Adidas Ag · XETR:ADS
Adidas — Q3 2018 Earnings Presentation
28 slides from Adidas's earnings presentation, Nov 7, 2018
Slide 1: Q3 2018 Results
Q3 2018 RESULTS Herzogenaurach November 7, 2018 1
Slide 2: Agenda
AGENDA 1 BUSINESS HIGHLIGHTS 2 FINANCIAL HIGHLIGHTS 3 OUTLOOK 2
Slide 3: Business Highlights
BUSINESS HIGHLIGHTS KASPER RORSTED CEO 3
Slide 4: Strengths & Weaknesses in Q3 2018
STRENGTHS & WEAKNESSES IN Q3 2018 Progress across all strategic growth areas Challenges in Western Europe + - North America, Greater China and e-com up double-digits Still weighing on company’s top-line growth Significant growth in Sport Performance Opex leverage masked by investments + - Investment
Slide 5: Major P&L Developments in Q3 2018
MAJOR P&L DEVELOPMENTS IN Q3 2018 Revenues increase 8% currency-neutral 1 and 3% in euro terms to € 5.9 billion Gross margin up 1.4pp to 51.8% 2 despite severe FX headwinds Operating margin up 1.3pp to 15.3% 3 despite higher marketing investment Net income from continuing operations increases 19% 4
Slide 6: Double-Digit Increases in Strategic Growth Areas in Q3 2018
DOUBLE-DIGIT INCREASES IN STRATEGIC GROWTH AREAS IN Q3 2018 adidas North America Greater China E-commerce 6 Currency-neutral.
Slide 7: adidas Brand with Strong Growth
ADIDAS BRAND WITH STRONG GROWTH DOUBLE-DIGIT INCREASE IN NORTH AMERICA AND ASIA-PACIFIC Sport Performance grows 8% Driven by double-digit growth in Training and Running Sport Inspired grows 11% Reflecting exceptional Yeezy growth Balanced growth Double-digit increases in both Footwear and Apparel 7
Slide 8: Robust Profitability Improvement at Reebok
ROBUST PROFITABILITY IMPROVEMENT AT REEBOK FURTHER PROGRESS ON EXECUTING MUSCLE-UP INITIATIVES Reebok revenues decrease 5% Due to sales decreases in all markets Double-digit growth in Classics Offset by declines in Training and Running Gross margin up 4.4pp to 45.3% Driven by further execution of Mu
Slide 9: Exceptional Growth in E-Com
EXCEPTIONAL GROWTH IN E-COM LEVERAGING OUR BIGGEST STORE E-commerce revenues grow 76% Driven by double-digit growth across all regions Hype releases and launch of Creators Club Driving traffic and engagement rates adidas App now live in 17 countries Close to 5 million downloads by the end of Q3 9 Cu
Slide 10: Financial Highlights
FINANCIAL HIGHLIGHTS HARM OHLMEYER CFO 10
Slide 11: Key Regions Continue to Grow as Expected
KEY REGIONS CONTINUE TO GROW AS EXPECTED NORTH AMERICA AND ASIA-PACIFIC WITH DOUBLE-DIGIT SALES INCREASES +7% RUSSIA/CIS WESTERN EUROPE -1% NORTH AMERICA +16% +15% ASIA-PACIFIC LATIN AMERICA 0% -2% EMERGING MARKETS 11 Currency-neutral.
Slide 12: North America
NORTH AMERICA STRONG TOP- AND BOTTOM-LINE IMPROVEMENTS Currency-neutral sales increase 16% adidas brand revenues up 18% Driven by double-digit growth in Training, Running, Football and Sport Inspired Reebok brand revenues flat High-single-digit increase in the US offset by decline in Canada Gross ma
Slide 13: Asia-Pacific
ASIA-PACIFIC STRONG DOUBLE-DIGIT GROWTH DRIVEN BY GREATER CHINA Currency-neutral sales increase 15% adidas brand sales increase 16% Double-digit growth in Training, Running, HBS and Sport Inspired Reebok brand revenues decrease 1% Decline in Training largely compensated by growth in Classics and Run
Slide 14: Western Europe
WESTERN EUROPE TOP-LINE DEVELOPMENT IN LINE WITH EXPECTATIONS Currency-neutral sales decrease 1% adidas brand revenues decrease 1% Moderate gain in Sport Performance offset by moderate decline in Sport Inspired Reebok brand sales decrease 5% Reflecting tough prior year comps and more selective distr
Slide 15: Western Europe: Comprehensive Set of Countermeasures Initiated
WESTERN EUROPE COMPREHENSIVE SET OF COUNTERMEASURES INITIATED CHALLENGES COUNTERMEASURES Overreliance on and overdistribution More holistic segmentation approach 1 of Originals and better input process Planned decline of Stan and Superstar Relentless activation of commercial launches 2 not compensat
Slide 16: Financial Results Overview
FINANCIAL RESULTS OVERVIEW OPERATING MARGIN IMPROVEMENT DRIVEN BY GROSS MARGIN INCREASE Y-O-Y Q3 2018 Q3 2017 change NET SALES (€ in millions) 5,873 5,677 +3% GROSS MARGIN 51.8% 50.4% +1.4pp MARKETING WORKING BUDGET (€ in millions) 716 667 +7% MWB (in % of sales) 12.2% 11.7% +0.4pp OPERATING OVERHEA
Slide 17: Gross Margin Expansion Decomposed
GROSS MARGIN EXPANSION DECOMPOSED STRONG UNDERLYING IMPROVEMENT AS FOCUS ON QUALITY GROWTH PAYS OFF +1.4PP -1.3PP +2.7PP Gross margin expansion continues Up 1.4pp in Q3 Despite stronger drag from FX 1.3pp headwind in Q3 Strong underlying improvement Reflecting brand strength and healthy inventories
Slide 18: Average Operating Working Capital
AVERAGE OPERATING WORKING CAPITAL IN % OF SALES DOWN 0.6PP YOY TO 19.7% 20.4% 20.3% 20.3% 20.1% Inventories Down 4% currency-neutral Receivables 19.7% Up 11% currency-neutral Payables Up 11% currency-neutral Q3/17* Q4/17* Q1/18* Q2/18* Q3/18* Average operating working capital in % of sales at quarte
Slide 19: Net Cash and Equity Position
NET CASH AND EQUITY POSITION EQUITY RATIO AT 41.8% 535 484 371 Net cash position At € 535 million 89 Equity position Increases € 456 million year-on-year Equity ratio Decreases 0.3pp year-on-year to 41.8% -345 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 19 Net cash/(net borrowings) at quarter-end, € in millions.
Slide 20: Shareholder Return: Share Buyback Update
SHAREHOLDER RETURN SHARE BUYBACK UPDATE TOTAL SIZE 1 Up to € 3 billion (up to € 1 billion in 2018) TIMEFRAME 2 Started March 22, 2018 and ending latest on May 11, 2021 NUMBER OF SHARES PURCHASED* 3 3.8 million adidas AG shares AMOUNT PURCHASED* 4 € 733 million 20 *As at September 30, 2018.
Slide 21: Outlook
OUTLOOK KASPER RORSTED CEO 21
Slide 22: Balancing Market Share Growth and Margin Improvement
2018 BALANCING MARKET SHARE GROWTH AND MARGIN IMPROVEMENT 1 High-quality revenue growth 2 Product pipeline to support planned top-line expansion 3 Overproportionate investments in brands and products 4 Continuing to implement scalable business model 5 Margin expansion and overproportionate net incom
Slide 23: Our Powerful Engine
OUR POWERFUL ENGINE DRIVING BRAND DESIRABILTY AS WELL AS TOP-LINE GROWTH ITERATING LAUNCHING SCALING LEVERAGING CELEBRATING CALLING EXISTING NEW INNOVATION THE INDUSTRY’S SPORTS CREATORS PRODUCT PRODUCTS AND AND NEW DEEPEST ASSETS AND AND SUCCESSES FRANCHISES TECHNOLOGIES ARCHIVE EVENTS COMMUNITIES
Slide 24: Flawless Execution of Biggest Digital Release
FLAWLESS EXECUTION OF BIGGEST DIGITAL RELEASE YEEZY BOOST 350 V2 TRIPLE WHITE Large-scale activation Executing perfectly in sync across all functions around the globe Taking over social media Media mentions and search interest surpassing past Yeezy releases Driving e-commerce traffic Launch generati
Slide 25: Moving Fast in Order to Win in Physical Retail
MOVING FAST IN ORDER TO WIN IN PHYSICAL RETAIL NEW BRAND CENTER SHANGHAI EAST NANJING ROAD 25
Slide 26: Outlook 2018 Increased
OUTLOOK 2018 INCREASED STRONGER BOTTOM-LINE IMPROVEMENT EXPECTED Net sales* Increase of LOWER END Increase of around 10% 8% – 9% Gross margin Increase up to 0.3pp Increase up to 1.0pp INCREASED to up to 50.7% to up to 51.4% Operating profit Increase of INCREASED Increase of 9% – 13% 12% – 16% Operat
Slide 27: Summary
SUMMARY 1 2018 ahead of plan, full-year outlook increased 2 Progress across strategic growth areas, acting on Western Europe 3 Higher marketing investments to support brand and product 4 Strong profitability improvements despite investment into brand and business 5 Focus on executing the second half
Slide 28: Q&A
Q&A 28