Full Year 2015 adidas AG Earnings Call
Mar 03, 2016 AM CET
ADS.DE - adidas AG
Full Year 2015 adidas AG Earnings Call
Mar 03, 2016 / 02:00PM GMT
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Corporate Participants
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* Sebastian Steffen
adidas AG - VP IR
* Herbert Hainer
adidas AG - Chairman & CEO
* Robin Stalker
adidas AG - CFO
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Conference Call Participants
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* Antoine Belge
HSBC - Analyst
* Adrian Rott
Deutsche Bank - Analyst
* John Guy
MainFirst - Analyst
* Jurgen Kolb
Kepler Cheuvreux - Analyst
* Zuzanna Pusz
Berenberg - Analyst
* Cedric Lecasble
Raymond James - Analyst
* Omar Saad
Evercore ISI - Analyst
* Chiara Battistini
JPMorgan - Analyst
* Andreas Inderst
Macquarie - Analyst
* Julian Easthope
Barclays - Analyst
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Presentation
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Operator [1]
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Good day, ladies and gentlemen, and welcome to the adidas Group conference call for the full-year 2015 financial results. For your information, today's conference is being recorded. At this time, I'd like to turn the conference over to your host Mr. Sebastian Steffen. Please go ahead, sir.
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Sebastian Steffen, adidas AG - VP IR [2]
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Thank you, George. And good afternoon, ladies and gentlemen, and welcome to our 2015 full-year financial results conference call. Our presenters today are Herbert Hainer, adidas Group CEO, and Robin Stalker, Group CFO.
Let me remind you that, as always, all revenue-related growth rates that will be discussed on a currency neutral basis. In addition, all figures will refer to the Group's continuing activities and be discussed excluding goodwill impairment losses.
It's been quite a busy year, and we have a lot to cover today. So, we better get started, and over to you, Herbert.
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Herbert Hainer, adidas AG - Chairman & CEO [3]
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Yes, thanks very much, Sebastian. And good morning or good afternoon, ladies and gentlemen. 2015 was a very successful year for the adidas Group. We reached all our major financial goals and even exceeded our initial top- and bottom-line targets. This was made possible because we reacted like Group champions after the severe challenges we had been facing in 2014.
We used our [bond] prices as an opportunity, analyzed our weaknesses, realigned our business, rolled up our sleeves, and took up the fight for gold. As a result, our 2015 performance is a picture-perfect example of a successful comeback in sport. And there is no doubt, as a Group, today, we are stronger and in better shape than ever before.
In 2015, Group sales increased by 10%. In euro terms, revenues up 16% or EUR2.4 billion to a new record of EUR16.9 billion. Our core brand adidas, by far our largest business, drove the Group's top-line expansion growing 12% in 2015 and reaching sales of EUR13.9 billion, the highest level ever, with strong growth acceleration towards the end.
This was particularly visible in Western Europe and North America, where revenues grew 31% and 12% during the fourth quarter. While adidas Originals continued to be a major growth driver during the quarter, momentum in our sports performance business also increased, as revenues grew at the high single-digit rate in Q4 with double-digit increases in Western Europe, North America, Greater China, and Middle East, Africa, and the rest of Asia.
Reebok reported a 6% sales increase for the full year and now has 11 consecutive quarters of growth under its belt. Gross margin increased 60 basis points to 48.3%, which clearly reflects the strength of our brands. And this was achieved despite negative currency effects and FOB increases. Our underlying net income grew 12% to EUR720 million, despite delivering on our promise to significantly step up marketing investments to spur revenue growth and drive long-term brand desire.
These financials provide clear evidence for the major progress the Group made in 2015. But, our success goes way beyond financial figures. With our new strategic business plan, Creating the New, we have developed a new game plan aimed at accelerating our growth trajectory until 2020 by significantly increasing brand desirability.
And while officially this plan only kicked in at the beginning of 2016, Creating the New has already set free a lot of positive energy within our Group during the past year. This is the result of a completely new mindset, brands first, which we are living internally and which is also reflected in the reorganization of roles and responsibilities within our sales and marketing teams.
Following the implementation of brand leadership, today, our global brands organization has a centralized role when it comes to key decision making relating to the appearance of our brands and products around the globe.
With this approach, we ensure that our product offerings enjoy a high level of commonality worldwide, while at the same time, we guarantee that major initiatives, such as product launches and communication activities, are managed centrally before they are executed locally by the markets.
And I have absolutely no doubt that this new consumer-obsessed mindset and organizational structure spurred the success of our brands in 2015 as it helped us to be much more impactful vis-a-vis the consumer in many areas of our business.
The stellar momentum we are seeing at our core brands adidas and Reebok ensured strong top-line growth throughout the year and, equally important, also resulted in major margin improvement, which is a clear testimony that both brands resonate extremely well with their respective target consumer.
A prime example of how our consumer-obsessed mindset is our football category. 2015 saw a full reset of our football footwear business with the launch of Ace and X. These new football siloes successfully replaced our iconic franchises the F50, the Predator, 11Pro, and Nitrocharge.
Focusing on the specific needs of two different types of football consumers was a bold decision that also came with some risk. But, it proved to be right, as evidenced by the double-digit increase in football footwear revenues last year.
In addition, we saw a strong pressure -- presence of our [new leads] in the world's top five football leagues, with almost 40% of players wearing three stripes. And as a result, we were able to significantly increase our market share last year, particularly in the important battle ground Western Europe. And this alone is great news.
But, let's not forget our unrivaled partnership portfolio with the world's most influential football teams, which was expanded in 2015 by adding two of Europe's most iconic teams, Manchester United and Juventus Turin. This helped us to fully compensate for the nonrecurrence of the record World Cup-related football sales which we generated in the prior-year period.
As a consequence, 2015 was by far the most successful football year in our history, with revenues reaching a new all-time high of more than EUR2.2 billion. But, just imagine the potential we have this year once the excitement around the two major football events, the EUFA 2016 Euro Cup and the Copa America kicks in.
In 2015, we also made a bold statement in another major performance category, running. Here, we launched Ultra Boost, which delivers unrivaled energy return, superior support, and adaptive comfort to consumer.
As we were so convinced of the performance attributes of this shoe, we called Ultra Boost the greatest running shoe ever, even before it hit the market at the beginning of 2015. Now, a year after its official launch, there is no better description for Ultra Boost than just said.
Both the feedback we get from consumers as well as the sell-through rates record there's no doubt that Ultra Boost was the best sneaker of 2015, as awarded by both Running and Lifestyle magazines several times throughout the year.
At the same time, the track record of Boost in the world's marathon scene speaks for itself. In total, Boost running shoes have been on the feet of the winners in 17 major marathon races since we brought the franchise to the market.
In New York, Mary Keitany repeated her victory, becoming the first woman with back-to-back wins in New York in a long time. And her margin of victory of 67 seconds is just as impressive. And one thing is for sure. An outstanding performance like that can only be achieved if you have the best possible equipment.
And it is not only the professional runners who boost their run with our unique technology. In total, we sold more than 10 million pairs of Boost running shoes in 2015. As a result, sales in our running category increased by 6% in 2015, with both footwear and apparel recording robust growth rates. And the momentum in this important category is clearly accelerating, as we are experiencing double-digit backlog growth.
The tremendous success of our Originals business lies in our unique ability to recreate iconic sport moments and bring them to the street. This is exactly what made our famous footwear franchises Stan Smith and Superstar driving forces of sneaker culture in 2015.
The Superstar on its own was sold more than 15 million times in 2015 and was by far the bestselling sneaker of the year. And while we are going to keep the momentum up for those two franchises in the coming year, we will carefully manage their lifecycles to ensure longevity.
But, it is not only the classic styles that adidas Originals is successfully. Our newly introduced NMD, a fusion of well-proven adidas DNA with breakthrough technology from today, has once again demonstrated the trendsetting capabilities and the influence adidas Originals has on the streets. Initial volume was immediately sold out from the launch weekend.
We also developed Tubular, which hadn't been impactful initially as we had hoped, but we developed it into a success story. Instead of abandoning the franchise after the first disappointment, we remain committed to it, as we strongly believe in its immense potential. And we were absolutely right.
After having taken it out of distribution for a while, redesigning the product, sharpening the communication around it, and launching it again, the [refound] Tubular hit the nerve of lifestyle consumers around the globe. In New York, people were lining up in front of stores for three blocks during the record winter blizzard to get their pair of the latest Tubular version.
And not to forget the unprecedented demand around the Easy Boost, which we have developed in collaboration with Kanye West, and that is enjoying unparalleled popularity. All of the seven iterations released so far have not only sold out instantly, but also played a major role in propelling adidas to the most popular sneaker brand on Instagram in 2015.
It is all of these products and the overwhelming response from the lifestyle consumer that drove an outstanding financial performance. Adidas Originals grew it standing 36% in 2015 with strong double-digit growth rates in each and every quarter. Momentum even accelerated towards the end of the year, as sales grew 45% during the fourth quarter.
In the context of Creating the New, winning the female consumer is an imperative for our Group and offers tremendous growth potential. Therefore, 2015 saw the complete reset of our women's business as we are now more focused on the female athlete than ever before. As a result, we have made significant changes to our global product and marketing approach to enable us to create products and consumer experiences that address the very needs of women.
As part of these efforts, adidas recently launched Pure Boost X, a high-performance-meets-high-fashion running shoe exclusively designed and developed for women. And while the official launch of the Pure Boost X only took place a couple of weeks back, I'm encouraged by double-digit sell-through rates.
In addition, within the scope of our new Sport 16 campaign, the first chapter of films I Am Here to Create is told through the lens of some of the world's finest female athletes, including tennis icon Caroline Wozniacki, supermodel Karlie Kloss, as well as a large number of local influences.
And I'm sure you are just as excited as I am about our collaboration with former Lululemon CEO Christine Day, who has been acting as a strategic advisor to our women's business for almost a year now. As an expert in building an athletic brand for women, Christine has been instrumental in sharpening our game plan, asking the right questions, and helping us develop this important part of our business in the right way.
North America is another area where the adidas brand made major progress last year by moving closer to the consumer. One of our main priorities in 2015 was to gain credibility in those categories that are important to authenticate our brand towards the US athlete.
And indeed, through grassroot events at the high school and college level, much higher visibility in all of the major US sports, and highly engaging marketing campaigns, we have become much more relevant for the US consumer in only a short period of time.
In American football, for example, our partnership with Denver Broncos Von Miller, the Most Valuable Player in Super Bowl 50, puts the three stripes right into the spotlight during the world's biggest single sports event.
In baseball, the number of players wearing our products has more than doubled within less than 12 months and now includes standouts such as the 2015 Rookie of the Year Kris Bryant.
And in basketball, we have teamed up with James Harden, one of the most charismatic players in the game, who has already created a lot of [pass] for us as he took center stage in the last episode of our Sport 15 campaign in December.
Speaking about Sport 15, this has been by far our loudest and most successful marketing initiative in the US ever. Not only was this the first time that we had four major brand campaigns out in only one year, in addition, each of the four episodes had a clear focus on the American athlete, from the professionals down to the high school level, and created great excitement and unparalleled engagement amongst consumers.
On YouTube alone -- the four videos, which we launched around major US sporting highlights, such as the NBA All-Star game and the start of the NFL season, on YouTube alone, they reached more than 100 million viewers. The third episode Create the New Speed, which was all about American football, has generated more retweets than any other adidas campaign before, including our highly successful World Cup campaigns.
And as promised, we will continue with this consistent marketing approach that is tailored to the American athlete and aimed at building strong ties with the US consumers.
We're talking about connecting with the US consumer. We must, of course, not forget our unrivaled presence in the lifestyle arena with all of the Easy Boost iterations writing one success story after another.
The Easy Boost 350 even received the prestigious Footwear News Shoe of the Year Award. No question that the collaboration with Kanye West has significantly elevated the perception of our brand, not only, but particularly in the US. And the impact goes far beyond the lifestyle part of our business.
I can tell you the major progress we have made in connecting with the US consumer hasn't gone unnoticed by the country's most important retailers. They have become much more supportive of our products over the past 12 months, which is reflected in a significant increase in shelf space in their stores.
In combination with the continued rollout of our own retail stores, this has also elevated the brand experience at the point of sale remarkably. All of this resulted in accelerating brand momentum through the year, which culminated in a 12% revenue increase for brand adidas during the fourth quarter. We have clearly set the stage for the double-digit growth ambition we have for 2016.
Turning now to Reebok's performance in more detail, with growth of 5% in Q4, the brand now looks back on 11 consecutive quarters of growth. Without any doubt, this is proof positive of the successful repositioning of the brand and its rededication towards -- clearly, the brand's bold shift from team sports to a focus on fitness is well accepted by consumers around the globe, with Reebok's international business growing at a double-digit rate on average over the last 11 quarters, and this is almost three years.
At the same time, the brand continues to face challenges in its home market. To reset the brand in North America and deliver sustainable and profitable business growth going forward, we started to streamline Reebok's distribution footprint in North America during the course of 2015 by reducing the number of factory outlets.
And while we will continue to pursue that path going forward, we will also ensure the increased retail visibility by significantly growing the amount of premium controlled space. 2016 will see shop-in shop solutions expand into 100 Academy shops as well as Footaction, Champs, and Lady Foot Locker stores across the entire nation.
In addition, by opening showrooms to introduce new Reebok to local communities and leveraging our relationship with highly influential brand ambassadors through grassroot activities, we will introduce new concepts to better connect with our target consumer in the US.
And I have absolutely no doubt we will see major progress for the Reebok brand in the US this year, which will result in revenue growth in 2016. And I am convinced that, over time, the Reebok brand will become as successful in the US as it is already in all other parts of the world.
Let me now move over to our golf business. Following a decade of strong and profitable growth, TaylorMade-adidas Golf experienced two very difficult years in 2014 and 2015, caused by a number of structural, commercial, and operational issues.
As a result, halfway through last year, we started analyzing future options for our golf business. We expect this strategic review to be concluded by the end of the first quarter of 2016. At the same time, we also initiated a major restructuring program with the main objective to create a more nimble and more profitable organization, while at the same time delivering upon its mission to be the innovative leader in golf.
The turnaround plan is in full execution as we speak. And it is expected to deliver visible results and major operational and financial improvements in 2016. In the meantime, we have seen extremely good response to our latest product launches. In its inaugural week on both the PGA tour and the European tour, TaylorMade M1 driver became the number one played model, bringing TaylorMade back to the top spot in golf's most important category metalwoods.
A multitude of players made an immediate switch based on the impressive results they saw in testing, a true testament to the unrivaled performance of M1. But, the M1 was not only successful with our [tour staff]. Due to the strong early demand and quick sell-through at retail, our launch (inaudible) were sold out quickly after its launch and much faster than we had anticipated.
But, unlike in the past, we decided not to push further volumes into the market during the fourth quarter, in order to keep the product fresh and demand high for the next drop in the first quarter of 2016.
So, therefore the 15% revenue decline during the fourth quarter reflects this deliberate decision as well as our effort to resize our golf business. Consequently, revenues at TaylorMade-adidas Golf decreased by 13% in 2015.
Ladies and gentlemen, this concludes my update about the successful year 2015 for the adidas Group. Let me hand you now over to Robin to complete the picture for 2015 by looking at the financials in much more detail.
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Robin Stalker, adidas AG - CFO [4]
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Great. Thanks very much, Herbert. And good afternoon, ladies and gentlemen. As you've just heard, 2015 was a very successful year for our Group. On operational perspective, we delivered a great performance. And I'll highlight now how this has played throughout the financials of the Group.
On top of our robust performance, financial performance, is clearly the broad-based top-line momentum the Group witnessed throughout the entire year, with strong sales increases in most regions. Particular standout areas in 2015 were Greater China, Western Europe, MEAA, and Latin America, where revenues grew at a double-digit rate each, much faster than initially expected.
Even more impressive, however, was our strong year-end finish, with accelerating sales momentum in most of our key regions, amongst others, Western Europe and North America, where sales were up 30% and 8%, respectively, during the fourth quarter. Greater China, Latin America, and MEAA also continued their growth path during the fourth quarter with double-digit increases each.
Let's dive deeper and have a more detailed look at the development of some of our major market segments. Starting with Western Europe, after three already very successful quarters with accelerating momentum in each and every quarter, we were able to end the year on a high. Currency-neutral sales grew at a blistering rate of 30% in the fourth quarter with all key markets growing at double-digit rates, first and foremost, the UK, Italy, and Germany.
More importantly, however, we were able to translate the strong top-line performance during the year into an even stronger bottom-line performance. Operating profit in Western Europe increased 36% in 2015, translating into an operating margin of 20.0%, and that's up 2.5 percentage points versus the prior-year period.
Moving over to North America, Herbert has already mentioned that we are successfully increasing our visibility in this all-important market. I'm encouraged to see that our efforts are already bearing fruit when looking at our top-line development in 2015.
Currency-neutral sales growth saw a further acceleration towards year end, reaching 8% in the fourth quarter, adding up to a 5% increase for the full year. This development was due to a strong 12% increase at adidas in Q4, the strongest growth we saw throughout 2015, confirming our improving success in authenticating our brand towards the US consumer.
Reebok revenues declined 5% in Q4, reflecting the brand's continued efforts to further streamline Reebok's factory outlet business in North America.
As already mentioned, in 2015, we significantly increased our marketing investments by more than 50% to support the Company's growth in the region. Consequently, operating expenses were up 39% to EUR977 million. This in turn weighed on our profitability in North America, which decreased 2.9 percentage points to 2.5%.
Let's move over to Greater China, where we were able to maintain our strong momentum at both Adidas and Reebok with currency-neutral sales up 16% in Q4, representing the seventh consecutive quarter of double-digit growth.
At adidas, where revenues increased 14% in the fourth quarter, growth was driven by double-digit improvement in both our performance and our lifestyle business. So, while we are still leveraging the strong successes of Originals and NEO, we also continue to take increasing advantage of the structural trend towards a healthier lifestyle.
2015, Greater China was both our fastest-growing market, with currency-neutral sales up 18%, and indeed the most profitable market, with an operating margin of 35.1%, up another 50 basis points versus the prior year.
Supported by the ongoing robust demand for sporting goods as well as increased sports participation, we have every confidence that we will be able to keep the double-digit growth momentum going into 2016.
Let's now have a look at Latin America, where we were able to record another year of double-digit growth in 2015. This is actually even more impressive, considering the tough comparisons we were exposed to resulting from a nonrecurrence of prior-year World Cup-related sales.
Revenues increased 12% during the quarter, both the quarter and the full year, reflecting double-digit growth at both adidas and Reebok. Supported by the strong brand momentum, we recorded a gross margin improvement of 2.2 percentage points to 42.4% in 2015. As a result, despite an increase in operating expenses, operating margin increased 80 basis points to 13.2%.
A market that had to deal with major economic challenges in 2015 was Russia CIS, where consumer sentiment and spending were heavily impacted throughout the year. Against this background, we recorded a sales decline of 11% in Russia CIS in 2015.
The sales development in the region was significantly impacted by the rationalization of our store network, resulting in 167 net store closures during the year. In light of the significant ruble devaluation as well as higher input costs, gross margin in Russia CIS decreased 2.6 percentage points to 56% in 2015.
To compensate for the gross margin decline, we carefully managed our cost base, resulting in a 30% operating expense reduction. As a percentage of sales, however, operating expenses increased 1.6 percentage points to 44.6%.
Despite the gross margin decline and higher operating expenses as a percentage of sales, our operations in Russia CIS remained profitable in each and every quarter in 2015, with an operating profit of EUR85 million and an operating margin of 11.4%. This is a great achievement on the part of our local management team, highlighting our ability to maneuver our market organizations through difficult times.
To finish our detailed review on our operating segments, let's have a quick look at other businesses, which declined 3% in the fourth quarter of 2015. This development is mainly due to the 15% decline at TaylorMade-adidas Golf, as Herbert already mentioned.
While revenues at Reebok-CCM Hockey declined 1%, sales in other centrally managed businesses increased at a double-digit rate in Q4. For the full year, sales in other businesses decreased 3% as a result of the 13% decrease at TaylorMade-adidas Golf, which more than offset increases at Reebok-CCM Hockey and in other centrally managed businesses.
Gross margin in other businesses decreased 80 basis points to 33.9% in 2015, reflecting gross margin declines at TaylorMade-adidas Golf. Due to the gross margin decline and ongoing restructuring efforts at TaylorMade-adidas Golf, other businesses recorded an operating loss of EUR89 million in 2015 compared to a loss of EUR57 million in the prior-year period.
Now, let's have a closer look at the Group's other P&L items, starting with the development of our gross margin. Despite ongoing pressure from unfavorable foreign exchange trends and higher input costs, the positive effects from a more favorable pricing channel and product mix strongly supported our Group gross margin, which expanded by 2.3 percentage points to 47.2% in the fourth quarter.
As a result, we ended the full-year 2015 with a gross margin of 48.3%, and thus 60 basis points above the prior-year level, a strong achievement considering the fact that negative currency effects and higher input costs together wiped out close to 200 basis points of gross margin.
Our operating expenses recorded an increase of 23% in the fourth quarter. As already mentioned during our nine-months results conference call, we made a deliberate decision to further increase our marketing investments in the fourth quarter to leverage the strong brand momentum at adidas and Reebok.
As a result, marketing investments increased 31% in Q4 compared to the prior year. Additionally, higher operating overhead costs, partly due to the restructuring program at TaylorMade-adidas Golf, contributed to this development.
From the full-year perspective, operating expenses increased 18% or 40 basis points as a percentage of sales. This development was, once again, due to the Group's planned efforts to further strengthen brand desirability by stepping up brand building investments, which grew 22% or 60 basis points to 13.9% of sales in 2015.
Against the background of our strong top-line development, we were able to leverage operating overhead costs, which as a percentage of sales were down 20 basis points during the year.
As you saw earlier today, the 2015 financial year was impacted by nonoperational goodwill impairment losses totaling EUR34 million, mainly related to the Group's Russia CIS and Latin America cash-generating units.
Of this total, EUR18 million occurred in the first quarter, and EUR60 million occurred in the fourth quarter. Impairment losses were noncash in nature and did not affect the Group's liquidity.
Excluding these goodwill impairment losses, the Group's operating profit increased 14% to EUR1.1 billion in 2015. The Group's operating margin decreased 10 basis points to 6.5% for the full year, reflecting the increase in marketing investments, which more than offset the gross margin improvement.
As already flagged with the release of our nine-months results, we generated a slight operating loss during the fourth quarter as we decided to take advantage of the dynamic top-line development by further investing into our brands.
Turning now to the nonoperating items of the P&L, full-year net financial expenses decreased to EUR21 million versus EUR48 million in the prior year, driven by positive exchange rate effects as well as the nonrecurrence of negative exchange rate effects from the prior year.
Due to the nonrecognition of deferred tax assets, the full-year effective tax rate increased 3.2 percentage points to 32.9%. This is well above historic levels. And we expect to return to a more normalized level of around 30% in 2016.
Despite the fact that the effective tax rate for 2015 was higher than expected, we were able to exceed our bottom-line target. Net income increased 12%, well above the initially projected 7% to 10% improvement, to EUR720 million in 2015. This translates into basic and diluted earnings per share for the full year of EUR3.54, up 16% compared to the prior year.
Looking at the performance of the retail part of our business, both the fourth quarter and full year showed strong improvement, revenues for the fourth quarter up 13% and full-year sales increasing 11%. The development in both periods was driven by double-digit growth at adidas.
Comparable store sales were up 5% in Q4 with double-digit growth in most of the regions. Excluding Russia CIS, comparable store sales even increased 10%. For the full year, comparable store sales were up 3%, growing in every market except Russia CIS.
Our e-commerce business continued to grow strongly and posted an increase of 42% in the full year. As a result, revenues generated through our own e-com platforms grew to over EUR600 million, more than EUR100 million above our 2015 target.
In addition, our retail business continues to see significant profitability improvements. While gross margin increased a strong 2.5 percentage points to 61.6% in Q4, operating margin climbed 1.2 percentage points to 18.6%.
As a result, our retail operations ended the full year with a 61.8% gross margin, up 2.4 percentage points compared to the prior year. The operating margin reached a level of 20.3%, reflecting a 2.8 percentage point improvement year over year.
Now, last but certainly not least, ladies and gentlemen, let me give you some insight into our balance sheet and cash flow development. While inventories and accounts payable on a currency-neutral basis increased 25% and 22%, respectively, reflecting higher stock levels to support the Group's top-line momentum in early 2016, average operating working capital as a percentage of sales decreased a strong 1.9 percentage points to 20.5% at year end.
In 2015, we ended the year with net borrowings of EUR460 million, an increase of EUR275 million versus the last year. This development is mainly a result of the utilization of cash for the share buyback program in an amount of EUR301 million.
With the great operational performance in 2015, the Group's strong financial position, as well as our confidence in the Group's long-term growth aspirations, we will propose a dividend of EUR1.60 at our annual general meeting in May. This would reflect a payout ratio of 47.9%, which is at the upper end of the increased target range of between 30% and 50% as defined in our dividend policy.
So, this concludes my review of our 2015 financial year. So, let me now hand you back over to Herbert, who will share with you some very exciting news on upcoming product launches and events that will spur our growth in 2016. Thank you for your attention, and now back to you, Herbert.
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Herbert Hainer, adidas AG - Chairman & CEO [5]
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Yes, thank you very much, Robin. So, ladies and gentlemen, let me now spend a few minutes to showcase what you can expect from the adidas Group in 2016. And I'm excited to share with you some of our upcoming product launches and major initiatives that will fuel our growth this year.
Without doubt, innovation will remain at the heart of everything we do. Therefore, in 2016, we will continue to drive the new, be it in product, concepts, or processes. We're looking at new ways of how we design our product, using 3D technology to create shoes the world hasn't seen before.
This context, I am proud that, with our Futurecraft series, we are once again demonstrating our leadership on the innovation side. Futurecraft is a forward-looking initiative to drive innovation across all elements of the production process.
Back in October, we presented the first groundbreaking innovations of this series Futurecraft 3D and Futurecraft Leather. The newest (inaudible) of our Futurecraft series is Futurecraft Tailored Fibre. While originally launched in the automotive and the aerospace sector, Futurecraft Tailored Fibre will enable unique footwear designs that can be modified to the individual needs of any athlete. The Tailored Fibre technology allows the upper itself to be ergonomically tuned to the athlete's foot.
Running will be a focus area for us in 2016. With our unique Boost material, we have revolutionized the entire running market. For me, there is no doubt that Boost has the power to make EVA, the industry's synthetic material standard for 35 years, to make EVA obsolete.
And Ultra Boost is a very good example, which shows how we turn unequaled innovations into premium product franchises. For 2016, we will keep up our focus in running on the Ultra Boost franchise by bringing the next chapter of Ultra Boost to life, Ultraboost ST.
These running shoes will provide the ultimate experience in luxurious stability. Whether an athlete is training or running a full marathon, the unique midsole will keep every step charged with energy. In addition, the adaptive adidas Primeknit upper gives lightweight support exactly where it's needed, while the outsole provides a smooth, stable heel-to-toe transition. And I can promise you that this is by far not the only new member of the Ultra Boost family that will come to life in 2016, but one thing at a time.
Following our intensified focus on the female athlete, we just recently introduced Avenue A, a women-only subscription service that offers a curated box containing premium running and training products. Avenue A will help us to improve the shopping experience by providing seasonal looks directly to female athletes in a unique and customized way. Each shipment is a surprise. And the box will be filled with three to five premium items, which can be a mix of footwear, apparel, and accessories, appropriate for the respective season.
In addition, we just recently announced an integrated multiyear partnership with Wanderlust. Wanderlust is the producer of the largest yoga lifestyle events in the world, merging the energy of a music festival into the community atmosphere of a yoga and fitness event. We are very excited to partner up to reach the female athlete in a new and exciting way.
At the beginning of this year, after dominating headlines for so many weeks, ACE 16+ Pure Control, the first laceless football boot, officially hit the market and soon started to dominate pitches around the globe.
A few weeks later, I am proud to share with you that the boot is already set to become one of our most iconic releases ever. We have taken away something that has been present in every pair of football boots the industry has released before, the laces.
The result is a really pure silhouette and a beautiful shape. That shape not only makes it visually stunning, but most importantly, gives our players an unparalleled strike surface. Worn on the pitch by some of the best football players in the world, such as Mesut Oezil or Ivan Rakitic, the boot is enjoying great visibility across the globe.
Talking about great football players, we cannot go without mentioning the ultimate creator Leo Messi. After winning a record Ballon d'Or, Leo has clearly cemented his place as the greatest player in the history of football. Adidas Football marked the moment with the launch of a new platinum boot containing real platinum elements never seen before on a football boot, the Platinum Messi 15.
On top of the introduction of the most innovative footwear concepts, our football category will experience strong support from this year's upcoming events, starting with by far the biggest football event in 2016, the EUFA Euro 2016 Championship. This is not just an exciting event, but the most efficient platform to demonstrate our leadership in football on and off the field of play.
Being the official sponsor, the outfitter, and licensee of the event, as well as the partner of nine high-caliber teams, including favorites Germany, Spain, and Belgium, we expect high visibility and great leverage from the Euro throughout 2016. And that's not only within our football category, but also through [hello] effect on many other categories.
Besides the EUFA Euro 2016, we are looking at another major opportunity in 2016 to showcase our strength in the football business. Hosted by the US, the Copa America will for the first time take place outside of South America.
Thanks to our unique partnership portfolio around South America's most successful federations and the region's most admired football players, amongst others, Leo Messi, Luis Suarez, and James Rodriguez, the adidas brand will not only shine during the event, but we'll also make sure it leverages its football excellence in North and South America.
And there is another event which I have not mentioned yet where adidas will again play a key role, the Rio 2016 Olympic Games. Just like at every Olympics for more than 80 years, we will be outfitting our partners, including the world's best-known athletes and federations, with innovative performance products, enabling them to reach their personal best during the games.
Commercially not as relevant as the two football events, the Olympic Games will provide an excellent platform for the adidas brand to present its performance credentials to consumers globally, while at the same time increasing its overall presence across Latin America.
Let's move over to our lifestyle business, where 2015 was undoubtedly a tremendous year for adidas Originals. We experienced great success stories throughout the year as our exclusive partnerships with superstars such as Pharrell, Kanye, or NIGO created huge hype for our products.
Going forward, we will continue to build upon this hype and leverage our strong collaborations and endorsements to further strengthen the perception and the relevance of our brand amongst the lifestyle consumer.
Two footwear franchises that will take center stage in 2016 are both collective memory from our past. They have been reinvented and will now be developed over the next couple of years, Tubular and NMD.
I already mentioned the hype that the reshaped Tubular created amongst (inaudible) around the globe at the beginning of the year. And the NMD is just as successful. After the first launch in December, the next silhouette, the new NMD R1 Primeknit hits the market in January and, like its predecessors, was sold out in a short period of time. But, the good news for all disappointed sneaker heads is that the next drop is already around the corner.
2016 will, of course, also see the continuation of the unique collaboration between adidas Originals and Kanye West. With the launch of the black version of the Easy Boost 350 in February, we have once again pushed boundaries by offering an unparalleled level of comfort, performance, and style.
Let me now spend a few minutes on North America, where we will build on the strong momentum that the adidas brand is currently enjoying in the marketplace to further gain credibility with the US consumer.
To achieve this, we will make sure to further increase our visibility in the most relevant US sports and continue to be disruptive with our marketing initiatives.
Starting with American football, we will celebrate Super Bowl 50 MVP Von Miller from the Denver Broncos with a customized set of cleats. In addition, as the official phase of our FREAK franchise, Miller will be featured in a variety of adidas marketing initiatives this year and will play a central role in the development of a FREAK range, which will include footwear, apparel, and accessories.
Let's turn to basketball, where 2016 has had an impactful start with the next [set] of our Creators Never Follow campaign. Following on the launch of the first episode featuring James Harden in December, the second chapter staring Portland Trail Blazers superstar Damian Lillard will release or was released in January.
Through the lens of basketball and one of the game's most unique talents, the film shows adidas's vision of inspiring athletes to celebrate every moment in sport as an opportunity to create, redefine himself, and ultimately lead and never follow.
Baseball as well, 2016 is shaping up to the best season for adidas in quite some time. We are excited that we were able to add some notable new signees for the next MLB season, amongst others Correa, ranked number 13 of the MLB's top 100 players. For 2016, we will increase our roster of baseball players to over 100 athletes and, thus, reach new levels of brand visibility, which will spur consumer engagement.
In addition to significantly increasing the visibility on the field of play, we will also make further progress on the appearance of our brands and products at the point of sale. 2016 will see the introduction of new in-store solutions within the stores of our wholesale partners.
At Foot Locker, for example, we are planning to install new shop-in shop applications in close to 300 stores. In addition, we will have more than 700 apparel [pets], a blend of men's and women's, at Dick's.
On top of that, we will continue to roll out of our own stores with a clear focus on key cities, such as New York, Los Angeles, Chicago, Atlanta, and Miami. 2016, this will include a new neighborhood store in New York's Soho district as well as our first 4,000 square meters stadium store on New York's Fifth Avenue.
Those stores will have an enormous impact not only on sales, but also by defining our [flight] level and distribution, raising the standards of other stores in the country. And taking all of this together, in 2016, our new brands and products will connect with the US consumer in multiple dimensions and in a more impactful way than ever before.
Let me now turn to Reebok. As we have already illustrated throughout this presentation, Reebok enjoys increasing brand recognition within the fitness generation, which is ultimately also shown in the brand's solid top- and bottom-line improvement.
In 2016 and beyond, we will further leverage this strong positioning and keep addressing the most relevant fitness movements in the sporting goods industry. Our unique and unrivaled partnership portfolio with the UFC, with Les Mills, and CrossFit will give us the perfect platform to showcase the depths of Reebok's product offering in the years to come.
On the classic side, Reebok will kick off the spring/summer 2016 season with the release of the dual-gender Furylite sneaker. The release is backed by a dynamic new campaign with a series of images named Free Your Fury. The campaign was shot by Warwick Saint, one of the most renowned international photographers and directors in the field of fashion, celebrity, and music shots, helping to underline Reebok's fusion of standard fashion sneakers with technological advanced features.
Last but not least, let's take a few steps on the green, where our golf business continues to execute its turnaround plan, which is focused on establishing market leadership in our core equipment categories, improving operating efficiencies across our core brands, driving margin enhancements through the business, and stabilizing our product launch cycle to align with the seasonal nature of the golf category.
We're starting to see signs of recovery with our metalwoods offering, the largest equipment category, gaining strength and significantly expanding its global market share following the launch of the M1 in October.
In the US, for example, by far the biggest golf market globally, our market share in this all-important category increased by more than 10 percentage points until the end of the year. In February, TaylorMade completed its M family offering by unveiling the M2 product line, consisting of drivers, fairways, and rescue clubs.
But, the M1 and the M2 featured truly revolutionary multimaterial construction, highlighted by a seven-layer carbon composite crown. With the M family of products, it is the letter M that now defines distance and forgiveness in the industry.
The response to our recent product introductions was very positive. The encouraging demand across different products and categories in combination with cleaner inventory levels and continued strong performances of our products on the tour makes me very confident that we will be able to realize significant margin and profitability improvements in our golf business in 2016.
So, summing it all up, ladies and gentlemen, I have no doubt that 2016 will be another important and successful stage in our race to become the best sports company in the world and achieve the Group's long-term financial ambition.
Our brands are benefiting from the ever-increasing relevance of sport in the lives of people around the globe. Our products are in high demand, with consumers in every part of the world. Our order books are full across all major performance and lifestyle categories, and our brands are set to shine at this year's major sporting events. This gives us every confidence that we will again grow the top and bottom line at a double-digit this year.
Looking at the top line in more detail, we expect Group sales to increase at a rate between 10% and 12%. From a segmental perspective, we will increase revenues in all regions, except Russia CIS, with particularly strong performance, again, in Western Europe, North America, and Greater China, where sales are expected to grow at a double-digit rate each.
Other businesses is expected to be slightly below the prior-year level as a result of sales declines at TaylorMade-adidas Golf. This develop, however, is solely related to the expected revenue declines at the Adams and Ashworth brands, which will more than offset sales increases at the TaylorMade and adidas Golf brand.
As you have seen, ladies and gentlemen, we are in great shape and well prepared to fully compensate the cost pressure that we and the entire industry will be facing in 2016 as a result of a surge in input costs due to labor cost increases in our supply chain as well as a strong appreciation of the US dollar against most major currencies.
As discussed in detail during our second IR tutorial workshop in December last year, we forecast our gross margin to contract at a rate between 50 and 100 basis points to a level of between 47.3% and 47.8%.
This means that we will be able to compensate the vast majority of the expected headwinds through sourcing efficiencies as well as the positive effect from a more favorable pricing, product channel, and regional mix.
Top of that, we expect significant leverage on operating overhead costs while keeping marketing investments as a percentage of sales around the prior-year level. As a result, we have every confidence that the Group's operating profit will grow at a double-digit rate as well, with the operating margin remaining at least stable compared to the prior year.
Net income is expected to increase at a rate of between 10% and 12% to around EUR800 million. This will be a major achievement considering the severity of this year's sourcing cost increase.
But, make no mistake. The measures we have implemented to counterbalance this are not of short-term nature. We will definitely not sacrifice the long-term development of the Group and the desirability of our brands for short-term margin optimization.
In fact, the opposite is true, all of the initiatives aiming to support our margin development in 2016, which will sustainably increase our operating efficiency and significantly strengthen our foundation for profitable growth in the future.
At the same time, in line with our firm belief that the desirability of our brands and products will be the decisive factor to significantly increase revenues and profits over time, we will first increase our brand-building investments this year.
And with this in mind, I have no doubt that Creating the New will not only be off to a great start in 2016, but will also make major progress in the years to come.
So, now, ladies and gentlemen, we are happy to take all your questions.
==============================
Questions and Answers
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Operator [1]
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(Operator Instructions). Antoine Belge, HSBC.
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Antoine Belge, HSBC - Analyst [2]
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Yes, hi. It's Antoine Belge at HSBC. Good afternoon. Three questions, if I may. First of all, would it be possible to -- for you to quantify the main driver of the gross margin in 2015? I think there are four main drivers. One is the FX. The other one is FOB. The third one would be pricing. And the fourth one would be the channel mix. So, any granularity on this would be appreciated.
Second question, I think you just mentioned that Russia would still see declines in 2016. I think that business achieved EUR85 million operating profit in 2015. Do you still expect that business to be profitable in 2016?
And finally, a question on -- more specifically on the US. I think you had good traction with Foot Locker, especially with shop-in shops. How many shop-in shops within Foot Locker did you have end of 2015? And how do you think this figure will evolve throughout 2016? Thank you.
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Robin Stalker, adidas AG - CFO [3]
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Great. Thanks, Antoine. Thanks very much. Yes, indeed, the gross margin is tremendous news for us. And it is indicating that, although we've had these considerable headwinds from sourcing and indeed the currencies, the brands are really showing pricing power. And that together with the mix in terms of channel and product is really helping us to compensate for that pressure.
So, basically, if I was to look at the fourth quarter, you'd pretty much break it down a third coming from the pricing, the channel, and the product mix. And that being said is pretty much the same for the full year.
In terms of the Russian business and our profitability there, as I said in my prepared comments, we're really pleased that we were able to maintain strong profitability there, despite the significant decrease in top line and the economic pressures there.
And I think that shows that our management there has been able to manage their costs very diligently. We took 30% out of the operating expenses in 2015. And we're very confident that, even with the continued challenges in the Russian market, that we can match our costs to keep the business profitable. We will continue to show some closures in some of the shops there. And we will keep the Russian business profitable in 2016 I'm sure.
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Herbert Hainer, adidas AG - Chairman & CEO [4]
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And, Antoine, on your third question in terms of -- yes, you're absolutely right that we see traction already in the US. And on Foot Locker, we have increased our shop-in shops to 200 from 20 a year ago. And of course, this will develop further. But, it's not only Foot Locker. It's also around 600 shop-in shops for our football segment within Dick's and a lot going on with the other customers as well, though we will definitely increase significantly our presence in the US retail going forward.
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Antoine Belge, HSBC - Analyst [5]
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Okay. Thank you. Maybe just a follow up on the gross margin. In 2015, if I said that the -- just the FX headwind was around 200 basis points minus, is it a fair assumption?
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Robin Stalker, adidas AG - CFO [6]
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Yes, that is correct. Yes, that is correct.
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Antoine Belge, HSBC - Analyst [7]
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Thank you.
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Robin Stalker, adidas AG - CFO [8]
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You're welcome.
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Operator [9]
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Adrian Rott, Deutsche Bank.
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Adrian Rott, Deutsche Bank - Analyst [10]
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Hi, everyone. Thanks for the update so far. Just two questions, please. Firstly, on growth in the US, you mentioned how brand adidas accelerating to 12% was chiefly driven by Originals and NEO. So, I was wondering how the performance side of the brand is doing. And I'm thinking of running above all. It's been remarkable to see the Ultra Boost on top of weekly sell-through tables in the broader running category a couple of times, actually, year to date.
But, however, the sell-through and orders looking for the commercial, really commercial price points, let's say, from Bounce up to Energy Boost, and have inventories at retail normalized in running in the US?
And then secondly, on cash and CapEx, besides the working capital measures that Robin has talked about, lower CapEx has helped free cash flow, too, in 2015. I think you've been right about EUR90 million below guidance, which I suspect are some bigger projects that have just been moved into 2016. But, can you maybe decompose your CapEx guidance of EUR750 million for this year a little bit and share some thoughts on how you've prioritized them? Thank you.
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Herbert Hainer, adidas AG - Chairman & CEO [11]
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Hey, Adrian. Let me take the first question, and Robin takes the second one. Though US running, first and foremost, let me also remind you that we have been growing our performance business by 10% in the US in the fourth quarter. It was not only Originals. And you're absolutely right, with running, Ultra Boost is the running shoe also in the US.
And obviously, as you mentioned already, some other models, which we're now bringing into better price points, we definitely do believe that running as a category in general will grow double digit for our Company in 2016. And the US will definitely help us in that respect because Ultra Boost and then all the other Boost models have an extremely good acceptance by the consumer.
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Robin Stalker, adidas AG - CFO [12]
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And you're right about the CapEx. Timing of CapEx is often related, obviously, to the availability of retail. And indeed, for 2016, the significant increase in our CapEx plans there relate to direct-to-consumer investments. And this is the rollout of new shops, some of which have been also mentioned in terms of the highlight shops in some of the key cities. So, over 70% of the CapEx is probably in this direction, with the rest being warehousing, system investment, and some headquarter infrastructure.
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Adrian Rott, Deutsche Bank - Analyst [13]
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All right. Great. Thank you.
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Operator [14]
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John Guy, MainFirst.
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John Guy, MainFirst - Analyst [15]
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Hi, so, good afternoon, Herbert and Robert. It's John Guy from MainFirst. Just three questions, please. The first question with regards to TaylorMade-adidas Golf, I appreciate that the review is ongoing and will be finalized over the first quarter. But, is there any clarification that you can give today that, effectively, you'll be reviewing just the TaylorMade part of TaylorMade-adidas Golf and that the adidas Golf element will effectively stay within the adidas brand?
Herbert, with your letter to shareholders, you talk about how the business being in great shape, and you talk about that you're prepared to fully compensate the cost pressures and input costs, labor cost, etc., into 2016. So, with regards to your gross margin guidance of down 50 to 100 basis points, so relative to one of your peers Puma, for example, which has guided to flat gross margin, from an FOB perspective, you're facing very similar trends. So, could you just explain why you're still effectively guiding to a decline in the gross margin?
And with regards to the CapEx allocation, maybe just on the stores, if you could give us a little bit more clarification as to exactly where the main bulk of the CapEx is going on a regional basis, I know you've talked about some key cities. But, if I think about your store network in China, for example, that's significantly elevated in terms of I guess store format relative to some of your Western European and North American stores. So, is that where the bulk of the CapEx is going to effectively operate your store network? Thank you.
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Herbert Hainer, adidas AG - Chairman & CEO [16]
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Hey, John. Yes, you're absolutely right. We definitely will not talk and discuss about adidas Golf brand because we -- this would mean we separate the adidas brand. And this would definitely not be a wise decision. No, it's -- if we talk that it's only TaylorMade and obviously Adams and Ashworth.
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John Guy, MainFirst - Analyst [17]
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Fine. Okay. Great. Thanks.
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Robin Stalker, adidas AG - CFO [18]
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So, coming to your question about gross margin, actually, John, I'm surprised I think that, if we can keep the reduction in the gross margin to this level of 50 to 100 basis points, I think that's tremendous. And I don't think it's appropriate to compare with other companies who may be in a totally different situation. And they have totally different hedging, not just this year, but previous years also.
And for us, it's very clear that there's a significant FOB pressure also because of the change in currency. If you remember our tutorial, we said that the hedge rate would be about 13% worse in 2016 than it was in 2015. And now, pricing strength, the product, and also the channel mix you've seen being very strong in the end of 2015. I think that gives us great hope that we'll be -- definitely be able to manage our gross margin in 2016 within the levels that we have guided to.
Your third question about the allocation of CapEx, basically, just where are we investing in shops? And that continues to obviously be in the more emerging markets, so MEAA and also China. But, Western Europe this year is also a significant allocation of CapEx.
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John Guy, MainFirst - Analyst [19]
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That's great. Thanks, Robin. If I could just have one follow up just with regards to a comment that's in the annual report talking about significant opportunities to streamline the cost structures going forward, and you had about a 20 basis point reduction in the operating overheads. Could you maybe just talk about or maybe even quantify where you see the opportunity in 2016? I appreciate that there's sales and marketing.
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Robin Stalker, adidas AG - CFO [20]
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Yes, that's a great question. Yes, great question, John, because I think that speaks to the other part of your previous question about how we compensate for that FOB and pressure on the gross margin. And in the fact -- and in fact, we have already started a benefit from the initiatives we took as part of 2015 in terms of restructuring and streamlining a lot of our operating expenses.
You think of services. We've been able to combine above market the consolidation of warehousing, all that sort of stuff. Our efforts the end of last year and also in this year to streamline our product offering and to build on our particular key product franchises, that all helps us.
And the overall brand leadership that we're making now in terms of how we run the operations, that also gives us some opportunities for improved efficiency. The other couple of areas are the consolidation of the operating units. You saw the consolidation of our five key operating units in Europe into one part of Western Europe. That takes cost out of the business. And we're looking for continued leverage and improvements coming from e-commerce and further improvements in our retail profitability.
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John Guy, MainFirst - Analyst [21]
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Thank you very much. That's very clear.
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Operator [22]
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Jurgen Kolb, Kepler Cheuvreux.
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Jurgen Kolb, Kepler Cheuvreux - Analyst [23]
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Thanks very much. Just on the flagship store, Herbert, you mentioned in the US and New York 4,000 square meters. Are you planning to have additional of these sizes -- size stores open either in the US or maybe in China of that magnitude, of that size, in 2016 or 2017, first question?
Secondly, when we look at the key stars, especially Superstar or Stan Smith, ZX Flux, and Tubular, you said that or you mentioned that you want to control distribution and volumes, 15 million pairs of Superstar, obviously a big number. Will we see that already in 2016, or is that something you want to reduce volumes in 2017 then when maybe the NMD gets more volume? And so, how is the unit size traction that you're seeing?
And one last one on just understanding when you -- in your annual report, you talk about TaylorMade-adidas Golf as a multibrand category. But, would it be possible still to keep the TaylorMade hardware and then, obviously, the adidas products and just separate Ashworth and Adams Golf so that it's not anymore a real multibrand, but just a concentrated single-brand category? Thanks.
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Herbert Hainer, adidas AG - Chairman & CEO [24]
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Yes, hello, Jurgen. So, let me start with the first question. Yes, you are right. In our key city strategy is a key flagship store included. We start with New York. Then we go to London. Obviously, we have already one in Paris, as you know. And this will be the format where we really take these five to six flagship stores as showcasing to the world what the adidas brand will be all about. There will be much less commercial, but much more brand building.
Secondly, to the Original, Stan Smith, ZX Flux, you have seen already that we played this instrument very well in recent years. We took Stan Smith out for a certain time of the market. We took the Superstar out for a certain period of the market. We limited very much the Easy Boost collection with Kanye West to really spur this demand from the consumer. And the same we do with NMD, with Tubular. And you can definitely rely that we keep a very close eye on how we develop our Originals business.
But, to make it also clear, we will definitely further grow our Originals business because there is a huge demand out in the market. And we do believe, by selectively distributing it around the globe, there is definitely potential, but with all the requirements which I just mentioned.
And last but not least, your third question, yes, of course, everything is possible. This is why we exactly do the structural review and the strategic review that we know at the end of the quarter what exactly we want to do with the Golf business. The only thing which is a testament is that the adidas Golf will stay within the adidas group. Everything else will be analyzed.
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Jurgen Kolb, Kepler Cheuvreux - Analyst [25]
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Very good. Okay. Thanks very much.
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Operator [26]
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Zuzanna Pusz, Berenberg.
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Zuzanna Pusz, Berenberg - Analyst [27]
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Hello, everyone. Just three questions from me, please. First of all, on the female business, so you say that this is one of your areas of focus. I was just wondering where you could give us a bit more color on what actually percentage of your total business is female consumer, and then what are your expectations in terms of growth going forward?
And then secondly, on Boost, clearly, the Boost franchise is seeing some great momentum. So, I was just wondering whether you could share with us a total size of the Boost franchise in terms of sales and your aspirations for the future.
And then the final question. I think you mentioned during the Q3 call that you'd be limiting a distribution of the key successful footwear franchises in Q4. But, nevertheless, I think you saw an acceleration of growth in Originals with sales up 45%. So, I was just wondering if this pickup caused by the new product launches, such as NMD, or have you actually decided to continue pushing Stan Smith and Superstar to the market? So, maybe any comments on that would be very helpful. Thank you.
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Herbert Hainer, adidas AG - Chairman & CEO [28]
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Let me start with your third question. No, there is less volume coming from the new introductions because we did it later into the year, in 2015. It was mainly the Stan Smith, the Superstar, the ZX Flux, and a lot of other models which we have. You might know that the -- especially the LA Trainer is very popular in Italy and so on and so forth. We do expect the full impact of NMD in 2016 and, obviously, also Tubular.
In terms of Boost, we have done around 12 million pairs of Boost in 2015, over 10 million pairs of running shoes, and in some other categories where we had limited editions, obviously, to further increase these numbers as we spread our Boost technology to other categories and also into other price points. And as I said this morning, but I also think I said it this afternoon, we do believe that Boost long term can replace EVA completely because the material is so great. And there isn't any (inaudible) who is not excited when he steps into the Boost shoes.
And your first question was on the women's and the female consumer. Obviously, I can't give an exact number what our business is on the female consumer because, sometimes, it's hard to differentiate when it comes to T-shirts, etc.
But, let me put it that way. There is definitely a lot of potential for our women's business. And this is why we take a clear focus on the women's side with a lot of initiatives, which I mentioned already, also with the contribution of Christine Day because you all know that she built the Lululemon business with especially designed and developed products only for women, which is our Pure Boost X, which we just launched. So, all in all, we definitely see a huge potential for us in the women's business. And this is what we want to unlock in the next few years.
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Zuzanna Pusz, Berenberg - Analyst [29]
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Okay. Perfect. Thank you very much.
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Sebastian Steffen, adidas AG - VP IR [30]
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I think we have more questions, right, George? George, we would love -- George -- .
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Operator [31]
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-- I'm very sorry about that, sir. I was muted. Sir, I'm just going to ask Mr. Andreas if he could just requeue himself. He just appears to have disappeared from the queue.
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Sebastian Steffen, adidas AG - VP IR [32]
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Okay.
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Operator [33]
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Cedric Lecasble, Raymond James.
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Cedric Lecasble, Raymond James - Analyst [34]
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Yes, thank you. Good afternoon, Herbert, Robin, and Sebastian. This is Cedric Lecasble from Raymond James. I have three questions, if I may. So, first one, on your US traction, could you give us some market share indications in North America in footwear and apparel? And what are the main metrics you're closely looking at in the US? That's the first question.
The second question is a kind of a follow up of this one. You have a lot of events in 2016. You're putting some great efforts in North America. We saw that at the end of 2015. You guide on stable marketing expenditure, if it's correct, in a percentage of sales. How do you manage doing all that at the same time in 2016?
And the last question has to do with Golf. Just to be sure, you mentioned Golf has a potential gross margin driver in 2016 as to the restructuring. Is Golf in your gross margin assumptions of 47.3%, 47.8% for the Group. How should we understand Golf in this guidance? Thank you.
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Herbert Hainer, adidas AG - Chairman & CEO [35]
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Okay, Cedric. Let me start with you as we have a lot of KPIs to track the business in the US. Of course, the financials, but also NPS, which is net promotor score, where we can really measure the desirability of our brand, and as we have told you, this is one of the key metrics which we also charge our managers in the future and incentivize them in their bonus scheme.
I don't have any market share numbers here for footwear. We don't have any for apparel. But, I also don't have any for footwear here. Even let me know that -- or let me tell you that market shares in the US is a little bit difficult, as not every -- the retailer is in the panel.
Your second question was, how do we manage a lot of great events in sport, spending more in America, and still keeping our marketing expense at the same level? As you know from the previous times, and you know us quite well, we always differentiate between so-called event and nonevent years.
In nonevent years, we bring more individual product innovations to the market and spend the money behind there. In event years, obviously, some more money goes to the events. And this is exactly what we're doing in 2016 as well.
We'll definitely be disciplined, as Robin here on my side noted already, that we don't spend more than what we have guided to you. But, we do believe, with the increase in revenues, which gives us then in absolute much more money, that this money is good enough to achieve all our expectations which we have set for 2016.
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Robin Stalker, adidas AG - CFO [36]
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And just following on that point, don't forget, we've already upped our marketing spend in the Americas. So, we're talking about a higher base in any case. We're up 50% in spend on America and NWB up 22% for the whole year.
Your third question, Cedric, was about Golf and the margin. But, let me make it clear for the whole profitability of Golf. Firstly, obviously, our assumption at the moment is -- it includes the TaylorMade in the numbers that we've guided to. And we expect the TaylorMade and adidas Golf businesses to grow in 2016. And we expect them also to be profitable in 2016.
And we still have some restructuring events ahead of us for TaylorMade in 2016, a very low double-digit number. That may lead to a loss in the segment. But, definitely the underlying businesses of TaylorMade and adidas Golf will be profitable in 2016.
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Cedric Lecasble, Raymond James - Analyst [37]
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Thank you.
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Operator [38]
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Mr. Lecasble, does that answer your question, sir?
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Cedric Lecasble, Raymond James - Analyst [39]
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Yes, absolutely. Thank you.
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Operator [40]
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Omar Saad, Evercore ISI.
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Omar Saad, Evercore ISI - Analyst [41]
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Thank you for taking my question. Very nice year. Congratulations. Herbert, I was hoping -- .
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Herbert Hainer, adidas AG - Chairman & CEO [42]
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-- Thank you -- .
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Omar Saad, Evercore ISI - Analyst [43]
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-- You could expand upon some of -- you're welcome. Herbert, I was hoping you could expand upon some of the comments you made upfront shifting to more of a brands-first management strategy. Maybe elaborate how that's different than some of the tactics used in the past and how we could expect to see that expressed in terms of -- I don't know -- whether it's marketing or category management or distribution, etc., going forward.
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Herbert Hainer, adidas AG - Chairman & CEO [44]
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Yes, Omar. Thanks very much for that question because this gives me the opportunity to go a little bit more in detail. I would call it that way that, in the past, we have been more a federalistic organization, where all the countries had a certain say. And this sometimes ended that we didn't have a homogeneous product offering around the globe. We didn't have a homogeneous advertising effort over the globe. And we did not always speak with one question.
Though there is no doubt that this industry is brand and product driven, and therefore, we have completely reorganized our organization. And as I said, brands first, though, definitely, the brand, which mean the marketing department, is deciding what product which we are offering, which means we will have a harmonized range around the world, which gives us the side effect that we definitely can scale down SKUs significantly.
But, we will -- the consumer will see our products and our brand in the same way around the world, be it on product offerings, be it on marketing activities, etc. And as I said in my little speech, brand will decide, and then we focus completely the markets on the local execution.
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Omar Saad, Evercore ISI - Analyst [45]
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Thank you. That's helpful. And can I ask a follow up, too, on the shift to more -- the management structure, the shift you've been doing towards more sport-specific category management, if you will? Can you give us an update on how that's progressing and what we should expect there in the next year or two?
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Herbert Hainer, adidas AG - Chairman & CEO [46]
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Yes, absolutely. As we have said, we definitely make our former core business unit managers as general managers, specifically vertically for their category. So, we will have a category P&L calculated completely through with all costs related from all the different fields that we can make the GMs, as we call them in the future, responsible.
But, they'll also get power with all the -- how should I say -- the tools that they can drive their category forward. This means that, as an example, the football general manager will also decide what kind of offering we have in Brazil or in Argentina on the football boot side and how we activate that there and what kind of advertising we put behind.
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Omar Saad, Evercore ISI - Analyst [47]
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When should we expect it to -- this approach to be implemented?
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Herbert Hainer, adidas AG - Chairman & CEO [48]
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It is already implemented, Omar. And I definitely do believe that we see the first results out of that already, as I have said. Officially, the Creating the New, the concept, is starting officially on the 1st of January 2016.
But, we have already started with brand leadership a year ago. And we have completely completed the organizational change in 2015 already. The people are working already under this regime. And for 2016, the goals and the incentives have already catered towards that new organization with a lot of financial KPIs, but also NPS, as I said.
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Omar Saad, Evercore ISI - Analyst [49]
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Thank you. That's very helpful. Good luck.
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Herbert Hainer, adidas AG - Chairman & CEO [50]
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We try our best.
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Operator [51]
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Chiara Battistini, JPMorgan.
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Chiara Battistini, JPMorgan - Analyst [52]
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Hello. Hi. Thank you for taking my questions. Just very -- two quick questions. One on the -- maybe if we can go back to the gross margin for Russia, if it -- you could tell us at what extend this was helped by pricing power and pricing credit in Q4 and to what extent it was product mix because I was very impressed to see gross margin up in Q4, given the very strong ForEx headwinds.
And then on the US and on the margin, to come back to that, you have in -- operating margin was under a lot of pressure in Q4. So, how are you thinking about -- because of the marketing expenses mainly, how are you thinking about the profitability of US for full-year 2016, please? Thank you.
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Robin Stalker, adidas AG - CFO [53]
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Okay, Chiara. Good. The first look into the nitty-gritty of Russian -- .
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Chiara Battistini, JPMorgan - Analyst [54]
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-- Yes -- .
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Robin Stalker, adidas AG - CFO [55]
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-- Yes, indeed, it is positive. And that obviously speaks to the trend that I was telling you before when I was talking about the whole group and the pricing power that we're experiencing with the -- particularly the adidas brand, although we also have a very strong offering of the Reebok brand, obviously, in Russia.
For America, in terms of the profitability there, yes, as I said in my prepared comments, the profitability was impacted because we have deliberately chosen to invest more in marketing in this important market for us. That level of investment will continue in 2016. But, we're growing the business there also. And as you can see, we were profitable for the full-year of 2015. And we expect to remain profitable in 2016 in that market.
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Chiara Battistini, JPMorgan - Analyst [56]
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And so, then -- but, should we see already an improvement because operating leverage starts coming through, or should stay flat -- the margin should stay flat in full-year 2016 and then see an improvement from 2017 in North America?
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Robin Stalker, adidas AG - CFO [57]
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Look, the profit at the moment in 2015 was I think 2.5%. So, yes, we should see an improvement on that. But, that's -- as Herbert said earlier, all the efforts that we're taking at the moment and the investment that we are taking is not short-term based. This is all to grow the business long term sustainably. So, the real improvement you should expect to be coming after 2016. But, yes, it's encouraging to see that we're already in a good top-line growth development. And I'm sure you'll see further improvements in our profitability in that market as we go through the next quarters.
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Chiara Battistini, JPMorgan - Analyst [58]
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Great. Thank you. And just maybe if I can actually have another question on running. In Q4, do I calculate correctly that running was roughly flat for the Q4? And if that is correct, because I am implying it from the full year, up 6%, how come in Q4 that's low? That is just a timing issue as you are waiting to ship in Q1, or just if you could comment on that slowdown in Q4 in -- for running, if I calculated correctly.
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Herbert Hainer, adidas AG - Chairman & CEO [59]
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Yes, Chiara. Yes, I think it was low single digits, if I am correct, for running. So, we were still growing. But, please keep also in mind that a big part of our running success is Boost. I think we have told you during the year that we had some allocation on Boost material. And you will definitely see a double-digit increase, as I said before, in running in 2016 through the whole Company.
We are absolutely excited about how running is going. I think we have set the stage with Boost and also successes around the Boost shoes, which I mentioned before in the marathon scene, Mary Keitany in New York twice in a row, etc., etc., for a double-digit growth in running in 2016.
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Chiara Battistini, JPMorgan - Analyst [60]
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Perfect. Thank you very much.
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Herbert Hainer, adidas AG - Chairman & CEO [61]
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Welcome.
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Operator [62]
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Andreas Inderst, Macquarie.
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Andreas Inderst, Macquarie - Analyst [63]
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Yes, good afternoon, everyone. I have a follow-up question on TaylorMade-adidas Golf and the other segment, EUR89 million loss on EBIT, which is quite significant against EUR1.5 billion sales. Is it fair to assume a loss for the total growth category of around EUR114 million?
And maybe you can better elaborate the dynamics in terms of gross margin, EBIT margins, restructuring, which have taken place in 2015 and you also indicated in 2016. And I struggle to get to a profitable number in 2016. So, maybe you can give us a bit more insight about the dynamics here. That's my first question.
My second question is on inventories, up 25% FX adjusted year on year. How much of the growth is backed up by the order -- by order backlogs? Thank you.
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Robin Stalker, adidas AG - CFO [64]
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Okay, Andreas. So, good. And in fact, the other businesses, obviously, are overwhelmingly impacted by the performance of the TaylorMade-adidas Golf segment. And in fact, I think we've said previously that we had a loss in that area of approaching EUR100 million in 2014. And it was around about the same sort of figure in 2015.
In addition, however, in 2015, we had some restructuring costs in the TaylorMade unit of the low double-digit millions. And I think I've already answered the question about profitability TaylorMade-adidas Golf segment for 2016. We believe it's going to be operationally positive. But, we still have some restructuring costs for 2016.
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Herbert Hainer, adidas AG - Chairman & CEO [65]
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Andreas, just in addition to what Robin just said, we also used some money to clear inventories in 2015, bring the inventory in the market, and also in our own warehouse down. So, please don't forget that, with the new products which we are launching in 2016, M1 and the M2 family, (inaudible) that we obviously achieve higher prices and therefore better margin. And this is what Robin said will definitely give us profitability for our core TaylorMade and adidas Golf business in 2016.
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Robin Stalker, adidas AG - CFO [66]
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And your second question regarding inventories, the inventories are really clean. We've got a -- obviously, good order books, although we don't tend to talk about the detail about the order books. Herbert has already said on various occasions, I've repeated it, that our order books are full. We are confident that we've got good growth in the next couple of quarters. And we need these inventories for that. There's a lot of goods in transit in this figure. But, no, the inventories are looking very clean and very good at the moment.
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Andreas Inderst, Macquarie - Analyst [67]
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Okay. Very good. Just a follow-up question on the Golf segment. Herbert, you mentioned clean -- cleaning activities, inventory cleaning activities, for TaylorMade. Can you quantify the impact on the gross margins of the clearance activities in 2015?
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Herbert Hainer, adidas AG - Chairman & CEO [68]
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No, Andreas, I can't quantify it because, obviously, the gross margin comes through a lot of different initiatives, as we had, on the one hand, to price down current products, like the SLDR drivers and the JetSpeed products. Then we had to give markdown money to retailers to help them drive some products through. So, I can't give you any quantification of the each and individual measures we took to drive the inventory down.
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Andreas Inderst, Macquarie - Analyst [69]
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Okay. That's fair enough. Thank you very much. And see you next week in London.
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Sebastian Steffen, adidas AG - VP IR [70]
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Okay. See you then, Andreas. George, we have time for one more question, please.
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Operator [71]
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Julian Easthope, Barclays.
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Julian Easthope, Barclays - Analyst [72]
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Hi, yes, thank you very much. I've got two questions, if that's okay. The first one concerns 2015. Basically, in H1, you saw 7% organic growth. And then it went up to 12% or thereabouts in H2. You've given your guidance of double digit for the year. Can we assume, therefore, that it will be a little bit more first half related on the basis that the second half has quite a lot stronger growth from last year? And I guess that's -- that would be -- you be -- have reasonable confidence on the first half, given the order book.
The second thing just comes through in terms the influence that you have with your two new shareholders on the Board. Have they sort of indicated what they would like and what they plan to do with their Board seats and how much influence they can actually have? Thank you very much.
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Herbert Hainer, adidas AG - Chairman & CEO [73]
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Okay, Julian. So, let me ask the questions. Absolutely, we have seen an acceleration of our growth in the fourth quarter. And definitely, this will continue in the first half, as you can imagine, that we know already our order book very detailed for the first half.
But, honestly, I'm quite optimistic for the second half as well because all the indications which we have got so far, and we have sold Q3 already, as you know, is very promising as well. So, I don't think that it is first half loaded. We will definitely see a nice second half as well.
To your second question, of course, we are in a dialogue with our -- hopefully, our new people on the supervisory board because they have to be elected at the annual shareholder meeting. But, we talk with them as investors as we talk with all the other investors. And obviously, we are talking about the business, what we can do to further accelerate. And we try to find the best arguments.
For example, GBL is a much longer-term investor to us. And we have seen them more or less every quarter. I'm sure they have the same interests as we, growing our business, see the potential with the business. And this is why they are investing into our business. And we welcome everybody who believes in our growth story and is investing money into our Company.
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Julian Easthope, Barclays - Analyst [74]
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Okay. Thank you very much.
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Sebastian Steffen, adidas AG - VP IR [75]
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I think that's the perfect ending. Thank you very much, Herbert and Robin. So, ladies and gentlemen, this completes our conference call for today. As you will be aware, our next reporting date will be the 4th of May for our first quarter results.
But, as Andreas has already mentioned, I'm sure that we're going to catch up not only with him, but with many of you over next couple of years -- weeks over the phone or during our upcoming roadshows in Europe and also the US and Asia.
As always, if you have any questions, please feel free to contact any member of the IR team. And with that, I would like to thank you for your participation and wish you a very good day. Talk to you soon. Bye, bye.
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Operator [76]
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Ladies and gentlemen, that will conclude today's conference call. We thank you all for your participation. You may now disconnect.
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