutting, I'm clearly saying cost discipline to invest where the future growth is fundamental for us going forward. We had made some strategic decisions already, it will get operational in the second half in the 2018, and we should see further leverage then as of 2018 in the operating expense line.

On the pricing pressure in the U.S., we're not seeing any change in that. The pricing pressure in the market is quite high, and we don't believe that will change.

We believe at the same time that we're capable of holding our pricing to high extent, which will help over time, also drive our margin up. But we see a very competitive environment in the U.S., and we have no reason to believe that, that competitive environment will be less in the second half of the year or next year.

Thanks Anna. We can take the next question please.

Yes, thanks. Two questions please.

Kasper, I think you mentioned that the EBIT margin, the profitability that you've been seeing in China for the last few years is unsustainable on the medium-term view. It's not the first time this has come up, I'm just curious as to why you're quite so conservative on that.

At the moment it looks like the operating expenses as percentage of sales are well below some of your other markets, I appreciate this is a wholesale selling type market. But what makes you so bearish on the long-term profitability in that market, could you just help us understand that a bit better and towards what type of EBIT margin should we expect that to go on a segmental basis?

That's my first question. And the second one is just around again, the U.S., sell-in versus sell-out environment.

Obviously, your competitors are not doing quite so well as you in North America and you're posting a very stellar growth rate, could you just help us understand how clean the inventory is in that market and how the sell-out is tracking versus the sell-in, and what gives you confidence that actually all the product that's being pushed into that market will be sold at full price? Thank you.

So on full price guidance, we can't give you guidance on that, but I can tell you, the inventory in the U.S. is as clean as the rest of the company.

We do not have an inventory issue, that is as short as clean as that answer. In the U.S., -- no in China, we're having a margin of approximately 35%.

Cost of doing business over time will increase due to inflation overall, salary inflation. I do not believe it is sustainable and this goes for any industry.

If you have a market where there is a substantial margin difference between a major market in one area and a major market in other area that will over time force a certain equilibrium [ph] to take place. I am not by any means suggesting that China can be the margin leader in our organization.

We're not suggesting it's happening next quarter and I know you've heard this before, but I just -- and we as a company believe it's unrealistic in the long term to having margin gap between the company and its large margin between 10% and 15%, it's simply not -- it is not sustainable. And in that context, there will be pricing pressure coming in with a higher competitive market environment.

The market is currently dominated by us and somebody else from close to our address in North America, but we are also seeing stronger local competitors coming up. This is included in the guidance also, so we are not coming out and saying now the margin is going down, we are not going to hit our 2020 guidance.

That is part of the assumption. And it's actually we don't believe it's being bearish, we believe it's being realistic that you can only over a given period of time sustain such a large difference between the margin of the company and the margin of one single very large market.

It will simply drive different business practices. So it's not being negative.

We still see a huge business opportunity in China with very strong growth, but may be not at the margin or the level that we have right now, but still very, very attractive process as a company.

Thank you, that was very clear. Thanks.

Yes, thank you. Good afternoon Kasper, Harm, and Sebastian.

A couple of questions, please. May be just a quick housekeeping one, I think Harm you mentioned on the gross margin that I think we had roughly a third in terms of channel and product mix and two thirds coming from full price sell-through and increased prices.

So I was just wondering if that was the right kind of split in terms of how you saw the 240 basis points increase on an underlying basis pre-FX? And then Kasper you've gone into the industry pricing a little bit and how you feel that you're pretty comfortable sustaining momentum.

If we think about certain competitors, you mentioned that is still quite competitive, and we've seen some pricing, I think some prices lowered across some key categories in footwear including some more competitive pricing from your largest competitor. How do you see footwear pricing moving into 2018 on that basis and that's my first question?

Thanks.

Clearly nobody has any interest in reducing prices. You have seen that across different industries, and I also believe that our biggest competitor, which is a very well run company also understands that you don't differentiate yourself by promotion.

That is not what anybody wants to be known for that is called commodity. So in that context, we believe by driving innovation into the marketplace, which we have done so far with Boost and other franchises, whether it's in our performance or in Originals category we can maintain, I would say, stable pricing also in 2018.

And our assumption is that, that is also how other competitors will drive profit expansion, because if you continue to drive price down, you need to have a very high volume in order to offset that pricing. So, that is based on a market logic and that's what we're seeing at this stage.

That particularly in the key franchises we take our Boost franchise or people are buying because it is a cool product. They're not buying because it's $10 off, and I think that's the most important part.

And if that will be the case we need to have a different business model.

Okay, great, thanks. And maybe just… Yeah, sorry, go ahead.

Yeah, just quickly on the gross margin, John, I didn't specifically say it's two third and one third, but it definitely in the ballpark. So the majority is pricing based and it's a minority, and it's again into the ballpark, that's we're model quality one third, two third is definitely in the ballpark plus-minus.

Great, that is super helpful. Maybe just one very brief one on free cash flow.

You've done a great job in terms of managing your inventory and also trade working capital as a whole. When we think about free cash flow and we think about the returns going forward, given the growth rates that you expect and some of the margin leverage that you're going to get, certainly managing the OPEX going forward, are there any plans to look at buybacks acquisitions or special dividends given the amount of free cash flow was in very much focused on just continuing a relentless focus on driving share and growing the top line and the leverage that comes with that?

No John, we've always said that we are pretty happy that we went through the divestiture that we did, whether it was Rockford, TaylorMade or now CCM in a timely manner. There's definitely no plan right now to go into major acquisitions neither in 2017 nor 2018.

And as we always said let's generate the cash problem first, what we tried in the past as well and then deal with the problem of cash in the future. But we are relentlessly focusing on our operational business to make it better, being disciplined whether it's on working capital or in cost.

And then hopefully generating for ourselves that cash problem in the future and then we will probably think about it strategically. Of course, we are starting about that -- to think about that and then we will update in 2018 what our plans are.

Thanks very much. That is very clear.

Yeah, hi, thank you. My first question just on the topic of the Originals business, if I look back now for a number of quarters, the growth rate in Originals pretty vastly exceeds the growth rate in the sports performance categories.

And just kind of bigger picture, I'm wondering how long you think that trend might continue, and if you had any more color kind of the next -- in the shorter-term the next few quarters what might drive the Originals business that certainly would be helpful too?

So first of all, we don't believe that "it's a right way of looking upon it", because the Originals business today contains many products that are useful sporting. This is a category, a way we have categorized the business that was created in the mid 90's.

And if you look into it actually a lot of people going to the fitness room or you could go to a fitness room, you will see they are wearing "Original products", which is actually used for sport. So I think it's up to us that we've given space or we get the right categorization around it.

There's no doubt that we at leisure trend is one that is here to stay and we are very happy about that trend. But that is by far not the only reason why we're seeing a high growth rate in our "Originals category."

You're also seeing the presence of Boost in many of our footwear franchises in the Originals category. These products are used for sport.

So I think that we will get to a point where we will recategorized, because frankly it's a misleading indicator with Originals. Being I would say leisure only, we see part of it is of course a leisure, but a big part of it is also sports.

Okay, very helpful. Thank you.

And then my second question just relates to the North America margin, overall. The operating margin Kasper, I think back in March, you said North America might be dilutive from a company basis, the operating margin level for the next two or three years.

If I look at the first half performance so far, I think the North America operating margins are running back to the low-double digits. So I'm just wondering if there is some incremental investments upcoming that we may not see or are you just kind of over delivering on the plan relative to what you thought you might a few months ago?

No, I think that the key point here is that North America is 37% of the global sporting goods market. And if you look upon our position North America it's about 20% of our business.

So you can see in order to get our fair share of that cake, we're still have a way to go. And we believe the best way of creating shareholder value is building a sustainable varied competitive position in the U.S.

And if we try to squeeze the pie too early we are not getting there where we need to be in the long term. So we have no strategic intent of trying to do so.

When we look upon our business and where we made also it is the same. It's our intent to grow margin and grow market share, but we get on a company level the same goals for the U.S., but we have actually no intent to try to drive the margin up too quickly.

We tried that a couple of years ago with very bad results and we learnt from that and are very conscious of it. So if we can find the right way of continuing to invest in America, build brand heat and market share and we believe we can, we will continue to do so.

And that's why it will be dilutive for a while moving forward, but if you look upon the expansion of the top line and also the margin expansion, you do see a real money, you're getting a big portion coming out of the U.S., despite a dilutive margin.

Understood, thank you.

Julie, we have time for two more questions now please.

Yes, good afternoon gentlemen. Thank you for taking these questions.

I have two, so first one is a follow-up on China and China is profitability, don't you think that it's a market where substantial for eCommerce probably even stronger than in some other markets. And I'd be very interested in your comments on where is the consumers going, through your eComm platforms or through the big leading platforms existing in China?

That would be question one. And question two on working capital, can we expect that improving time to market initiatives, and you might update us on your most recent initiatives probably on franchise products, can we expect this one to continue or do you think there's a physical limit to any more progress on working capital in particular, which has been improving.

You said there was some -- to some extent some exceptional Q2 performance, but where do you see working capital down to about may be in two, three years in percentage of sales? Thanks a lot.

Yes, I'll ask Harm to help me answering the Chinese question. But before we go there, I think the important part I understand is also the consumer goes in different countries to different places.

So there is not one answer to the digital question. It really depends on what are the dominant partners or platforms for our country and they are in many countries or regions, different and they are definitely different in China, so Harm over to you.

Yes, very pleased to answer your question. I mean the majority is still what we plan towards 2020.

It's probably not in our own platform, but it's going through TMall [ph], and that's what -- that for me is dominating China. This is where the consumers are, this is where we can clearly present a brand in a very dynamic and in a qualitative way.

So we're pretty happy with the relation that we have with that platform, how we are driving it. So the majority will come there, and you're absolutely right, I mean as you saw on the second quarter results, it's a significant growth driver for our business in China, but still it's relatively small compared to the overall franchise business that we're enjoying there.

So that's why it's not a major driver to keep our profitability where it is today.

But of course it will accelerate from where it is today, right, it will be a significant part towards 2020. So on the operating capital, right now we've not given any specific guidance on that.

We believe right now we are at the appropriate level, but of course, we are looking upon all terms of our company. So I understand how we can become a better company.

And we will of course also over time get more and more focus on the cash flow. I think it's important that we take it step by step.

Maybe one point which is very important to this context, what we have done in the start of July 1st, we changed the organizational structure for the finance organization. That means that in the past, ahead of the finance groups in the regions reported to the local head of the region, they now reporting into Harm, which of course enable us to get much more consistency in process, in philosophy and actually how we treat our accounts receivables and accounts payables, that is one.

Secondly, in the One adidas initiatives we're also looking upon the expansion and a much better acceleration and use of global procurement. So there are options and opportunities and when we get closer to appoint, and probably around next year, we can give better guidance around that, but rest assured that we are looking upon all elements.

But we need particularly when it comes to the free cash flow and cash generation to ensure that we get the right level of leverage both from a cash standpoint, but also ensure that we can actually get the right top line growth from the market and not committed ourselves on this stage. Because, we're assuming that we execute our brand record, we will have a positive profit on the cash side, but we need to get the top line, product line and cash flow and all three elements are important, we haven't guided on the cash yet.

Thank you.

Hi, good afternoon gentlemen. I have had a longer-term question on the dotcom opportunity.

The channel is already nicely margin accretive, but when we think through to 2020 target of 4 billion sales, how much expansion opportunity do you see for the eCommerce margin relative to where you are today, and also how much upside could that be to that? Thank you.

Yes, first and foremost, I mean we set ourselves a pretty aggressive target. I mean doubling down from the 2 billion to the 4 billion, that's first and foremost something we got to achieve.

And secondly, the nature of the eCommerce business is a very variable business when it comes to credit card fees, shipping costs. You're probably moving more and more of what the consumer is expecting, what Amazon is driving to free shipping, to more personalized experiences.

So all of these are more in the variable nature of the cost. So that's why we believe having a healthy margin today, I don't think it's much of an expansion to be expected over the next several years as we are growing the business.

Of course, from a channel mix point of view, it will be attractive for us and that's why we are prioritizing it. But within that channel, we have limited leverage given the nature of the variable cost that is driving most of the expenses now.

Maybe just a follow-up, you're targeting 4 billion from your dotcom business by 2020, but what size and what's your expectation to the size of revenues that will be coming from wholesale eCommerce at the same point? Thanks.

Well, we don't have a scientific number for this one. We're very clear what we are driving through our own platform and when we talk about the own platform the only exception is TMall in China would be part of that platform, because we're controlling what we're doing there as a brand on full control.

I mean, generally speaking the 4 billion if we achieve that as part of our 25 billion to 27 billion plan by 2020, it's roughly 15% based on the mathematical calculation. Fundamentally, I believe that sporting goods will trend at probably 30% to 35% of the overall business in the online side, whether it's the footlocker.com or the Zalando or the Amazon.

So I believe the consumer is going more and more online from what we estimate probably today 20% to 25% towards the 30% to 35% by 2020. And again, does it stops there, does it accelerate, is it less, I don't have the scientific answer for that, but I still believe even by 2020, the majority of the products even for our brands will be sold outside of our platform when it comes to the online business.

Very clear. Thank you.

Thank you very much, Fred, and thanks very much to Kasper and Harm. Ladies and gentlemen, this completes our conference call for today.

As you know our next reporting day will be November 9th for our Q3 results then. I'm sure we're going to speak to and see many of you over the next couple of weeks and months around the world.

If you have any questions, as always, please don't hesitate to reach out to Christian, myself or any other member of the IR team. And with that I would like to thank all of you for your participation today.

Wish you a very good day. And for those of you who still have their summer vacation in front of them have a happy summer vacation and talk to you soon.

Bye, bye.