adidas AG

Thanks very much Sofia. Good evening, good afternoon or good morning, wherever you are joining us virtually today and welcome to our first quarter 2021 results conference call.

Our presenters in today's call will be our CEO, Kasper Rorsted; and our CFO, Harm Ohlmeyer. We will kick it off in a second with the prepared remarks from Kasper and Harm, which will be followed by the Q&A session.

As always, during the Q&A session, I would like to ask you to limit your questions to two to allow as many people as possible to ask a question. And I guess now we can kick it off.

Over to you, Kasper.

Thank you very much and welcome everybody. First, I'll start with a high-level view and where we stand, then a look upon our business and the achievements we had in Q1 and Harm will then subsequently take us through the Q1 in further details.

And finally, we'll discuss the outlook. And of course, also hear our excitement about the product launches and the sporting events that we have ahead of us.

So, let's get started. On the game is a growth strategy and of course executed by the adidas team, we launched this in March and right now, we are in execution mode across the entire company.

It has the consumer at the heart and gives us a very clear direction until 2025 and as Sports life our team and three strategic focus areas, the increase in brand credibility, the elevation of the experience for consumers, and the push of the boundaries on sustainability. We have two enablers that will set us up for success, the mindset of innovation across all dimensions of our business and the acceleration of our digital transformation throughout the entire value chain.

We're off to a good start and will create significant growth in value towards 2025. There's no doubt that we have what it takes.

We believe that the people come first, it's the main force behind our lenders drive for innovation and exciting products. The consumers want to be part of our journey and we are inviting them to create change with us to large scale activations like run for the oceans.

And with collaborations, we are sharing a mindset of innovation with partners and collaborators to create never seen before collections and drive brain heat. And of course, we are looking very much forward to the key events that we're seeing in 2021.

We're also looking forward to having athletes returned to the stadiums. Trevor Lawrence, the number one NFL draft pick is the latest addition to our team, joining idols like Patrick Mahomes and Aaron Rodgers on our strong American football roster.

We want to continue our mission to be the best sports brand in the world. And we're best when we have a credible, inclusive and sustainable leader, proud about the external recognition but committed to pushing further.

We're excited that we again were selected for the Time Magazine's list of the 100 Most Influential Companies Globally. And this list highlights businesses that make an extraordinary impact around the world, and included for industry leading sustainability initiatives.

We also continue to defend our top spot among the 10 most reputable companies globally in The Global RepTrak 100 ranking. And in addition, we continue to do very well in employer ranking, such as Lincoln's top companies.

We strive to be the best and diversity inclusion is at top of our priorities. And together with our strong commitments of our employees globally, we have launched further initiative to drive greater diversity and inclusion at adidas.

We've implemented a new DNI learning program on a regional level. We created additional inclusivity training for HR and line managers.

We've launched the Edwin Moses Mentoring Program in North America and I'm sure many of you remember the greatness in the '80s when he was the world's best athlete and it's been with our family for many, many years. And we're very excited to have former Olympic athlete Jackie Joyner-Kersee nominated to join our supervisory board at the AGM which will take place next week.

And we made good progress on the hiring tax we set ourselves for Black and Latin ex-employees in the U.S. Now let me come to the business update.

Consumer is at the heart of our strategy and that's why we'll start with a business update with consumer highlights. When it comes to credibility, the UB 21 or Ultraboost 21 is the next generation of one of our most successful franchises.

The member exclusive drop sold out in less than 48 hours. In addition, we continue to build credibility in technical running.

With the Adizero Adios Pro, the Adizero family took no less than six world record since September 2020. And as a result, adidas athletes now hold two-thirds of the world records in their major mid- and long-term distances.

Promotion. As promised, we're working hard on improving basic items for women, and in Q1 we took an important step with our D2C exclusive launch of our innovative bras and tights.

Also, the successful launch execution of the German Football Federation Jersey led to a 5X that remained on e-com compared to the normal jersey launch. And of course, we're very much looking forward to hosting the German team here in Herzo for the upcoming European Championship.

We formed a new collaboration with Peloton to authenticate training and we've seen exceptional e-com sell through. And under ZX, we kept the release cases high to further grow the ZX franchise and the ZX Krusty burger high drop was 25 times oversubscribed.

And we also saw strong spillover into the apparel range. When it comes to your experience in Dubai, we opened our most digitally connected store, almost 60 consumer facing digital touch points and a focus on sustainability, women and innovation.

We confirmed outage destination for launching high products is also now in Europe available, and when it comes to sustainability our Stan Smith program, one of our most iconic franchises becoming sustainable, activated by campaigns with Stan Smith himself and Disney's Kermit resonating extremely well with consumers. Now let's look upon the store.

The global store opening rate trending downwards in March. When we last spoke to you in mid-March, approximately 95% or a bit above 95% of our stores were opened globally, 70% in Europe.

The opening rate deteriorated to below 90 in the range of March, driven by additional lockdowns in Europe. In Europe, the opening rate even decreased to below 50 at quarter end.

The trend has reversed in recent weeks. And more later when I will discuss the outlook.

Looking at the overall quarter. On the weaknesses side, we continue to see retail traffic is still significant below prior year even though mostly compensated by higher conversion rates and e-com.

The gross margin is not yet back to the pre pandemic level despite healthy inventories due to FX only being a drag and Harm will take you through that in further detail. But there are many good things in the quarter.

Our growth strategy on the game is off to a very good staff and execution kick off across the entire company. We've seen better than expected top line recovery with sales above the 2019 level and 27% year over year driven by exceptional growth in D2C was 31%.

With an over portion of growth e-com continues with a 41% sales increase on top of 35% growth in the prior year quarter. This means that e-com revenue almost doubled over the two-year period.

So, if we look upon the P&L as a glance, we saw excellent revenue growth and a strong profitability improvement. The revenue increased at 27% in Q1, that was achieved against the backdrop of prolonged lockdowns in Europe and industry wide supply chain challenges.

Excluding these external factors, our growth would have been in the mid-30s. The operating margin of 13.4 almost fully recovered to the pre pandemic level.

Harm will comment again in more detail on the major P&L development. Now let me speak about our growth market.

In all our key market markets revenue increased above the pre pandemic levels. Greater China, we saw growth of 156% driven by successful Chinese New Year's collections and I'll speak about the latest development in this market a bit later.

North America we grew 8% and the growth was led by double digit increases in D2C, reflecting momentum we have with our products and campaigns. We also saw strong growth with our key wholesale partners, particularly Big Finish Line, JD and Kohl's and look forward to continue driving our business with these accounts.

Growth would have been in the strong double digits excluding the impact from the port congestions. In EMEA, we saw growth of 8% the D2C revenue grew by more than 20% driven by exceptional growth in e-com with 65% and strong full price momentum, which helped us compensating the prolonged lockdowns in large part of the region.

Excluding the impact from these lockdowns, growth in the EMEA would also have been in the strong double-digits. Now let's move on to the growth channels.

E-com continues to drive profitability to see that growth. Our e-com sales were up 43% on top of the 35% growth in the prior quarter, almost doubling over the two-year period, result of a strong sales returns and growth in full price sales.

The D2C revenue increased 31% and accounted for more than one-third of total sales. And we added more than 30 million members this quarter alone, our most profitable consumers' traditional ecosystem.

We rolled out our membership program in Latin America and they confirm that for exclusive product drops, now also launched in Europe. And from a category standpoint.

Our growth was led by footwear and our strategic categories. The global revenue growth was strongest in footwear with 31% and driven by strong double-digit gains in the training, running, outdoor, and lifestyle categories.

We saw excellent growth in running as we launched our next generation of Ultraboost, the franchise [Indiscernible]. Our outdoor business up close to 60% with exceptional growth across all markets driven by fastest known time, trail running campaign, and a successful product drops like the ZX Speed Ultra.

In training, we saw exceptional growth more than 30% as our women's dedicated innovation in this category went live, we successfully activated the Four Motion apparel line and launched the Watch Us Move campaign. And now I'll hand over to Harm who will take us through the quarter in more detail.

Harm, please?

All right. Thank you, Kasper and good morning, good afternoon, good evening around the world.

First of all, I want to look at our market map again. As you know, we recorded growth in all of our markets in Q1.

Kasper already provided you an overview of our three strategic markets Greater China, North America and EMEA. Let me reiterate that both North American and EMEA had grown strong double digits in absence of the external factors we mentioned, reflecting our strong brand momentum.

The brand momentum is global, and enabled us to also grow in our two other markets within the surcharging environment. In Latin America, we recorded a top line increase of 18% driven by exceptional D2C growth of 45%.

While the pandemic continued to disrupt store operations, sales in Asia Pacific increased 4% with an exceptional growth and e-com around 46% in context of continued restrictions in several countries, and limited travel to destinations that usually depend on tourism. Let me point out that we have not only experienced strong top line improvements, but also saw profitability and margins recover across all markets.

North America and Latin America deserve a particular call out as their operating margin levels reached the high teens, a high even by historical standards. Now take a look at the P&L in more detail.

The commercial success of our products drove Q1 results ahead of our expectations. Currency neutral revenue increased 27%.

Our gross margin was up 210 basis points to a level of 51.8% and is already back at the pre pandemic level before currencies, which I will explain in a minute. Operating expenses were down 5% compared to the first quarter 2020.

Our marketing and point of sale expenses declined versus prior year, as physical marketing activities remained restraint in many parts of the world, probably pushed social channels and digital marketing investments to support our D2C storytelling. Operating overheads increased 1%, mainly due to higher logistics costs related to our exceptional ecommerce growth.

In addition, as planned and communicated in March, we incurred temporary stranded costs related to the intended divestiture of Reebok in the amount of around €60 million. As a result of strong top line recovery, significant gross margin improvements and the continued cost control, our operating margin at 13.4% returned to a strong double-digit level.

Let's now take a closer look at the gross margin development during Q1. First, I would like to recall the drivers in the prior year quarter for your reference.

Back in Q1 2020, the negative gross margin development was mainly driven by an unfavorable mix impact due to the over reported sales decline in Greater China, as well as higher sourcing costs related to the purchase order cancellations with our suppliers. In Q1 2021, this development basically reversed.

The gross margin increase was supported by lower sourcing costs, as a significant purchase order cancellation did not reoccur. The impact from a more favorable business mix reflecting the exceptional growth in both Greater China and global e-commerce ahead of the 2019 levels was also favorable.

These positive effects were partly offset by a less favorable pricing mix. To be clear, we experienced another pricing improvement versus previous quarters.

However, it was still a headwind year on year, given that the prior year quarter has not been impacted by COVID related promotions. So, before FX, which was a drag of more than 2 percentage points in Q1, our gross margin was already back at the 2019 level.

The negative currency developments then led to the reported margin of 51.8%. For the remainder of the year, we expect our healthy inventories as well as product and brand momentum to support further reductions in promotional activity.

In addition, currencies will turn in our favor in the course of the second half of the year. All-in-all, this will lead to a significant gross margin increase to a level of around 52% for the full year 2021.

Following the P&L discussion, let's now turn to the balance sheet. Adjusted net borings amounted to €3.3 billion at quarter end, this represents an improvement of €1.5 billion compared to the position one year ago.

As you might be aware, we decided to change our definition for net borrowings in context of our first-time investment grade rating obtained during 2020. To be clear, we did not restate any of the underlying items entering the calculation, and the prior year values you can see here are fully comparable.

And finally, our equity ratio remains solid at 33.6%. Let's look at all three-working capital.

Inventories and operating working capital decreased. The inventories were down 8% currency neutral year on year.

This development was of course, supported by the exclusion of Reebok inventories as the prior year restatement of the balance sheet is not permitted under IFRS. I want to emphasize though that inventories were also down year on year on a like-for-like basis, including Reebok.

[ph] Other fields I'll speak about the healthy inventory position on a separate slide in a minute. Receivables were down 12% currency neutral year on year, reflecting our continued emphasis on cash collections.

Payouts were down 70% currency neutral year on year as our payment terms was [ph] benders continue to normalize, given our comfortable liquidity position. Now let's take a deeper look at inventory development.

As you will remember, we had already arrived at a normalized inventory level at the end of 2020. In addition, we made use of our operational flexibility and repurposed event related and evergreen products that were originally meant to be sold in 2020.

Instead, we are now selling them through the first half of 2021. As a result, we were able to reduce our inventories further during the first quarter with a healthy composition across markets despite some adverse impacts from the prolonged lockdowns in Europe.

As mentioned before, the further decrease was supported by the exclusion of Reebok, but the overall trend looks no different on a like-for-like basis. In short, inventories developed fully in line with our plan.

And the healthy inventory position makes us well prepared for the expected significant sales and margin recovery in 2021. Now let's look at the plan Rebook divestiture, before I hand back to Kasper.

As you know, we decided to launch a follow up process aimed at divesting Rebook already in February. Even so Rebook is now reported as in discontinued operations, I'm pleased to share that the brand experience and sustainable business recovery in Q1 with net sales up double digits, backed by a strong quarter book going into '21.

The overall sales process is well on track, and we are confident about the successful future of the brand and the team behind it. We recorded strong interest during the completed phases of the sale process, will of course, talking about news in this regard, as and when appropriate.

With that, back to you Kasper.

Thank you very much Harm, and we're now coming to the outlook. But before I go there, I will speak about our focus and then I'll move to the product pipeline and the financial aspects.

Our number one priority remains driving brand momentum after we navigate fast. We also continue to engage with members are those most loyal and profitable consumers.

At the same time, we have an action plan in place to mitigate industry wide supply chain challenges, and meet the increased demand for our products. But most importantly, we are preparing for welcoming our consumers back in all parts of the world.

With more than 1.2 billion people vaccinated globally and a big part of that in the U.S. and Europe, we're optimistic about a fast return of public life.

With return to public life, we will see the return of real sport events. The month ahead will be packed with major sporting events, Club Football Finals, The Euro, The Copa America's, The Grand Slam, and of course the Olympics.

Most of those are planning to take place with fans in the stadium. And it's great to have sport back for the fans.

We will showcase our brand on all of those major stages through our athletes and teams amplified by overarching grand campaign, Impossible is Nothing. And against this backdrop of significant brand awareness, we'll have an array of innovative product releases, that'll cut through and continue to drive our growth momentum.

I will take you through some of these key events and launches in some more detail. We promise to become louder and prouder as a brand communicating with consumers with one voice.

In the spirit, we launched our biggest brand campaign ever, Impossible is Nothing. We add our best when we see possibilities and seeing possibilities where other see limits have always been our innovative engine.

Together with more than 3000 partners around the world, we drove massive brand awareness with more than 150 million views in the first week of the campaign alone. That campaign will run over the coming weeks and accompanying major sport events and product launches.

Our attitude Impossible is Nothing comes to life through our actions. We want to help in plastic waste by uniting people all over the world to take part in raising awareness of marine plastic pollution.

Or started just a few years ago with a few 1000 participants we'll be expanding into the most inclusive digital and physical community persons for millions of runners. And we hope that you will mark your calendars and run with us in the month of June.

And in football, our home game, we will finally have the Major Federation tournaments, The Euro and The Copa taking place immediately after the Club Football season. We are the official kit manufacturer for 8 out of the 24 teams in the Euro including Spain, Belgium and Germany, as well as for the couple of host countries, Colombia and Argentina.

And we're excited to welcoming the German National team on our campus, who will have their home base during the Euro. The preparation is on full swing and of course we'll do the outmost to be the perfect host.

And the excitement is also building ahead of the Olympics. It's an excellent platform for us to showcase our performance credentials and innovations with more than 4 billion viewers, 11,000 athletes from more than 200 nations will compete in 33 different sports.

We're partnering with many of them and outfitting 14 Olympic teams and 35 Federation's. And just yesterday, we launched the official office for the German and the British Olympic teams.

At the Olympics, personally, I look forward or most for to the running events. As you know we are on a winning streak with our Adizero Adidas Pro franchise which makes our fastest runners even faster.

So, the three stars will be highly visible at the major sporting events this summer. We're also highly visible in all things sustainability, implementing sustainability innovation at scale by making our most popular products also our most sustainable ones and we just delivered an industry first and launched Made with Nature iterations of Stan Smith using Mylo, a mushroom based material that performs like leather.

And after three generations of prototypes, we're also commercializing made to be remade, the Ultraboost made to be remade will be exclusively available for our members. The shoes made to be worn, returned and grind up and then remade into new pair.

This is only the beginning we will be introducing made to be remade concepts to more franchises and categories very soon. And besides the record breaking Adizero Adios Pro franchise with its light strike technology, we have another major midsole innovation coming out into running.

The 44 is the first performance running shoe that applies our innovative 3D printing technology for measurable performance benefits tested by 1000s of runners. And we've released the franchise just a few days ago with a D2C first focus and will then scale it with aerations for the Olympics, plus additional colorways later in this year.

For the consumers running on and off road, our outdoor team innovates for consumers that enjoy spending time in nature. To that end, we introduce the Swift, our three most versatile outdoor footwear franchise.

And for products like Swift, we are piloting new sustainable business models, consumers in France can rent our products and return them after the outdoor mentioned. Renting has become a major movement as younger consumers want newness and greatest gear, while at the same time still looking for sustainable ways to shop.

First introduced - Form first introduced in 1984 as the most innovative basketball shoe at that time, the Form has become a streetwear icon. It relaunched its tip of our basketball lifestyle push, which will be led by Joel Lorenzo and our team based out of Los Angeles.

When it comes to the ZX, we will see a high launch frequency in this area, our newest lifestyle franchise. After having successfully launched the ZX 2K boots, we selected drops last year, we're going wider now and scale the ZX franchise.

By doing frequent drops of limited ZX colorways and collaborations, we're striking the right balance between driving awareness and going after the commercial opportunity. While many of our system integrations like the ZX 1K, or ZX 2K, or ZX 8000 are already new favorites for our consumers.

We're excited to launch the latest addition to the family, the ZX 5K later this year. We're convinced that this will elevate the entire franchise to the next level.

We've also established hype as a proven mechanism to drive brain heat and growth. We drive hype to scale by managing the volume and number of drops we're putting into the marketplace through our digital ecosystem.

And let me give you one concrete example. We usually have confirmed that for sneaker heads for head drops of the Bad Bunny Forum, we achieved triple digit over subscription rates for the shoe, and more importantly, gained 1000s of new members through core selling into our digital ecosystem.

Other thought after drops, like the ones from the ZX series, or the collaboration with LEGO are being executed according to the same proven recipe. Now let me speak about the store opening trend which we're seeing having an upward trend since Q2 - no since the start of Q2.

The prolonged lockdowns and store closers in Europe had a negative impact on the global store opening rates throughout the Q1. But it has improved in recent weeks.

Lately, lockdowns have been easing in several countries in the region as vaccination campaigns gain speed, improving our store opening rate in Europe to almost 80% up from 50% by the end of the first quarter. As a result, our global store rate is at 91% as of today, up from 89% at the end of Q1 and we expect they will be approximately 94% by next week.

So, we will be able to execute our strong product pipeline until our consumer store is online as well as in physical stores. We have put a dedicated plan in place to mitigate the industry wide supply chain challenges.

And while store openings improve and are north of 90% now, we still have to deal with some industry wide challenges on the logistic side for the time being. And there are three aspects to consider.

Freight costs have increased. We're seeing capacities are constraints, especially regarding the availability of containers, and Port congestions have led to delays, especially in the U.S.

Those are the results of the long-lasting pandemic, and have recently been intensified by the issue in the Suez Canal. We've been able to mitigate a significant amount of additional logistics cost, and all products that were stuck at the canal have been passed or diverted with an average delay of approximately two weeks.

However, as a result of this disruption, there is still an overall shortage of container capacity, which could lead to further delays and or higher freight costs in the months to come. Especially if we decide to make exceptional use of freight.

After all, we want to ensure availability of the products that consumers desire even if that comes at somewhat higher logistics cost. Let me be very clear, these external factors will have an impact on our business with the SEC magnitude still uncertain.

What is certain, though, is that whatever the impact will be, it's already fully reflected in our 2021 outlook. We're also looking forward to working on consumers back in all parts of the world.

Consumers want to engage with our brand because we're not only offering great products but also unique experiences. While we always iterated that we put health and safety first, we're excited to physically reconnect to our consumers as vaccination campaigns gain speed around the globe.

We're prepared to present the best brand has to offer, the best experience, the best products, the best artist, collaborations, and location-based surprises and exclusive treats for our members. And wherever our stores are opening, and we're able to welcome our consumers back, we can clearly see the desire to consume is strong.

We are excited about the consumers returning to our stores and we can see their excitement about our brand firsthand. The brand demand for our products have been stronger than expected across channels, which speaks to the healthy brand momentum.

As a result, we are upgrading our full year sales outlook and we now expect to grow at high teens rate. This upgrade comes despite the impact from prolonged lockdowns, the supply chain challenges I just mentioned, as well as the geopolitical situation.

In the second quarter, we expect a significant sequential acceleration with global currency neutral sales projected to increase by around 50% year over year. This exceptional growth will get us back to the 2019 levels in the second quarter as well, despite continued headwinds.

Turning to China, let me first point out that our first course is to show consumers appreciation and respect. This applies to China and every other market in which we operate.

After a significant drop in traffic across physical and digital channels in China at the end of March. We've experienced a slow but steady recovery throughout the past couple of weeks and expect this trend to continue.

In the second half of April, we have started to tell our brand stores again on our digital channels. In addition, we have started to revitalize physical retail and participate in events like Five Five Shopping Festival in Shanghai.

So, while the trend is positive, it is still too early to tell what Q2 in China will look like in detail. Accordingly, we have built similar scenarios for that.

These scenarios are reflected in the Q2 guidance for around 50% global growth and in our upgraded full year top line guidance. And all of these scenarios are also fully reflected in our unchanged bottom-line outlook for the year.

Regardless these scenarios, we continue to expect strong growth in China for 2021. And looking further ahead, there's no question that China will remain a fast-growing market and one of our long-term growth drivers.

So, in summary, we're confident that 2021 will be a very successful year. We delivered Q1 ahead of plan, despite being restrained by external factors.

We're showing exceptional growth in D2C which is reflecting our strong brand and product momentum. And against this backdrop, we upgrade our full '21 outlook this year to be very successful start of our new strategy cycle.

We continue to expect strong growth in China in 2021 and an even higher than expected growth for the company as a whole, executing the gain across entire company as one team along with our more than 50,000 employees. Now let me come up with an announcement that we would like to invite you to.

We would like to invite you to an Innovation Day in the fourth quarter. As you've heard, we are very confident about our trajectory due to the brand and product momentum we're seeing.

Today, we have zoomed in on Q2 product releases in stores. But this is only a fraction of our innovation pipeline.

To do the quality of our innovation pipeline justice, we will host a dedicated day on innovation during the fourth quarter. We're optimistic that we'll be able to welcome you on campus to give you an exclusive and comprehensive preview of unreleased platforms and products for 2022, including our new sportswear range.

We can't wait to have you here and experience our world of sport. And with this, I'd like to thank you for your patience and attention during our presentation.

And Harm and I would be delighted to take and answer your questions. We're now ready to take the questions.

Hello, good afternoon. Thanks for taking my question.

Just have a couple. Just firstly on China on the consumer boycotts.

I was just hoping you could quantify just how much of a negative impact that had been to China from the end of March to-date? And what assumption you have for China imbedded in that Q2 guidance 50% growth.

So, we get a sense of the size of the headwind and also how strong you're performing elsewhere? And are you currently seeing any product launches and marketing in the region?

And if so, when will that regime? And then just secondly on inventory, you exit Q1 in a very healthy position, which is encouraging but given the disruption in China, alongside the continued lockdown that we're seeing in Europe, I just wondered if you foresee any challenges with inventory build again, and whether you think there's a risk that the promotional environment could, in fact, intensify again in China and Europe?

Thank you.

So, I'll take the first question regarding China. And Harm will take the inventory position.

So, while the trend is positive, it's still too early to tell what China will look like in detail. And we will not disclose the details any further.

Accordingly, we have built similar scenarios for that. These scenarios are reflected in our second quarter guidance for around 50% global growth and in the upgraded full year guidance.

And all of these scenarios are also fully reflected in our unchanged bottom-line guidance. Regarding these scenarios, we continue to expect a very strong growth in China for 2021.

And that's all the detail we will give - can give you on China at this stage. Harm?

Yep, just on the inventories in China, of course, we had a lot of experience in 2020, how we deal with inventory. And the good news in China is that on the one hand, we have skate our effective online base.

Secondly, we are in the sourcing regions, so we have more flexibility to optimize the second half, especially Q4 from an order profile point of view. And then of course, we have to manage it, whether we move some of the order to be placed with factories to other markets where we have additional demand.

And again, all of this is baked into our guidance from a top line and also from a margin and from a bottom-line point of view. So again, as I told you earlier, Graham, do not worry about the inventory position that we have, we will manage through this one, market by market.

Okay, that's great. Thank you.

Thanks, Graham.

Yes, good afternoon. Two questions.

So, one again on China. Maybe a comment on the celebrities, artists, local celebrities are coming back to work with you again?

And this would be my first question. And then the second one, on the reopening situation.

Do you observe similar behavior of customers across countries whenever the risks reopening, any observations you can share with us would be appreciated?

So, we still have very many services on the contract in China today. And of course, we an intense dialogue with those who have left us.

On the reopening, we have somewhat similar patterns. And the overall pattern is that traffic is lower than before and conversion rate is higher.

Thus, overall, I would say similar pattern. And as you can see here, the opening is still very different.

The U.S. more stores are opening, in Europe, we're slowly opening up.

But overall, I would say and this goes almost across all industries. And traffic is down conversion rate is up.

And that is also building in the scenarios that we have looking forward that it's going to take a while before we're going to see the same kind of quote unquote congestion or density in the stores, you want to use a nicer word.

Maybe in terms of categories, after reopening a particular category that is benefiting or another one that is not benefiting, anything you could call out here?

Of course, everything that's related to sport is benefiting, running teams plus tennis, what's still dragging is football in Europe because the football fields are closed. And what we do expect is that when you start seeing opening up the stadiums, we expect a dramatic increase in the licensing sales.

We will see or we are very confident that the entire thing here will explode the moment you start opening stadiums and people in stadiums or around stadiums on public gatherings can start watching football. So, with the increased opening rate, we expect that will be the place and as I'm certainly you follow all stadiums opening up with very few exceptions for the Euro coming up, will open with participation rates between 20% and 100% in the stadium.

So, we do expect a strong increase in the license sales. And of course, when you start playing football again, you start buying new boots again.

Okay. Thanks.

Good afternoon. Thank you for taking my questions.

So, my first question is on the top line. So, you've upgraded your top line outlook, which basically at the low end implies very much top line growth on H2, I think sort of low single digit if we take into account your strong Q1 and also the Q2 outlook.

So, and that is, despite the fact that I could be wrong, but I think majority of your product launches should be hitting the trade in Q3. So, can you explain us whether that cautiousness is driven just by rather conservative assumptions around China?

Or is it just the fact that you may not be sure if you can convert full year order book, because the environment is still uncertain? So, any color around how we should think of the said outlook in Q3 Q4 would be very helpful.

And my second question is on China, I guess it's just a follow up. But you mentioned towards the end of your kind of presentation that the trend is positive.

You mean, there's a sequential improvement? Or have things turned positive?

I guess the market is quiet, well, it's not the easiest one to read. So, the control over the place, so it would be very helpful to get an idea of what did you mean by positive?

And also, maybe probably, what are the assumptions for China in Q2, given that it should have a pretty meaningful impact on profitability in the quarter? Thank you.

So, from a low in Q1, we're now seeing a slow and steady recovery. And we're not giving any guidance on China for Q2.

The guidance of 50% includes our assumption for China, which we're not giving. Harm?

Yeah, no you're absolutely right. When you look at the second half, but we also shouldn't forget, we are still in the global pandemic.

Of course, we have different scenarios for China that we built in our guidance. And again, we need to look at things that tourism is back.

We don't know how travel will come back overall. But that's really how we look at it.

But our focus is really quarter by quarter, and how we drive growth and then through our brand momentum, and how we will invest in the second half as well. And that's really what we're focusing on right now.

So, again we're enjoying the momentum that we have right now. There's no reason it shouldn't continue in the second half.

Perfect, thank you.

Thank you.

Thank you very much. Just one question.

With respect to the Capital Market day, you talked about you introduced the second sportswear line, sportswear between performance and originals. And I was wondering if you could share some feedback from retailers on that collection has been received and in what stage we're from that collection?

Thank you.

So, the retail feedback is still very limited, because we've only had the conceptual conversation with them, with which they're very excited about. They have not seen the product yet.

I went through an extensive product review this week. And if you want to join us in Capital Market day here in the fourth quarter, you will see at that stage we have the full feedback from our retail partners.

There's a lot of internal excitement about the products, which is full range from apparel to footwear that we will have ready by then and that at that stage you can see it. But overall, the strategic position may have been received extremely positive, of course, end of the day, it's a product.

And we're now starting to see the first samples of our products and you'll see the full range for 2022, again, if you want to come to that show in the fourth quarter. So, it's very much up to you.

Okay. I'll turn it over.

Thanks guys.

Hello. Hi, thank you for taking my questions.

The first one would be on the U.S. market and North America.

You've mentioned that again, when you gave the guidance for the year, you're expecting this market to improve a high single digit but you're already a high single digit in Q1 by the congestion. So, I was wondering whether maybe your outlook for this market has improved.

And we should be thinking about better growth for this market, specifically this year? And sorry, a follow up on China and your brand ambassadors here or rather your marketing strategy at the moment.

What kind of communication are you keeping there? Are you keeping it low profile?

Or how are you managing communication at the moment in China? Thank you.

So, Chiara let me take the question on China, and just help you in repeat a little bit all the bits and pieces that we said about our communication. So, we have started in the second half of April, to tell our brand stories again, slowly on our digital channels, that has accelerated over the last couple of weeks.

In addition, we've also started to revitalize our physical retail, we participated in several events, local events, like the Five Five Shopping Festival that took place over the last couple of days in Shanghai. And we will continue down that road.

And we remain positive and expect this positive trend to continue. And with that, then over to Harm on the North America question.

Yeah, North America curiosity, right. We gave a guidance of high single digit, and delivered that already in Q1.

And again, there's brand momentum. And that's why we updated our overall guidance as well to the higher end.

And of course, North America is contributing to that as well. But we are not updating every KPI that we have right now.

But again, there's brand momentum. There's of course, a lot of impact from the stimulus checks that are being distributed.

So too early to say, but definitely North America is contributing to the upping. That is the highlight of our company guidance.

When you say - thank you. Did you say that that is the region that is contributing the most to the upgrade?

It's contributing.

Okay, thank you.

Thanks, Chiara.

Yeah, good afternoon. Sorry, another question on China.

I know most of the focus has been on the revenue impact. But have you had any challenges working with suppliers in China relating to the overall issue?

And secondly, could you give us a bit of detail on the performance in Western Europe? Obviously, very impacted by store closures.

But how do you feel about your market share performance in the first quarter?

So, again a very short question and to answer your first question. The answer is no.

There's been no constraint in relationship to any suppliers in China. Harm?

Yeah. In Europe, I mean, of course, nobody talks about EMEA now and not about Western Europe.

But just in Europe, as we have the lockdowns, it's too early talk about market share. Of course, we have some consumer panels and everything.

But market share is too early at this stage. But we are having good momentum in Europe.

And again, I don't need to repeat that we had some mediocre developments in the previous years, but strong momentum, especially with online retailers, and especially with our D2C business as well. Now driving tremendous growth with e-commerce in that market.

And of course, it's almost a pure play as well. But just to mention so London, those are really good momentum for everyone who's prepared for the digital space.

And we will definitely build on top of it going forward.

Thank you.

Yeah, hi team. Just one question, please.

Harm, can you talk a little bit more about your e-com performance? I'm very struck by the degree of growth on growth.

So, I was keen to understand really where is it coming from? Is this new customer's you're getting more of the Wallace's the existing customers anything by geography?

We're just dealing with some very big euro million revenue additions now. So, anything you can help us understand on the where and how it's coming from would be much appreciated?

So, if you look, we have now built a substantial e-com business, and it's almost doubled over the last few years. If you take the first quarter was up close to $4.5 billion last year.

And if you look upon the membership or the number of members, it's up approximately 100 million year over year, and a big part of our business is getting through our membership. And what we're striving to do is of course, do selective launches, making certain that we increase the full price sales force to drive higher margins up.

And that we're seeing, I would say with certain differences, but I would say also a lot of equal development region by region. So, what we are doing is we are implementing the app structure we have in different regions, whether it's a membership structure, or whether it's our firm data, as you've seen.

So, it's a consistent global rollout with different maturity in different places. We still need to have the full suite rollout in Japan and Korea, which is coming later.

But overall, it's a much more sophisticated engine that is driving a very consistent growth, a consistent rollout of our membership structure and our firm structure, and thereby increasing also our full price sales who are coming a lot through our membership base, where I said, we were up 30 million in the first quarter. And if you do the real math, our starting point was about 165.

So, we're close to 200 million, now up a 100 million a year ago. So very, very strong growth in our memberships.

Which is, of course, also a much stickier proposition.

Understood, and can I ask how much of your website revenue is done with products that is exclusive to you? And how much of your total product range is actually on your website, because I'm quite struck by some of the differences between you and some of your partners, in terms of what you're actually showing the consumer in the digital space?

We're still not sure by any means showing all our products online, and that's what we're considering. So, we still have a vast majority of expansion, we can pull on and have on site.

And if you look at the exclusive, if you look upon overall volume, overall revenue is still low. But what you are seeing is you continue to see an increasingly higher launch of exclusive products.

So, whether it's a LEGO or ZX, or the Jersey, or the UB, so when we bring new products to the market, you're seeing an increasing use of our online site as the first destination either throughout the lifecycle if it's short of the longer life cycle, then through the initial phasing of the product.

Understood, thank you very much.

Thanks, Geoff.

Yeah. Hi, thanks, gentlemen, for taking my question and look forward to seeing you on campus later in the year.

Thanks for the invite. Two things.

Maybe just a follow up on the online business. I'm wondering how you think about the balance between online and physical stores in an environment where you're now close to 94% I think you said in terms of opening.

Are you seeing a rebalancing? Are you still seeing an ad performance of online despite the world reopening somewhat?

And then maybe just the more general question on the guidance, you're increasing the top line, but not the margin. Is this essentially linked to reinvesting?

Or is it linked to a change in the regional mix? Maybe with a, you had China booming in Q1, maybe that moderate somewhat, relative to other regions?

Or is there something else to take into account to understand why the margin hasn't moved even though you're increasing the top line? Thank you.

So, I'll take the first question and Harm will take the second. I think we have to separate between short term long term at right at opening, and then subsequent opening.

There's no doubt in the long term that the primary growth driver is going to be online, that's very clear. And the shop is going to be an integral part of our online business.

But the real growth is going to come from online. I will have put a caveat in.

I think there's a huge appetite for consumers to come in the store. And that is what we see when we open up, particularly in countries where the stores have been closed for two or three, four or five months, there's a huge appetite to go and look upon products or purchase products.

And that's where you're going to see a short-term deviation probably in the curve, and say when you open up, people will run to the store, so stand in line outside the stores simply because there's a pent up not only demand for product but a pent-up demand for an experience. So, I would not over interpret the short term, I would say maybe slow down on online and pick up on offline because it's really the medium term, that's the most relevant one.

And that's simply just the pent-up demand in social activity.

Yeah, and the reason why we didn't you know upgrade the bottom-line guidance is primarily two reasons. One is a supply chain challenges.

So, freight rates are already up significantly and might see further increases given the container shortages that we have seen, and of course Suez Canal situation didn't help that either. In addition, we also want to make sure that availability of the products that consumers desire, we want to ensure that one and that might come with somewhat higher logistics costs, especially air freight.

We want to make sure that the product is available. That will be a combination of gross margin impact and operating over the impact.

And secondly, we want to accelerate our marketing spend. We want to build in our current momentum, sports returning, risk spectators, whether it's a football club, football finals, the Euro, the Copa Grand Slams, all in front of spectators.

And consumers being enthusiastic to go out and celebrate sports, we will invest significant and welcomes them back around the road. So, in summary, having said that, it is fair to assume that with the increased sales outlook, of course, the lower end of our guidance has become less likely than it was two months ago.

Thank you very much. Just a just a tiny follow up on logistics.

I think you mentioned that without the hiccups in Q1, you would have grown in the mid-30s, rather than the 27%, which was already impressive. I'm just wondering, the gap of high single digit that you lost in Q1, do you make up for that in Q2 in parts?

Largely yes, that is part of our guidance, where we say we accelerate in Q2 beyond the 50%.

Very clear, thank you.

Thanks for taking my question and appreciate all the color. I really wanted to ask for more detail around the supply chain constraints and challenges you're facing.

Is it mostly a port and freight issue? Maybe is it happening in the manufacturing and accessing materials?

And do you think the outcome is mostly going to come in the form of a higher costs? Or are you having is product coming in late or are you having trouble getting product in and then is pricing, are you going to use pricing as a lever given this kind of supply demand imbalance?

So, let me try to take a stab at it. If you look upon overall, you've seen the freight rate goes up.

So, this is not area's problem, this is not industry specific problems. Let's say you're seeing a recovery, a quicker recovery in the industry than originally anticipated.

And that's why you're seeing a dramatic increase in freight rates where the price has come up almost five times, I believe that normally a container would 2,000 and 5,000, now it's about 8,000 to 10,000. So this is the industry, it is across industries, you have a much higher demand than originally anticipated.

And that's why I was looking upon the Danish company Maersk, which of course, we're proud of, we now have the best results ever on the first quarter in the history. So that's what you're seeing, that's not related to us.

Then you have a second component you have which was the Suez Canal. And then you have the third component, which is simply just pull congestions around the globe, where you have containerships sitting outside the harbors.

And when they come in to the region, particularly North America, you have a constraint on containers within America. Again, unrelated to us.

The only thing you've seen that is really related to our industry has been the political situation in Myanmar. And that has minor impact.

Because for us, because Myanmar is still a very small sourcing country for us. But the other ones are very much related to the global situation.

Of course, we are looking upon pricing. I think you might not see increase in pricing, you might see less discounting, depending on the category.

But of course, you got to hit the season. There's no point in coming with a pair of swimming pants if you land them in October, then you will be on promotion.

So that's the way we look upon it.

Gotcha, gotcha. And so to be clear, at the manufacturing level procuring materials, you're not seeing nearly as much congestion?

No, that's not what we said.

Gotcha. Thank you very much.

Good luck, best wishes.

Thanks Omar.

Thank you. Cedric Lecasble from Stifel.

I have to follow up, if I may. So first one on China, not on recent revolutions that longer term, how should we see a split between two channels going forward?

The store developments auditions. And in e-commerce could you give some colors as a growing split between own e-comm and the global platforms such as T Mobile?

How should we see things in the future? And the second one would be on your apps?

Could you give us maybe the weight of your apps generating e-comm sales? So, what is so sure, e-com coming from your labs and what are your midterm targets and deceit?

Thank you very much.

So, if you look upon, we've set ourselves to target. See target of approximately 50% by 2025, you will see a very similar develop in China also.

And that means that you're going to see a much stronger growth also in our own retail space and our own digital space. Of course, T-Mobile and increasingly TikTok will complain if you continue to play a very large role in China, but you're not going to see a fundamentally different split between the online and the offline, you are going to see of course, a very integrated retail setup.

What you might see in China that is different to the rest of the world is our franchise partners, which will be very closely integrated in to our digital infrastructure because of course, from a consumer standpoint, he or she will not be able to recognize whether it's a franchise or not. But from a business model standpoint, you're going to see very similar to the 5050 we have globally.

The revenue we're generating out of our portfolio sparks in 50% of our total digital revenue. And we know that that's a stickier model.

So basically, one should assume that there is a higher lifetime value, as we said. So that means the following trading is going to be higher with that structure.

So that's why rolling it out and quickly, in an attractive way has a very high, I would say ongoing value for our company.

Thank you.

So, we have time for one more question, please.

Alright, thanks for taking my question. And congrats on the momentum into Q2.

Harm, I'm curious…sure, Harm just curious on capital structure outlook. A lot of cash on the balance sheet, there is a net cash position.

I think a lot of us agree that your stock is very cheap versus many of your peers. I'm just curious how you're viewing share buyback as we go through the remainder of the year?

Yeah, pretty straightforward answer. Thanks for the question.

Of course, we have our annual shareholders meeting ahead of us next week. And so, we decided what we recommended to get the approval for paying dividends again.

That's next week. We always said we want to be solid and reliable dividend payer first.

And then, as liquidity allows, we will enter back in the share buyback as well. But let's do step by step.

And don't forget, we are still in a global pandemic. We also have bond to be repaid in the second half in October.

But again, let's wait and see. And let's see how the momentum continues.

Let's see how the second quarter works and how consumers come back to the stadiums, then we will update you accordingly what we would do in the second half of going into '22?

Excellent. And maybe just a follow up to some of the prior questions on Europe.

What are your assumptions for specifically for Western Europe, which was hit very hard from a lockdown perspective? What are your assumptions in terms of the sequencing of the reopening?

And how does that fit into your overall guidance for the full year?

Well, first, we expect significant growth from Europe in Q2, regardless of the opening, and because we had the lockdowns last year more pronounced. And again, it doesn't really matter when a country or stores opening up what really matters is to traffic and to conversion, and primarily the traffic that is coming back to the stores, right.

And that's where we have a lot of learnings from other markets. And we believe with summer coming, with sports event coming, and sequential opening the doors that we will have health to recovery of our own retail doors, and as important as also doors as well.

That's our assumption. But again, whether it's opening or not, the key topic is the traffic needs to come back.

And that is the burden our assumption.

Got it. Thank you.

Thanks very much, john.

Thanks very much John. Thanks very much Kasper and Harm.

Ladies and gentlemen, this concludes our Q1 2021 results conference call. If you have any further questions, be it today, next week or over the next couple of months as always, please don't hesitate to reach out to the IR team or myself.

We definitely look forward to being in touch and talking to you soon. And with that, thanks very much for your participation.

Have a good remaining day. Have a lovely weekend and take care.

Bye-bye.