August 6, 2020
LEGAL DISCLAIMER
This presentation and other statements made in connection herewith may contain forward- looking statements with respect to Management's plans and expectations for the future development of adidas. Such forward-looking statements are subject to risks and uncertainties, which are beyond the control of the company, including, but not limited to the risks described in the Risk and Opportunity Report of the adidas Annual Report. In case the underlying assumptions turn out to be incorrect or (described or other) risks or opportunities materialize, actual results and developments may materially deviate (negatively or positively) from those expressed by such statements and Management's plans may change. adidas does not assume any obligation to update any forward-looking statements made in this presentation or in connection herewith beyond statutory disclosure obligations.
In light of the current very dynamic developments, adidas points out that the factual basis for any conversation is limited to the information publicly disclosed at the occasion of its second quarter 2020 results release and earnings call on August 6, 2020. The company will not provide any information with regard to decisions of adidas or its current trading that has not been published through an official release or made otherwise publicly available by adidas.
AGENDA
- INTRODUCTION
- BUSINESS UPDATE
- FINANCIAL UPDATE
- OPERATIONAL UPDATE
- OUTLOOK
3
INTRODUCTION
MANAGEMENT FOCUS
NAVIGATING TOWARD LONG-TERM SUCCESS
5
EXECUTE THROUGH COVID-19
STORE FLEET LARGELY OPERATIONAL AT THE END OF Q2
100% | |||||
June: | 17% | ||||
Store fleet largely | |||||
January: | operational | ||||
First stores in | March: | ||||
China closed | As stores in China re-opened, | May: | |||
Rest of World closed down | |||||
Business in Greater China | |||||
50% | returned to growth | 83% | |||
April: | |||||
>70% of global store fleet | |||||
closed | |||||
0% | |||||
January | February | March | April | May | June |
Open | Closed | ||||
Illustrative. | 6 | ||||
EXECUTE THROUGH COVID-19
PROTECTING OUR PEOPLE, COMMUNITIES AND PARTNERS REMAINS TOP PRIORITY
HEALTH AND SAFETY IN OUR STORES
Executing store re-opening in accordance with social distancing measures and local regulations
HEALTH AND SAFETY IN OUR OFFICES
Providing workplace flexibility and safe in-office environment
SUPPLY CHAIN RESPONSIBILITY
Supporting our supply chain partners and their workers through best-practice sharing
7
SHAPE STRUCTURAL TRENDS
LONG-TERM INDUSTRY TRENDS SUPPORTING FUTURE GROWTH
HEALTH AND SPORTS EVEN MORE IMPORTANT TO CONSUMERS
Around 50% of age group 18-34 plan to exercise more as a result of the coronavirus pandemic
FASHION SHIFT TOWARD ATHLEISURE SET TO ACCELERATE
Around 75% of surveyed companies plan to shift employees to permanently remote positions post-coronavirus
FAST-FORWARD OF DIGITAL TRANSFORMATION
adidas digital sales penetration more than 1/3 in H1 when combining own e-com and partners' online revenues
~
>
8
CREATE LASTING CHANGE NOW
WE ARE A DIVERSE COMPANY WITH ZERO TOLERANCE FOR DISCRIMINATION AND RACISM
>
~
Around 90% of our employees | Employees from more than 100 nations | Women represent 34% of |
hold international passports | work at the company's global HQ | management positions globally |
9
CREATE LASTING CHANGE NOW
COMMITMENTS TO DRIVE FURTHER CHANGE
COMMITMENTS GLOBALLY | COMMITMENTS IN THE UNITED STATES |
WE ESTABLISH A COMMITTEE TO ACCELERATE INCLUSION & EQUALITY
Committee to focus on advancement of underrepresented groups; sponsored by the CEO and consisting of diverse representatives
WE STRENGTHEN OUR GLOBAL ANTI-DISCRIMINATION POLICY
Independent third-party firm to govern the investigation of cases; strict non-retaliation policy to protect employees that report violations
WE REFORM OUR HIRING AND CAREER DEVELOPMENT PROCESSES
Removing hiring bias, increasing representation and oversight; new mentoring and talent programs for Black and Latinx employees
WE CELEBRATE DIVERSITY
Celebrating Black History Month, Lunar New Year, International Women's Day, Pride, Hispanic Heritage Month and Diwali, among others
WE INVEST $ 120 MILLION IN OUR BLACK COMMUNITIES OVER 5 YEARS
We increase funding for our programs that support, empower and elevate the Black community
WE INVEST IN UNIVERSITY SCHOLARSHIPS
We finance 50 scholarships each year for Black students at partner schools
WE INCREASE THE DIVERSITY OF OUR EMPLOYEES
We fill a minimum of 30% of all new positions in the US with Black and Latinx people and target 12% leadership representation by 2025
WE MAKE JUNETEENTH A PAID HOLIDAY
Our offices, distribution centers and retail stores will be closed on June 19 to commemorate the end of slavery in the United States
10
BUSINESS UPDATE
CONSUMER HIGHLIGHTS
Q2 2020
12
STRENGTHS & WEAKNESSES
Q2 2020
+
+
+
+
GREATER CHINA RECOVERY AHEAD OF INITIAL PLAN
Return to growth in May paving the way for flat quarter
DTC BUSINESS UP SLIGHTLY DUE TO DIGITAL ACCELERATION
Exceptional growth in e-com compensates for store closures
IMPACTFUL CONSUMER MARKETING AND PRODUCT LAUNCHES
Despite lockdowns and store closures in most parts of the world
FINANCIAL FLEXIBILITY SAFEGUARDED
Through disciplined cash and cost management
- NORTH AMERICA LAGGING BEHIND OTHER MAJOR MARKETS Store fleet not yet fully operational due to external developments
- INVENTORIES REACHING EXPECTED PEAK LEVEL DURING Q2 Plans to manage down inventories toward year-endin place
-
GROSS MARGIN FACING HEADWINDS
From promotional activity, adverse FX and inventory allowances - PROFITABILITY IN NEGATIVE TERRITORY
Due to revenue shortfall and coronavirus-related charges
13
P&L AT A GLANCE
Q2 2020
REVENUES DECREASE 34% CURRENCY-NEUTRAL
And 35% in euro terms to € 3.579 billion
GROSS MARGIN DOWN 2.4PP TO 51.0%
Headwinds from promotional activity, adverse FX and inventory allowances
OPERATING LOSS OF € 333 MILLION
Due to revenue shortfall and coronavirus-related charges
NET LOSS FROM CONTINUING OPERATIONS
Of € 306 million
BASIC EPS FROM CONTINUING OPERATIONS
Of negative € 1.45
14
STRATEGIC GROWTH AREAS
Q2 2020
ADIDAS NORTH AMERICA
Despite triple-digite-com growth
GREATER CHINA
Double-digit growth in May and June
E-COMMERCE
Triple-digit growth in April and May
Currency-neutral. | 15 |
ADIDAS AND REEBOK BRAND PERFORMANCE
MORE PRONOUNCED DECLINE FOR REEBOK DUE TO HIGHER NORTH AMERICA EXPOSURE
ADIDAS REVENUES | REEBOK REVENUES |
% %
Currency-neutral. | 16 |
FINANCIAL UPDATE
REVENUE GROWTH BY MARKET SEGMENT
CORONAVIRUS HAD A GLOBAL IMPACT IN Q2
-40% | -34% | ||
-38% | Operating margin: 24.0% (-2.3pp) | ||
Operating margin: 2.7% (-22.5pp) | |||
Operating margin: -1.8%(-13.2pp) | -16% | ||
Operating margin: 31.0% (-3.9pp) | |||
-64% | -60% | ||
Operating margin: -21.2%(-49.7pp) |
Operating margin: -10.5%(-25.1pp)
Net sales development currency-neutral. | 18 |
P&L OVERVIEW
Q2 RESULTS REFLECT MATERIAL NEGATIVE CORONAVIRUS IMPACT
(€ in millions) | Q2 2020 | Q2 2019 | Y-O-Y | |
3,579 | 5,509 | -35% | ||
NET SALES | ||||
51.0% | 53.5% | -2.4pp | ||
GROSS MARGIN | ||||
OTHER OPERATING EXPENSES | 2,189 | 2,346 | -7% | |
61.1% | 42.6% | +18.6pp | ||
(in % of sales) | ||||
560 | 744 | -25% | ||
MARKETING AND POINT-OF-SALE EXPENSES | ||||
(in % of sales) | 15.6% | 13.5% | +2.1pp | |
1,628 | 1,602 | +2% | ||
OPERATING OVERHEAD EXPENSES | ||||
45.5% | 29.1% | +16.4pp | ||
(in % of sales) | ||||
OPERATING LOSS/PROFIT | -333 | 643 | n.a. | |
OPERATING MARGIN | -9.3% | 11.7% | -21.0pp | |
-306 | 462 | n.a. | ||
NET LOSS/INCOME from continuing operations | ||||
BASIC EPS from continuing operations (€) | -1.45 | 2.33 | n.a. |
Slight increase when excluding
inventory allowances
- details on separate slide
Underlying decline more than offset by business-driven and coronavirus-related increases
- details on separate slide
Including negative impact of around € 250 million* due to coronavirus-relatedcosts
*Reflecting the combined impact from the increase in inventory and bad debt allowances as well as the impairment of retail stores and the Reebok trademark. | 19 |
GROSS MARGIN DEVELOPMENT DECOMPOSED
SLIGHT INCREASE WHEN EXCLUDING INVENTORY ALLOWANCES
53.5%
51.0%
Gross margin | Sourcing & | Channel & | Pricing | FX | Inventory | Gross margin |
Q2 2019 | Other | market mix | mix | impact | allowances | Q2 2020 |
Illustrative. | 20 |
OVERHEAD COST DEVELOPMENT DECOMPOSED
DOUBLE-DIGIT UNDERLYING DECLINE MASKED BY E-COM GROWTH AND CORONAVIRUS-RELATED COSTS
Q2 OOH DEVELOPMENT | DECOMPOSITION |
€ in billions
1 Underlying decline resulting from tactical measures | |||||||||
3 | ▪ T&E as well as other discretionary spend reduced materially | ||||||||
1 | ▪ Personnel expenses down despite largely stable headcount | ||||||||
▪ Reduction and delay of retail expansion as well as IT projects | |||||||||
2 | |||||||||
1.6 | 1.6 | 2 Business-driven increase | |||||||
▪ | Support of exceptional e-com growth | ||||||||
▪ Volume-driven increase of logistics and freight costs | |||||||||
3 Coronavirus-related increase | |||||||||
▪ Impairment of retail stores and Reebok trademark | |||||||||
▪ Higher bad debt allowances | |||||||||
OOH | Underlying | Business | Coronavirus | OOH | |||||
Q2 2019 | decline | -driven | -related | Q2 2020 |
Illustrative. | 21 |
NET DEBT AND EQUITY POSITION
NET DEBT INCREASES BY € 1,154 MILLION YEAR-ON-YEAR
-1,154
362 | |||||
89 | |||||
Net debt | |||||
At € 792 million | |||||
Equity position | -735 | -792 | |||
At € 6,230 million | |||||
-1,028 | |||||
Equity ratio | |||||
At 30.7% | |||||
Q2/16 | Q2/17 | Q2/18 | Q2/19 | Q2/20 |
(Net debt)/net cash at quarter-end, € in millions. | 22 |
AVERAGE OPERATING WORKING CAPITAL
EFFECTIVE CASH MEASURES PARTLY OFFSET INVENTORY INCREASE
+3.3PP
21.4% | 21.5% | |
20.4% | 20.1% | |
Inventories up 49% c.n. year-on-year | 18.3% | |
Plans to manage down toward year-end in place |
Receivables down 31% c.n. year-on-year
Execution of cash measures and fewer shipments
Payables up 23% c.n. year-on-year
Reflecting measures to manage cash outflows
Q2/16 | Q2/17 | Q2/18 | Q2/19 | Q2/20 |
Average operating working capital = sum of operating working capital at quarter-end / 4. | 23 |
OPERATIONAL UPDATE
EXECUTE THROUGH COVID-19
STRIKING THE BALANCE BETWEEN SHORT AND LONG TERM
1 | 2 | 3 | 4 |
25
1 INVENTORY NORMALIZATION TOWARD YEAR-END FROM PEAK IN JUNE OPERATIONAL FLEXIBILITY
Peak level
Plan for effective inventory normalization:
- Event-relatedand 'evergreen' product stored and repurposed into 2021 product
- > 1,000 own factory outlets being used as store fleet now largely operational
- Commercial moments and online sales events leveraged in e-comthroughout the year
- Smaller portion of inventory also moved through select retail partners as partner stores reopen
Normalized
level
Dec 2019 | Q2 2020 | Dec 2020 |
Illustrative. | 26 |
1 FLEXIBLY DRIVING OUR PRODUCT PIPELINE OPERATIONAL FLEXIBILITY
27
2 SHORT-TERM CASH MEASURES FINANCIAL FLEXIBILITY
Increase
inflows
Reduce
outflows
Additional financing
- Push e-com
- Prioritize China and other open markets
- Intensify credit collection efforts
- Trade payables: proactive adjustment of order book
- OPEX: cut discretionary spend, reduce management compensation, make use of short-time working, cancel marketing activities
- CAPEX: stop retail expansion/remodeling, IT projects
- Draw committed and uncommitted credit lines
- Repatriate cash from foreign entities
- Bridge financing through KfW syndicated loan
28
2 NO OPERATING CASH OUTFLOW IN Q2 DESPITE MATERIAL NET SALES DECLINE FINANCIAL FLEXIBILITY
- in billions
Q1 | Q2 |
0
-1.1 | -0.8 |
No operating cash outflow | |
in Q2 thanks to execution of cost | |
and cash measures | |
-1.9 |
Net sales change year-on-year
Net cash (used in) / generated from operating activities
Illustrative. | 29 |
2 CASH POSITION STABLE AT € 2.0 BILLION
FINANCIAL FLEXIBILITY
- in billions
0.1-0.1
0
2.0 | 2.0 |
Total cash | Operating cashflow | Financing cashflow | Investing cashflow | Total cash |
March 31, 2020 | June 30, 2020 | |||
30
2 CREDIT RATING
ADIDAS AWARDED INVESTMENT-GRADE RATINGS
A+ | Outlook stable | A2 | Outlook stable |
- Global scale and reach within an attractive industry
- High brand awareness and sports credibility
- Strong focus on innovation
- Track record of sales growth and margin improvement
- Strong credit metrics, robust liquidity profile and conservative financial policies
31
3 DIGITAL BRAND BUILDING DRIVES COMMERCIAL SUCCESS DIGITAL OPPORTUNITIES
BRAND-BUILDING PLATFORMS
SOCIAL MEDIA | RUNNING & TRAINING APP | ||
~400m | video views | >3x | Training app usage more |
#hometeam | than | tripled in March-May with | |
for the | |||
campaign | >90% organic traffic |
COMMERCIAL PLATFORMS
ADIDAS APP | CREATORS CLUB | |||
>4x | sales growth | >60% | of online sales | |
in the adidas app | through | Creators Club | ||
in 2020 so far | members |
32
3 INTEGRATED ECOSYSTEM ESTABLISHED AND FURTHER BUILDING BLOCKS DEFINED DIGITAL OPPORTUNITIES
ADIDAS APP
E-COM
WAREHOUSESRUNTASTIC INTEGRATION
CREATORS
SOCIALCLUB
MEDIA
>6X
>€ 4bn
Building blocks and investments for future growth
- Members first: Creators Club as anchor of the digital adidas experience
- Targeted marketing: Consistent storytelling across all channels
- Data-drivencreation: Leverage consumer insights along the value chain
- Operational backbone: More logistics capacity needed to fulfill rising demand
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021+ |
Strong foundation as part of 'Creating The New'… | ...but further investments defined |
E-commerce sales. | 33 |
3 COMMERCIALIZING DIGITAL CAPABILITIES THROUGH RAPID CREATION DIGITAL OPPORTUNITIES
34
3 WINNING WITH THE WINNERS THROUGH DIGITAL SELL-IN PROCESS DIGITAL OPPORTUNITIES
35
4 STORE OPENING TREND POSITIVE THROUGHOUT JULY RETAIL RECOVERY
July: | |
Positive store | |
opening trend | |
100% | throughout July |
June: | |||||||||||
January: | Store fleet largely | ||||||||||
March: | operational | ||||||||||
First stores in | |||||||||||
China closed | As stores in China re-opened, | ||||||||||
Rest of World closed down | May: | ||||||||||
50% | Business in Greater China | ||||||||||
returned to growth | |||||||||||
April: | |||||||||||
>70% of global store fleet | |||||||||||
closed | |||||||||||
0% | |||||||||||
January | February | March | April | May | June | July | |||||
Open | Closed | ||||||||||
8%
92%
Illustrative. | 36 |
4 OWN RETAIL TRAFFIC AND CONVERSION TREND RETAIL RECOVERY
ASIA-PACIFIC | EUROPE | NORTH AMERICA | ||
Jan | Feb | Mar | Apr | May | Jun | Jan | Feb | Mar | Apr | May | Jun | Jan | Feb | Mar | Apr | May | Jun |
Conversion rate vs. PY (%) | Traffic vs. PY (%) | |
Illustrative. | 37 |
OUTLOOK
RDY
39
RUNNING40
OUTDOOR41
CLUBS
42
ZX 2K | |
BOOST | 43 |
HYPE
44
SUPERSTAR
45
CLEAN CLASSICS
46
REEBOK
47
OUTLOOK FOR Q3 2020
SIGNIFICANT SEQUENTIAL IMPROVEMENT EXPECTED
Net sales
North America
Asia-Pacific
Europe
E-commerce
Operating result
Q1 2020 | Q2 2020 | Q3 2020 Trend | |
(vs. Q2) | |||
Q3 2020 outlook: | |||
-19% | -34% | ||
Net sales:mid- to high-single-digit decline | |||
+1% | -38% | Operating profit:of € 600-700 million | |
-45% | -16% | Key assumptions: | |
-8% | -40% | No major lockdowns | |
+35% | +93% | >90% of store fleet remaining operational | |
Own-retail traffic gradually improving | |||
€ 65m | -€ 333m |
Net sales development currency-neutral. | 48 |
OUTLOOK FOR Q3 2020
RETURN TO DOUBLE-DIGIT OPERATING MARGIN IN Q3 IMPLIED
Improvement of
around € 1.0 billion
€ in billions
€ 600-700 million
Q1 | Q2 | Q3 |
0.1 | ||
-0.3 | ||
-19% | Mid- to high-single- | |
digit decline | ||
-34% | ||
Net sales change year-on-yearcurrency-neutral | ||
Operating profit |
49
SUMMARY
- Creating lasting change for diversity and inclusion now
- Sufficient short-term flexibility to keep navigating to long-term success
- Exceptional growth in e-com enabled by integrated digital ecosystem
- Business normalization on track with store fleet now largely operational
- Shaping structural sport and lifestyle trends amplified by the pandemic
50
Q&A
ADIDAS INVESTOR RELATIONS
TEAM COMMUNICATIONS
SEBASTIAN STEFFEN
Head of Investor Relations
ADRIAN ROTT
Senior Director Investor Relations
MORITZ VERLEGER | ||||||||||
CHRISTOPH RUMP | ANJA KLIEBER | PHILIPP ULRICH | LAURA SÄNGER | |||||||
Director Investor | Senior Manager Investor | Manager Investor | Manager Investor | Assistant Manager | ||||||
Relations | Relations | Relations | Relations | Investor Relations | ||||||
+49 9132 84 2920
investor.relations@adidas.com
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adidas AG published this content on 06 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 August 2020 09:02:04 UTC