adidas AG

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

Fred Speirs - UBS Antoine Belge - HSBC Erinn Murphy - Piper Jaffray Andreas Inderst - Macquarie Anna Andreeva - Oppenheimer John Guy - MainFirst John Kernan - Cowen Jurgen Kolb - Kepler Cheuvreux Jonathan Komp - Baird Volker Bosse - Baader Bank Simon Irwin - Credit Suisse

Thanks very much, Anise. Thanks very much to all of you, and good afternoon ladies and gentlemen.

Welcome to our Q1 2018 results conference call. Our presenters today are our CEO, Kasper Rorsted; and Harm Ohlmeyer, our CFO.

Before we kick it up with our prepared remarks in a seconds, which will be followed by a Q&A session, allow me to once again ask everybody to limit the questions to two in order to give as many people as possible the chance to ask what’s on their mind. Thanks very much for that.

Also as always I’d like to remind you that all figures unless otherwise stated will be discussed for our continuing operations. In addition, our revenue development is presented on a currency neutral basis.

And with that over to you Kasper.

Thank you very much, Sebastian, and welcome everybody. I’ll go through the business highlights, and I’ll turn over to Harm, who will take you through the financial highlights and I’ll close with the outlook for the remaining part of the year, and then we’ll gave a Q&A session, that both Harm and I look forward to, hopefully, conduct to your satisfaction.

So, let’s get started. If you look in to the overall quarter, of course we’re going through and reporting on it in a normal way.

And from a highlight standpoint, we continue to see strong top-line growth in line with expectations, and when I speak about expectations, so, we speak about expectations, it’s of course in line with the guidance that we issued in our March results. We see double-digit growth in North America and Asia-Pacific, with the continued very strong China, where you’re seeing the apparel business accelerates, driven by a strong double-digit growth in athletics, and this is -- and I’ll take the question upfront, this is not driven by the World Championship, the majority is coming from products outside football.

We’re seeing a strong gross margin increase, reflecting the high quality of sales despite currency headwinds and we’re seeing strong margin improvements, despite significant increase in marketing investment. Upfront, we’re investing 12% more in marketing in this quarter.

So, you can see the leverage is clearly not coming from saving on marketing, the leverage is coming from the starting of the initiatives to create a scalable business model. On the challenges, we’re seeing a sales decline in the emerging market in Russia CIS, reflecting the challenging market conditions and Harm will go a bit more in detail with that.

The footwear business is up single-digit with some challenges with certain franchises and this is of course not new to us, this is the transition from two very large franchises Stan Smith and Super Star to a set of more franchises and not all franchises are working equally well, but at the same time the overall bottom-line is footwear is up mid-single digit. The momentum of the original business is normalizing.

Many of you have already last set of quarters and years asked how long time is the very, very high growth rate sustainable and you’re seeing, we’re getting a more balanced growth distribution now from our sports products. And the concept stores comp decline is driven by our Russian and CIS business.

So if you look and move to the numbers part of our chart, we are seeing revenue increases 10% currency neutral and 2% in euro terms we have seen a strong loss from currencies in the first quarter, which we did guide on predominantly related to the development of the U.S. dollar and the Chinese currency.

The gross margin is up 150 basis points to 50.1, despite ongoing negative headwinds and this really goes back to the point that we’ve spoken about before that we do look for high quality growth. We are not chasing growth for the sake of chasing growth and I think that is quite clear in our gross margin here.

The operating margin up 180 basis points to 13.4%, reflecting the gross margin improvements and the overhead leverage as I said before we are growing our margin budget 12%. So we have a negative leverage on marketing investments, which we believe is the right thing to do that we are not saving ourselves from a marketing standpoint to the numbers.

We are ensuring that we have the right infrastructure and overall we investing in our marketing. Net income from continued operations increases 17% and basic EPS from continued operations up 16%.

Moving on, you can see our three strategy growth drivers from 2017 also those we expect in 2018. adidas North America up 23%, Greater China up 26%.

So continued very strong momentum in both regions. E-commerce is slight notch down growing 27%, reflecting [fairly slower] January and February, due to no new releases in January and February.

And that’s something that we believe that we had to get used to when we look upon quarter-over-quarter. The e-commerce business growth will in the future also be highly dependent upon how many launches do you do in a quarter, that’s why you see the 27%.

But as you can see overall North America is 23%, Greater China is 26%, e-commerce 27%. So fairly strong growth in our three strategic areas.

Which brings me to our brand architecture. We continue to work our brand architecture to ensure that we appropriately set up, we have our Sports Performance and Sports Inspired where we are striving to have a balanced growth portfolio on this and of course we are a sports company.

So the focus will continue to be on sports, both from an investment standpoint and from an overall majority standpoint where the revenue comes from has to come from sports. And this is predominantly executed through a brand channel.

We have now built a new unit call that focus on the value consumer across all categories. With product that has been specifically design to the commercial price points.

The commercial challenges are huge and largely untapped opportunity for us. Especially in the U.S.

average reselling price for pair of stickers around EUR 60. At the same time we remain very disciplined in our segmentation.

Kohl will not interfere with sport performance or recent products in anyway. We continue to rate brand desirability at the top of the pyramid, Kohl revenues will be allocate into the respective business units, high revenue will running to it and running lifestyle oriented products in Originals.

This is an important way of looking upon the market also, while we don’t record revenue in this we want to make sure that we address the entire marketplace, but with a differentiated product offering and differentiated channel. And I think the latter is very important, that means you will not find our top end and our core products in the same channel.

That we can directly on from the beginning and that is also highly receipt in the marketplace. Moving on to the adidas brand, growing 11%, so continued strong growth.

Our Sports Performance grew 11% driven by double-digit increase in football, training and running and Sports Inspired as you’ll probably recall Originals is growing 13% due to double-digit growth in both footwear and apparels you can see we are now getting a more balanced growth portfolio from sports and from Sport Inspired. Our women’s business continue to grow double-digit, now representing 25% of the total adidas brand business.

We also continue to see progress in our Reebok business. We increased the profitability by 270 basis points, the revenue declined 3%, mainly due to sales declines in Asia in two countries, Korea and Japan.

Korea, because of a rapid decline in tourists traffic coming into the City of Seoul and Japan simply because of the profile of the country. We did return North America to growth with up 3% and we also seeing growth in Western Europe.

As I said robust profitability improvements, gross margin up 270 basis points to 41.8%. So we are getting closer and closer to the point that we're striving towards that is returning the Reebok brand into becoming profitable.

We are at the same time continuing to investing into the Reebok brand over proportionally to where we're coming from. Moving on to e-com.

E-com grew 27%, driven by double-digit growth in most regions. I did speak about the timing of the product launches that will continue too in certain quarters be a challenge for us to ensure that we actually have appropriate channel launch, product launches in every quarter also particularly when you get to the quarter-over-quarter comparison.

We launched the adidas Shopping App and it’s now launched in eight countries and we have more than 1.5 million downloads and we are seeing already now a much higher conversion rate of people using the app versus our normal online channel. We will be continuing to push the global rollout of our adidas App.

This is all from my side at this stage. And now I’d like to handover to Harm to give you the financial highlights.

Thank you, Kasper and good afternoon ladies and gentlemen. It’s a pleasure now to go a little deeper into the market segments.

I will spend some time on this chart going into the smaller markets. And as you can see this year it's more a mixed bag.

So starting with Latin America, up 10%. We are very happy with that development as we went through quite some restructuring in 2017.

You might remembers and our portfolio approach it was just the adjusted divestiture of TaylorMade and CCM and the Reebok Muscle Up program, but was also Brazil and Argentina restructuring. And that's where we see the benefits of that restructuring in 2017, resulting now in 10% top-line growth primarily driven from Argentina, Mexico, but also Brazil.

But even more importantly, the operating margin being [up 650] basis points. That's why I'm saying, portfolio management not just got new brands and CAGR also bought markets.

When I move to Russia 16% down, and this is of course in light of the continuation of the sanctions and the consumer demand that we are seeing where the consumers clearly pricing down. But it’s also we closed already 93 stores in Q1 and this is on top of 180 stores that we closed in 2017.

And that of course is linked to the top-line number there as well. But on the other hand we always said about -- it's about safeguarding profitability, and you will see in that segment that the operating margin is actually 720 basis points up.

That is how we manage Russia this time. When it comes to emerging market, it's a mixed bag.

Again there is a continuation of challenge in the Dubai market. So UAE where we also see similar Korea less travel coming in, it's more price sensitive.

And the overall region or segment is a mix bag. Again and we did some restructuring in Q4, 2017 as well where we merged some of the Dubai area markets and also that we are getting the benefits of it now in 2018 with the operating margin being up by 2010 basis points.

When we go a little deeper into North America, very happy with the continuation of North America being up 21% led by the adidas brand with 23%, driven by double-digit growth in pretty much all the categories. When it comes to the Reebok brand and that's something that we guided also in March, that we want to go back to growth in the North American market and you see 3% being driven by running and classics.

And we would expect discontinuing for the full year to be back in solid growth after some of the profitability measures came into Muscle Up. Overall, the gross margin decreased by 30 basis points and this is where I want to highlight some of the challenges that we had last year in the second half of the warehouse constraints.

And of course that led to some transfers of inventories into 2018 that needed to be cleared now in the first quarter. We will have some continuation in the second quarter as well that's where we got some impact on the gross margin in the North American market.

And that's why we really don't see a leverage on the operating margin, but for the full year rest assured, we will definitely see leverage on the operating margin in North America as well. When it comes to the Asia-Pacific, another market that is up 15%, again driven by the adidas brand with increase of 17% with double-digit growth in running, training, basketball and Originals as the Reebok brand as Kasper mentioned already earlier, that is down 9% despite the double-digit growth in Greater China.

But as Kasper mentioned declines in Japan, which is a more mature demographics and also South Korea where we talk about the travel then towards Seoul that definitely impacted somewhat our numbers here. But still the gross margin being slightly up and the overall operating margin slightly down, but overall a very stable new segment for us in Asia again, driven by the 26% growth in Greater China.

When it comes to Western Europe, it’s slower growth in a very mature market, currency neutral in line with our guidance mid- single digits for the full year. So 5% growth in Q1, 5% growth also by the adidas brand driven by Football, partly World Cup impacted, but also Originals growing in Western Europe and the Reebok brand increasing by 1% on top of a 25% increase in the previous year.

Again we’re talking about quality growth in Europe, so the gross margin is up by 1 percentage points to 45.6% despite still some headwind on the currencies. So definitely favorable pricing mix and very happy with the margin improvements.

And again based on the significant investment also into the brand over proportional you don’t see the gross margin improvement dropping to the operating margin as we pretty much used all the money out of the gross margin to invest into the brand in Western Europe. When we talk about Western Europe in the first quarter I also want to mention that the 5% is impacted by World Cup sell-in as well.

So when you look forward to Q2 you probably should see better impact in Russia, as the first quarter was more European impact as we sold in most of the jerseys and the ball as well in Russia. We should see a sequential improvement compared to the first quarter as we start to have pop up stores during the World Cup event.

And again some heat, brand heat will be build up in Russia and to a lesser extent it will help Europe to grow that’s why if you look at the 5% it will be impacted by the World Cup in Q1 and that’s why I want to clearly give a direction for Q2 that you could expect a slower growth compared to Q1 in the second quarter as World Cup effect isn’t as significant in the second quarter. I also want to highlight one of the more challenging markets that we have in Europe, it’s France and there are three factors that I want to mention; one, is as Kasper mentioned earlier, the new franchise that we launched have not worked as well as the very matured franchise that we build over decades.

We continue to nurture these and France is a market where we have specifically grown through products like Stan Smith, potentially over proportional in some of the key cities and that couldn’t be fully balanced. And lastly we also have a changing relationship with one of our key accounts where we definitely will separate from each other towards 2019 and that is starting in 2018 with full the impact in 2019 and that’s the direction that we have for France.

But also there similar to what we had in Argentina, Brazil last year, we have an attack plan in preparation to go back to the right growth in France. When it comes to the second quarter I also want to mention again that we get to tougher comps from the previous year.

In the first quarter we were up 10%, in the second quarter we were up 19% last year and that’s what you should keep in mind as well when it comes to August and the results of the second quarter. When it comes to the P&L of the first quarter, I have to say as a CFO I have never been happy to see such a P&L exactly in the guidance that we mentioned this 10% currency neutral.

We’ve also been very clear that the nominal rates will be -- to be managed in the overall company from a costs control, from working capital control point of view as well. So again there is a 2% nominal growth.

We always made clear that the quality of the growth is important to drop it to the bottom-line that’s why I'm very pleased with the gross margin expansion of 150 basis points. Yes, there are still some FX impact in there especially in Europe, on the other hand, we also did some clean up on the inventory side in markets like CIS emerging market in Latin America because that’s where we restructured and we see some of the benefits of less inventory results in these markets.

So that is also helping on to gross margin in comparison to Q1 last year. I was made aware that other operating income was quite a question in the morning already and quite honestly I’ve to admit as a CFO, I haven’t really looked at these numbers in detail but rest assured there are some one-time effects in there as we sold some land and buildings and in Europe, there’ve been some settlement on some legal cases, and there’ve been some ongoing cleansing of the crew and provisions.

So, you can definitely look at EUR 20 million one-time effect. But every quarter, these things will happen, that’s why I’m saying, I’d rather focus on the marketing investment, that’s actually 12% up, that is a higher focus for me, and making sure that our operating overheads are getting the right leverage.

And again, with the marketing working budget up 12% in absolute terms roughly EUR 80 million. I am really, really happy to see now first significant leverage in the operating overheads outside of the other income of 100 basis points.

And that’s really where my focus is. And all of this leads to an operating profit up by 17% to EUR 746 million and an operating margin of 13.4% leading then to net income from continuing operations of EUR 542 million, and a basis earnings per share from continuing operations of EUR 2.65.

When it comes to working capital, I also want to highlight that the inventories only grew on a currency neutral basis by 1%. And some of you might think how can we have enough products for Q2 and the quarters to come.

Again as I mentioned earlier, in Russia emerging markets and Latin America we did some right sizing and rest assured we’re well prepared for our full year guidance from a product point of view and from an inventory point of view in the key markets, Greater China, Western Europe and North America. And this has partly impacted to the restructuring and some other clean-ups that we had in the first half in emerging markets and Latin America.

But, I’m really very happy with the discipline that I’m seeing and again as a CFO at some day, I want to break the 20%, we’re getting closer to it. So, I’m really, really happy, so my colleagues are, we’re moving this one forward.

On the net cash position, while you see now the reason why we went out with the share buyback in March and this is a significant improvement compared to Q1, 2017 and we almost hold the position that we had at the end of the year 2017. Again I think these numbers speak for themselves, that’s why I always said in 27, let’s generate the problem to generate the cash positions then we deal with it, and that’s what we announced in March.

And that’s what you see on the next chart actually, how we used some of the cash on the share buyback, as we announced in March, it will be up to EUR 3 billion towards 2021, and up to EUR 1 billion in 2018. So, we started on March 22nd, and as of end of April we already bought back 641,000 shares of the adidas, amounting to roughly EUR 130 million and whoever is interested there was an average price around EUR 203 and something.

And as we promise, we’ll continue to be in the market, every week and it’s not a tactical program, it’s a strategic program for the financial health and to return to our investors. With that, I’d like to hand over to Kasper again for the outlook overall for the year.

Thank you very much, Harm. Looking upon 2018, it is a very important milestone towards the targets we have set ourselves and communicate by 2020.

And it’s in the context of balancing market share growth and margin improvement. It’s important that we get that balance right.

Market share with no margin has no value and margin with no market share has no value. And we’re trying to make sure we get this balance right all the time.

We’re focusing on high quality revenues and not chasing revenue for the sake of revenue and as you could see, which I believe also shows the quality of it we’re earning with a very low inventory position, which you should also speak for the quality, what we’re trying to do. So, if there were any concerns about excess inventory that is definitely not the case.

We believe we have the product pipeline to support the planned top-line expansion that we had spoken about for 2018, plan towards the guidance we put into the market. We have, as we said, we will do in March over proportionately absolute and relative terms invested in the brands and in products, we’ll continue to do so to ensure that we create enough brand heat to drive the company forward towards 2020, and of course beyond 2020.

And we’re trying to see the leverage of our scale the business model is still very early days, but you can clearly see that with a 2% nominal growth and a 17% profit growth, you’re trying to see some elements coming through and the bigger or the -- is really the headcount development. There we've had a substantial decline in headcount year-over-year, and we've also had headcount decline quarter-over-quarter.

So we have less headcount on the payroll end of March compared to end of December and significantly less compared to end of March last year. So we are trying to see the first element of scalable business model.

Clearly, we are driving towards margin expansion and overall portion in our income growth which is along with our guidance with the 10% currency neutral and the 13% to 17% bottom line, that is of course a consequence of that because we will get a substantially lower nominal growth coming out due to the currency fluctuations or headwinds. 2018 is also a year on the event and one of the biggest or the single biggest sporting event in the world is the FIFA World Cup that's coming up in five weeks' time, which is a tremendous platform for us to present our brand.

12 teams are wearing the adidas equipment, which we are proud of. And of course we hope that one of our teams are going to win.

It's a big sporting event in the world. And it's a fantastic platform to present our brand.

That’s driving brand desirability around the world far beyond the football part of it. So the brand impact is of course beyond football, we see this is a brand building event.

The direct financing impact is limited. And the football has overtime relative to the size of the company becoming a small event from a financial standpoint, but not from a brand standpoint.

There is no doubt that the Russian event or the World Cup in Russia does carry lower financial opportunities than the similar event four years ago in Brazil. At the same time, we’re looking forward to it, it's going to be a fantastic way of bringing our brand to life globally.

Which brings me to the 2018 outlook, we are confirming the outlook and I'm not going to go through the each of the elements. But I just want to say what I’ve said on previous occasions.

We strive to have as realistic outlook as possible, we're now striving to giving updates every quarter should an update we will try and we will do so, but at this stage we are confirming the outlook. I'd also repeat what Harm has said on a number of road shows, and I have said and Steffen has said we believe that we will very comfortably hit our bottom-line and we think there is more challenge on the top-line and we're not going to chase revenue for the sake of chasing revenue to put this into context.

In summary, we've had a successful start to 2018 according to plan and according to guidance. We are seeing an ongoing event in our strategic growth areas, which are online North America and China all by the slowdown in Western Europe.

Harm spoke to it it’s not a slowdown that we’re happy with, but it's a slowdown that we right now seeing. It has no impact on the guidance for the company.

We do expect the strong profitability improvements, we have seen and we continue to expect them despite the currency headwinds that we had with the particular weak in R&D and the accelerated marketing investment will continue to support brand and product to ensure that the progress we're making is made and sustainable to the platform. All in all we are focusing on executing, creating renew the strategy that we launched three years ago.

With this, I'd like to call the presentation to a close. And Harm and I look forward to taking your questions for the next approximately 30 minutes.

Anise we are ready to take the questions now.

Hi, good afternoon. Thanks for taking my two questions.

The first would actually be around market environments, I’d be very interested to hear your latest take on the broader environment in the U.S. and Europe?

And how you feel the level of general promotional activity now as comparing to a situation we saw at the start of the year? The second perhaps will be on apparel, we saw a good acceleration to mid-teens.

You’ve highlighted in the presentation mainly driven by athletics. Just interested in whether you are seeing enough encouraging signs that apparel is moving on to a faster growth rhythm and also by category and across the sports, which one is most promising?

Thank you.

I will take the apparel and Harm will take the market. As we’ve spoken about on previous occasions we are trying to move apparel business closer to a franchise model similar to what we are seeing in footwear.

And while we are seeing very positive signs here, which is predominantly driven by now football and we do this with this delivery so we don’t misguide you. We think we are taking the right steps, but we still think we have the way to go, so we don’t think that we are by any means where we need to be.

We do not guide on what we think it could be because clearly what we are looking to do here in line with what we said and in line with our strategy, we are -- want to make sure that when we build businesses to a growth rate that the growth rate and also the marketing our product, or marginal sales also provides profitability for us. So while I am giving a big answer, the answer is we are making progress on building franchises, we don’t guide on what the future could look like, but clearly in the last couple of years the focus was very much on footwear we are trying to now driving this correct English work rather more balanced effort in our company between footwear and apparel.

And on the market tendency I will handover to Harm.

Fred, in general we don’t see much change in 2018 compared to 2017, I mean, the retail environment remains challenging. I would say somewhat better in the year somewhat the competition is definitely getting somewhat cleaner.

So that is definitely a positive, but the retail environment will continue to be challenged through the online business. And so all the players and so all the investments, all that need to be done into omnichannel environment.

When it comes to Europe, I would also say the market isn’t worst compared to 2017 what we are experiencing right now is after a several years of double-digit growth that some of the key franchise are not being replaceable within two seasons there is a new franchises in that. We need to work through as a brand, that’s where we keep investing into the brand or marketing investments as well.

But overall I would tell you the overall market environment is generally speaking unchanged in both major markets.

Yes, it's Antoine, HSBC, two question. First of all I think you mentioned that in terms of the 2018 guidance the margin was more or less in the bag, but maybe the top-line was a bit more challenging.

So could you maybe elaborate and this is linked to those maybe issues about some of the reiteration of some franchise lines and in which markets are you facing this issue I think you mentioned France, what about China for instance? My second question relates to your marketing efforts.

I think in the first quarter your marketing to sales ratio was up more than 100 basis points, I understand then there’ll be the World Cup, which is also going to be costing something. So what is the guidance for marketing to sales ratio over the full year and how do you see maybe the three remaining quarters?

Thank you.

Let me start with the guidance, I don’t think anything is in the bag and I may I think that would be premature, I was giving you a -- I would say soft guidance on how we view it. You have been clearly see that North America and China continues to very strong growth.

As you can see from the numbers and also from the statement from Harm, but right now Europe is growing at the lower end of the guidance. And that is why when Harm said that we were flattish in Europe in the first half that is of course is impacting when we start saying we think that there is more challenge on the top-line than the bottom-line.

And there I think is the essence of what we are seeing North America, China continue to very strong, Europe moving towards a flattish revenue number, when you exclude the World Cup impact. We don’t -- when it comes to ratio on sales and marketing expenses, we don’t guide on that, but what we said very clearly is that we would in marketing absolutely and relatively over invest in 2018 that means in absolute term the numbers would be higher and in relative terms to revenue the numbers will be higher.

That is something that we plan to do because we believe that is the right thing, and that is already included in the margin guidance of 10.3% to 10.5%. So it is going to be -- it is in Europe where we want to over invest because of the opportunities and also because we think it’s the right thing to do for the brand.

Yes, I just would like to add Antoine, on the gross margin specifically, because a lot of people get excited about the 150 basis points and again there is only one quarter. And I want to be very clear that we still have nine months ahead of us and there is also comparison to the lowest margin quarter that we had last year.

So the comps will be tougher in the next three quarters. As I mentioned earlier, it's partly impacted also by the clean-up of some of the inventory in the emerging market and Latin America.

So, that's why I believe it's way too early to give a different guidance, but given the good start on the gross margin and of course less headwind in the second half, that's why we feel, whatever the top-line will be really comfortable about the bottom-line. That's all we are saying.

Great and good afternoon. So I guess first on the footwear close to an underline mid- single digit rate, I was curious if you could kind of help us think about how you are thinking about that line for the year.

Are you seeing newness in the channel or new platforms that should help accelerate that or is that how we should think about this as you’re transitioning from some of those older success franchises to some of the new ones? And then my second question is just on the e-commerce, kind dovetailing to that you said you didn't have enough newness or new launches in Q1.

Curious on again how that -- you expect that channels to grow in the back half? And then for the adidas App, you are in eight countries today, what’s the outlook for the balance of the year?

Thank you.

Let me start with the -- do the digital one and Harm will do the franchise footwear and apparel. What I said was we did launch simply because we're going into the commodity.

If you launch products in brick and motor you operate with a different frequency. And when we look upon launched the bigger we become on e-commerce and of course when we compare year-over-year then we come into a sequence if we launch one quarter and we don't launch the same quarter next year then you have an inconsistent growth rate.

We do feel comfortable with the growth rates that we have for e-commerce and as we clearly stated e-commerce along in North America and China will continue to outgrow the rest of the market. So this is simply just learning as we go and the bigger it becomes of course the bigger impact it has.

With our App, we have a very strong opener for rolling out the app globally, and you will see the upcoming into Asia this year. But of course what we are doing is, we take the most relevant markets first so that's why we started with the U.S.

and Europe and we're now moving to China. China we probably would have like to do it early, but there is amount complexity related to the Chinese setup simply because the digital ecosystem in China is different to anywhere else in the world with the strong presence of Alibaba and Tencent that will be launched by the end of the year.

So long answer to a short question the target is to launch of course the app in all relevant markets globally.

Yes, and Erinn on the footwear side, I mean of course we mentioned last year in our challenges or opportunities that we want to grow faster in apparel give the brand strength that has finally happened in Q1, we are very happy with that one and of course if we guide 10% overall and apparel growing above the 10% then you have lower number in the footwear. We don't want to give any guidance out there, but we also convinced that it will be good in 2018 to have an over proportionate growth of apparel.

And it's more important for us that the right franchises on the footwear side are lending a nurtured given time to be lasting. So we don't want to overshoots.

So I'm very happy that apparel is taking the lion share in 2018. And on the question on the modern versus the iconic franchise in Originals it's a similar picture to 2017, the vast majority or more than 50% of the growth is coming from the modern franchises relative to the iconic once already in Q1.

Hello, Andreas Inderst, Macquarie. Two questions from my side, first, Kasper you highlighted the segmentation strategy, core versus branded goods that's nothing new to Europe at least the way how I see it and to China.

But maybe you can give us a bit more inside, what exactly do you plan for the U.S. market?

What could be the contribution overtime? How much is actually the core channel already in Europe.

So just to get a better feeling about this strategy. My second question is on Western Europe, you were call out on Bloomberg I believe saying that Western Europe should be rather flattish in the second quarter.

So now the base is extremely high I understand that, but for the full year you still see mid- single digit growth, which means or implies a significant acceleration then again in the second half of the year versus the flattish number in Q2. Just wondering what gives you the confidence for a renewed growth acceleration in Western Europe?

Thank you.

So let’s start with core, if you look upon core we had offers in this category in Europe if you go to the Dicam Group as an example, which is pretty much addressing the EUR 50 to EUR 60 segment that is very large segment and we believe by having the right go-to-market route it is and will continue to present a very large opportunity. In the U.S.

we have customers like Kohl, like family channel that are addressing this segment in the market and we’ve never been addressing that. We believe by having a product that has the three stripes, but of course is different to the performing product and you can’t find a performance product in that channel and vice versa you can’t find the core product in the Dick’s Sporting Goods.

We believe that that is the right way of going we do not believe it represents any significant risk to the high-end of the market. It only does that if you don’t have your segmentation strategy underway.

If you look upon China we’ve entered the Chinese market coming from the top the core footwear products or franchises are priced at European, or European plus pricing, and that of course gives certain limitation when you want to go broader in China and address more than d tier 1 and the tier 2 cities. Because simply the Chinese consumer cannot afford a lot of them A EUR 180 shoe they can afford a EUR 60 or EUR 70 shoe.

Part of that has been addressed through factory outlets, but in order to do it in a more sustainable and a clear way to market when you go into tier 3, 4 and 5 cities you got to have the product offering that’s what we are aiming to do with core. So it’s just a natural evolution of continuing to grow our business with a differentiated product set so we don’t bring wrong products into the wrong channels.

When it comes to the European market, I believe that Harm and I are saying the same things. So I’d like to be clear on we’re saying that the growth from the first quarter of 5% was positively impacted by sales of jerseys related to the World Cup that will happen to a lesser extent in the second quarter, which is why we’re moving towards a flattish revenue number for the second quarter.

We have not changed the guidance for Europe and let me be clear on why we do this we do not want to sit and we’re guiding I think on 12 different line items. And we have to change that then every quarter we’ll have to do an adjustment either on GP1, up or down, on region up or down when we believe that has we reached the stage where we believe that it will change then of course we’ll inform everybody about it.

What we are saying is we are confirming the guidance for our company and should anything different occur we’ll come back and do so. But we’re not going to do a update on every element of the channel every quarter.

Great, thanks. Good afternoon.

Two questions, first on North America gross margin decline, could you quantify the amount of the warehouse constraints should this be minimized to the second quarter or is there any impact still expected in the back half? Also curious how are promotions during the quarter versus planned and how should we model gross margins in North America as we go through 2018?

And then secondly, a follow-up on footwear, you mentioned not having enough newness is that primarily in Originals or did you see some of that in performance as well? And I guess are you able to accelerate the new release calendar to rectify that?

Thanks.

So let me start with the later and here I need to be very clear we have not said not enough newness. That was not the message, the message we’re saying is that you need to release in a different frequency when you work online and we have not done that in the past.

We have very often bunch release so that means in one quarter on one month we’ve released three or four or five different pieces of footwear. If you’re online you need to spread your releases differently.

I just want to make very clear that we don’t leave an impression that there was not enough newness, what we need to do is, we need to spread the newness in a different way than we’ve done before, instead of sometimes doing bulk releases. On the U.S.

I’ll handover to Harm.

Yes, Anna, on the gross margin, I don’t want to give the details of the impact as we didn’t do that last year either to quantify the impact of obviously warehouse, that’s something we got a manage internally, I just want to try to give more transparency as we did last year, we see various constraints. We still had a successful year in 2017, as you might remember, we’re growing again 23% in the U.S.

despite some of the constraints on the warehouses. We just need to deal with some of the hangover that we had from last year, but you can definitely model that we will have an improvement of the gross margin in the North American market.

But I don’t want to give guidance for Q2, but Q2 will be less impacted by the current activity that we had in Q1. So, I’m not going to promise the sequential improvement now every quarter, but definitely will be positive territory for the full year.

But on the U.S. what we have said very clearly is we continue to expect an improvement in the margin in the U.S., every year towards around the 20% by 2020, we also expect the U.S.

to be slightly dilutive when we reach 2020. But of course the overall assumption and planning in our modeling is that the profitability will continue to improve annually in the U.S.

Yes, thanks very much, Kasper and Harm. Two questions, thanks.

First, just with regards to Reebok, very strong gross margin performance in the quarter up 270 basis points, compared to the adidas brand up 60. So, it’s something is really starting to happen here, just a question around the rationalization of Reebok in the U.S.

in terms of the outlets. Will that be finished effectively by the end of the first half of 2018?

And as Reebok gets back to sort of breakeven, would that have roughly or in excess of a 60 basis points incrementally that impact at the margin for you? My second question is around footwear, and I’m just trying to get a sense of how many pairs of Boost you’re effectively selling.

I can ask the question two ways, either a percentage or footwear revenue that is Boost related in Q1, or out of the over 400 million pairs shoes, I think last year, how many millions were effectively Boost related? Thanks.

So, on the Reebok side, we expect to be modest finished by retail closures by the end of the year. but there are certain legal constraints in the U.S.

because some of the malls you simply can’t get out of that has no carry effect, what I mean by that is that frankly the closure costs would be higher than just letting the lease run out, and that’s due to the mall situation. So we’re fully in line with the profitability improvement that we’re expecting in the U.S.

on Reebok side. We don’t disclose, which impact it will have, but you can be very clear that the two things we’re trying to achieve on the Reebok side is, one, get Reebok back into black territory so profitability.

And secondly, invest heavily in the brand, and we’re doing both at the same time, and we feel, I’d say comfortable, and I don’t mean this in arrogant way we feel confident, that we can achieve what we’re aiming to achieve on getting Reebok into positive territory. On the Boost side, I handover -- on the footwear side I’ll handover to Harm.

Yes, we don’t want to disclose any details on the Boost side of course, but again we still see a solid growth, and I want to mention just as Boost was impacting that category. So the running footwear category is growing 60% that probably gives you a rough indication, but that I’d like to leave it.

Hi, thanks for taking my question. So, just on gross margin, obviously strong performance in Q1, on top of very strong performance at the end of 2017.

I’m just wondering, it seems like you have pricing and mix working to your benefit, what is the incremental deceleration kind of the gross margin improvement as 2018, goes on to get to the 30 basis points overall for the year?

Well, there are two factors, John, one is as I mentioned earlier, we had -- on a comparison we had more inventory challenge in some of the emerging markets and Latin America and we have less inventory allowance in Q1, that has impact on the gross margin in Q1. But yes, sort of right there pricing and channel benefits as well in Q1.

But as we mentioned earlier, we are confident about the bottom-line the net income, we are less confident about the top-line. And we always said we want to work with our partners and use some of the gross margin to drive the top-line in the right way.

And that's where you want to keeps the flexibility for the full year and then working with the margin in the right way.

The part that you mentioned the more commercially oriented product range. I was wondering how high the share of your current business is in this category at this point in time.

And what you think the market potential there in this more commercial oriented price range? And then secondly on France, you broke up or you about to break up with Decathlon.

What is your plan in place in order to cover up for the lost business with Decathlon is this predominantly going into own retail or what's your plan for France going forward? Thank you.

Let me start with the first question related our core business. We believe there is a substantial opportunity to be had in this area by doing it the right way.

And I think by doing in the right way is applying the discipline in that we don't ship product that we’re not making money on. The reason why it's so important to build the scale of the business model is and so you can actually add products with the lower gross margin and still have a bottom-line improvement because of the scalability.

And that's what you are going to start seeing overtime in China, which we are set up remainder of the year, we should expect in China to have a contribution maybe goes down. But of course overall the margin will go up.

So we think there is a substantial element or the substantial opportunity in this segment moving forward. This part is still by vast the minority of the business we do today.

So a lot of the business we're going to do in this area will be new business. This is also necessary for us to long-term grow in North America.

In North America we have been at the very $100 plus price point with pretty much all footwear. While this has been very good in establishing the brand and getting us a double-digit market share and we will continue to push here.

This market segments does give us certain limitations of how long we can grow. So we need to continue to push the technical side of our products if take the running, the high end boot shoes, et cetera.

But we got to get it balance in where the sweet part of the market is without jeopardizing the other part.

Yes on the Decathlon, Jurgen it’s definitely we believe similar to -- I want to take the analogy to the SME, when the sports authority went out of business I don't think the market felt it at all and it was consumed by other players and I mean Decathlon not going out of business they’re a strong player of course in Europe. But I think it can be -- it's for some of the deeply buying group.

Some of the retail piece, but it definitely goes partly online as well. That's a direction that they're going.

I mean it will definitely feed our online drive as well.

Yes, hi, thank you. I want to follow-up on the discussion about the franchises.

It sounds like there is a little more volatility in the success rate that you're seeing. And just want to ask more directly kind of number one, which franchises, the newer ones are working which ones aren’t.

And then when you look at the root causes of some of the change in performance, do you think it's brand heat, do you think it's design, is it the competition? Like what do you attribute the change in the performance to?

So before we go there I just start by commenting on where we are coming from. We are coming from extremely high comparisons.

We just reported a 10% currency neutral quarter. So it's not a quarter where we have lost market share.

I want to put that into context. That not all franchises work equally well, I think it's natural, what we have seen that we had a period where three very, very strong franchises was working posting at almost at an unnatural point.

If you look upon some of the franchise we just lost like the solar boots, the commander, the sebaco, the hardened. Many of these franchises are very successful, but they are not successful to the same level as the Super Star or Stan Smith.

And I think that is what we're seeing. We're seeing an equity sign to pickup, and we're clearly seeing appropriately didn't meet up meet all our expectations.

And I don't think this is anything unnatural because that was included in the guidance. So of course we go and look upon and say where does the launch work and where doesn’t work.

But I just want to caution everybody and I don’t know any company, where you have 100% hit rate in all the franchises and right now we believe that the guidance we have 10% that reflects a fairly good -- gives you good indication of the success rate that we have and should give us right now maybe we take Europe market share gain in any market that we are active in including the U.S. and China.

Hello, two question from my side. First on e-com, so where do you stand in regards to implementing the full set of omnichannel functionalities as well in regards to building partnerships with market leading marketplaces.

So where do you see room for improvement in that aspect? And the second question would be on Reebok, good to see Reebok back to growth in North America, but could you give us a bit more color on what’s going to happen for the rest of the year in Asia-Pacific and Latin America, how do you see the momentum there having the Q1 shortfall in the books?

Thanks.

Yes, just on the e-commerce side, its Harm speaking here. So we keep rolling out the omnichannel capabilities, we are pretty much done, we started in Russia, already two years back, we are full up and running in Europe and also in the U.S.

We are now looking at what are the opportunities in Asia as we build one Asia that’s where you can expect something in the second half already. But in the two major markets North America and Europe largely complete from the omnichannel point of view.

When it comes to partner programs, we start rolling out these two more partners, but this is still limited to Europe and North America not to any other market and that’s where we want to optimize that omnichannel play with these partners first because it’s a new business model, not just for us but also for our partners and that needs to be optimize, that needs to be nurtured as well. So from a partner point of view it’s clearly focused on Europe and North America only.

On the Reebok side, excuse me -- on the Reebok side. We expect a more positive development in Asia by the end of the year as I said clearly our business in Korea, which has historically been a very, very strong business in Korea has been one of the biggest Reebok countries globally has been severely impacted by the overall market slowdown in Asia.

So we are looking upon country-by-country I think that what we are trying to do is move Reebok towards a balanced growth that gives the appropriate delivery and profitability of course we had not hoped that will come into having negative revenue stream in Korea or Japan. But we are working forward with Reebok, Reebok seems to be a difficult child to raise, but I can say the final purpose has been to reach to a profitability in Reebok and I think you are seeing the progress we are making here.

And that means in one quarter we might have a country that doesn’t perform up to the standard that we want, but we are across the board and it goes for adidas and for Reebok we are training or restraining ourselves from doing anything where we push product for the sake of pushing product. And that I do want to stress this goes for adidas and it goes for Reebok, we are not pushing products for the sake of pushing product we want to have a balanced picture of market share gain and margin gain.

And that might give us insight as it goes into negative territory in this context for Reebok within a quarter because we will not do short-term things to just drive revenue for the sake of driving revenue.

And that we have time for one more question please.

Hi, thanks for taking this. Quickly then, in Europe, was there any difference between your wholesale and your direct to consumer, i.e., is there any kind of weather impact or kind of overall economic slowdown impact within those numbers?

Or do you think that’s representative of the market. And secondly you said you only really -- you only had two launches later in the quarter with the [indiscernible].

Will these have a bigger impact into Coyote are they by nature much smaller franchises and smaller volumes at a group level?

So I think that one should always we careful by using the weather because we don’t use the weather when things are going well, so we not use the weather when things are don’t going well, so I wouldn’t put that into account. We think that we’ll have a more balanced launch calendar in the second quarter, than we had in the first quarter.

But right now we’re turning in the way we see the picture, as I said, it does not change the guidance for us on a company level. I’ll give you some more details from Harm side.

Yes, just on the channel side, it’s pretty much balance but I can definitely confirm that e-commerce is still the fastest growing channel also in Europe. But again it’s a very balanced picture, there is nothing that is now outlier there, but e-commerce remains the fastest growing channel also in Europe.

Okay, Simon thanks very much. Thanks very much Anise, thanks very much, Kasper and Harm and thanks very much also to all of you for staying so disciplined on my two question request.

This completes our conference call for today. Our next reporting day will be on August 9, 2018 for our Q2 results.

We all look forward speaking to and seeing many of you over the next couple of weeks and months during the various road shows and conferences. If in the meantime, which I would assume is the case, you’ve any questions, as always, please don’t hesitate to reach out to any member of the IR team.

As you know, we will always be happy to assist you. And with that, thanks again for participating in our call today and have a good day.

Bye-bye.