adidas(US:ADDYY)2024-04-30 23:00Financial Data and Key Metrics Changes - The operating profit increased significantly to €336 million, up from €60 million a year ago, with the underlying adidas contribution around €290 million [3] - Gross margin improved from 44.8% in Q1 2023 to 51.2% in Q1 2024, a significant increase of 640 basis points, with the underlying margin without Yeezy at approximately 50.5% [12][38] - Cash improved from €778 million to over €1 billion, a 40% increase, with a target of €1.5 billion considered a good number for the balance sheet [16] Business Line Data and Key Metrics Changes - The split between wholesale and direct-to-consumer (D2C) sales is 62% and 38%, respectively, with retail stores accounting for 21% and e-commerce for 17% [7] - Lifestyle footwear is experiencing strong growth, particularly in the Terrace line, which includes successful products like Samba and Campus [29][34] - Apparel is expected to grow as excess inventory issues are resolved, with new lifestyle apparel launches planned for the U.S. market this summer [54] Market Data and Key Metrics Changes - North America saw a decline of 4%, but inventory levels decreased by 41% compared to the previous year, indicating a cleaner inventory situation [4] - Greater China reported an 8% growth, with expectations for double-digit growth by year-end despite a challenging economic environment [30][81] - Latin America experienced an 18% increase in sales, with inflation impacting the market dynamics [93] Company Strategy and Development Direction - The company is focused on maintaining a healthy inventory and gross margins while investing heavily in marketing to build momentum [5][39] - There is a strategic emphasis on local partnerships and adapting to market demands, with a shift towards more localized supply chains [58] - The company aims to achieve a 10% EBIT margin by 2026, with a focus on sustainable growth and quality over quantity [82][85] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of the year, expecting a turnaround in North America and continued growth in other markets [4][19] - The company is cautious about the Yeezy inventory, with no assurance of complete sell-through, leading to conservative guidance [46] - The outlook for net sales growth has been revised from mid-single digits to mid- to high single digits, with EBIT expected to grow from around €500 million to €700 million [17][29] Other Important Information - The company is investing in new stores in various markets, including India and Ukraine, where business performance remains strong despite challenges [7] - The marketing budget is expected to remain around 12% of revenues, with no significant risk of increases due to competitive pressures [92] Q&A Session Summary Question: What is the expected revenue growth cadence for the remainder of the year? - Management indicated that if retail success continues, double-digit growth could be achieved in the second quarter, with certainty of double-digit growth in the second half [20][21] Question: How is the performance business doing compared to lifestyle? - The performance business is growing in high-end categories, but lifestyle is currently outpacing it in overall growth [22][74] Question: What are the plans for apparel moving forward? - The company is relaunching lifestyle apparel and expects to see growth in this segment as excess inventory issues are resolved [54] Question: How is the company managing its marketing budget in light of local competition? - The marketing budget is expected to remain stable at 12% of revenues, with no significant risk of increases despite competitive pressures [92] Question: What is the outlook for the Chinese market? - The company expects to continue growing in China, aiming for double-digit growth despite current economic uncertainties [81]