Q1 2016 adidas AG Earnings Call

ADS.DE - adidas AG
Q1 2016 adidas AG Earnings Call
May 04, 2016 / 01:00PM GMT 

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Corporate Participants
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   *  Herbert Hainer
      adidas AG - CEO
   *  Sebastian Steffen
      adidas AG - VP, IR
   *  Robin Stalker
      adidas AG - CFO

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Conference Call Participants
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   *  John Guy
      MainFirst - Analyst
   *  Fred Speirs
      UBS - Analyst
   *  Adrian Rott
      Deutsche Bank - Analyst
   *  Antoine Belge
      HSBC - Analyst
   *  Omar Saad
      Evercore ISI - Analyst
   *  Andreas Inderst
      Macquarie - Analyst
   *  Jamie Bajwa
      Goldman Sachs - Analyst
   *  Jurgen Kolb
      Kepler Cheuvreux - Analyst
   *  Chiara Battistini
      JP Morgan - Analyst

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Presentation
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Operator   [1]
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 Good day and welcome to the adidas Group Conference Call for the First Quarter 2016 Financial Results. Today's conference is being recorded. At this time, I'd like to turn the conference over to Sebastian Steffen. Please go ahead, sir.



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 Sebastian Steffen,  adidas AG - VP, IR   [2]
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 Thank you very much Daniel, and good afternoon ladies and gentlemen. And welcome to our first quarter 2016 financial results conference call. Our presenters today are adidas Group's CEO, Herbert Hainer; and our CFO, Robin Stalker.

 Let me remind you that as always, all revenue-related growth rates will be discussed on a currency neutral basis, and that in addition all select figures will refer to the Group's continuing activities and be discussed excluding goodwill impairment losses from last year.

 You all know that we have not just one, but actually two announcements to cover today. So I think we should just get started right away. Over to you Herbert.



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 Herbert Hainer,  adidas AG - CEO   [3]
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 Yes, thanks very much Sebastian. And good afternoon or good morning, ladies and gentlemen. As you will have seen from our communication last week, we flew off the starting blocks in 2016 as the Group experienced its fastest start to a year in more than a decade.

 We achieved record first quarter sales of EUR4.8 billion, up 22%, which is our highest organic quarterly growth rate in more than 10 years. We recorded particularly strong growth at the brand adidas, with revenue increasing a blistering 26%, as key performance categories as well as our lifestyle business grew at strong double-digit rates. Sales growth at Reebok also further accelerated. With a 6% topline increase, Reebok now looks back on 12 consecutive quarters of growth.

 Despite severe headwinds from negative currency effects, the Group's gross margin increased 30 basis points to 49.4%, a clear testament to the desirability of our brands and products across the globe. And despite a further increase in marketing investments, operating expense leverage in the quarter helped drive operating margin up 1.4 percentage points to 10.3%. Consequently, net income from continuing operations grew 38% in the quarter.

 This powerful performance reflects a strong acceleration for our Group across the board. Particularly important was a strong momentum in our focus markets. As we had outlined last year, North America, Western Europe, Greater China and Latin America are key to our 2020 Strategic Plan, as we expect 80% of our growth towards 2020 to come from those markets. And in Q1, those markets did exactly that; all growing at strong double-digit rates, thus contributing the vast maturity of our Group's topline growth. We have every confidence that this overall momentum will be sustainable going forward and forecast double-digit growth in each of those markets for the full year 2016.

 From a brand perspective as well, it is exactly those categories driving sales growth today that will also be key to take our topline to new heights over the next five years.

 Now, I'm sure you remember that we have assigned clear roles to each of our categories to focus their -- on achieving the specific goals over the next [years]. And I'm very pleased to see that our core performance categories; namely, football, training and running, as well as our key lifestyle categories adidas Originals and adidas neo are all enjoying outstanding momentum in the marketplace, with all of them posting strong double-digit growth rates in Q1. And this, ladies and gentlemen, is proof positive that we are focused on the right areas of our business, which not only bring us operational and financial success in the year now, but even more importantly, ensure we are making major progress towards our long-term strategic aspirations. We are all extremely excited about the achievements of the first three months of the year. But the best part is that there is much more behind this stellar financial performance than just successful product launches and inspiring marketing campaigns.

 The momentum our brands are enjoying today is a direct consequence of our new consumer-obsessed mindset, which after the implementation of brand leadership is not only fully reflected in our organizational structure, but it's also clearly leaving its mark on our results. Our new operating model is directly spurring our current momentum that it allows us to develop holistic concepts that include all the different areas, such as product design, marketing and point-of-sale activation, which ultimately decides how impactful we are vis-a-vis the consumer.

 And with a strong double-digit growth rates in literary all regions, as well as in all key performance and lifestyle categories, the first quarter results are proof positive that with brand leadership in full swing, we are indeed much more impactful in winning the hearts and the minds of our consumers on a much broader scale than ever before.

 But make no mistake, brand leadership is not only about organizational adjustment, it's much more a change in mindset. This new consumer-obsessed mindset is strongly embedded in our 2020 strategic business plan and is the foundation to create brand desire with our consumers.

 In order to measure brand advocacy amongst our target audience, we established a net promoter score as a comprehensive system that guides us forward. In 2015, we invested heavily in the rollout of this NPS system, which now allows us to constantly listen and respond to our consumer needs. At the same time, we have started to integrate the voice of the consumer in our business processes. It is fair to say that the consumer now has a seat at our table.

 Besides establishing NPS and making it a bonus-eligible KPI for all of our employees, we have refined and significantly upgraded our consumer profiling capabilities. All of this enables us to have a laser sharp focus on our target consumer. And we are absolutely convinced that brand leadership and its consumer-centric approach is a significant contributor to the excellent momentum our Group is currently enjoying and ensures that the current success is much more sustainable.

 Let's now dive deeper into the operational and financial highlights of the first quarter, which is characterized by accelerating momentum in our core brands, adidas and Reebok. In particular adidas, the engine of our Group, has never come out of the blocks faster. Revenues grew at a blistering rate of 26% in the first quarter. But this also reflects continued strong double-digit improvement in our lifestyle businesses. More importantly, the momentum in Sport Performance accelerated as expected. Driven by double-digit increases in key performance categories, revenues in our Sport Performance business grew 22% during the quarter.

 So let's have a more detailed look at the different categories. Starting with football, which could not have had a better start to this important event year. Revenues up 25% in the first quarter, with double-digit increases in most markets. And we're especially proud seeing our footwear business grow at strong double-digit rates, reflecting the successful introduction of new products and franchises. Back in January, we revolutionized the game of football by releasing ACE16+ PURE CONTROL, the first laceless football boot, presented and worn on the pitch by some of the world's best players.

 One of those players is [Juventus Torino] in France, midfielder Paul Pogba, with whom we joined forces earlier this year. Paul is one of the Europe's most in demand football players and we are thrilled about working with him in the future. Paul will from hereon be our main athlete promoting the ACE franchise and we are all excited to see him and our boot shine at the UEFA EURO 2016 Football European Championship later this year.

 Talking about the Europe, our apparel business, which also grew double-digits during the quarter, sees ongoing demand for Federation kits and this is well prepared for the upcoming events and will once again enjoy huge popularity in 2016.

 Our Running business also performed very strongly during the first three months of the year. While both footwear and apparel sales improved at double-digit rates, the overall sales increase of 19% was very much driven by the further rollout of our BOOST product family, now representing one-third of our total running footwear business. A particular highlight of the first quarter was certainly the official launch of PureBOOST X, our first true female focused running shoe concept. Without a doubt, PureBOOST X will help us to position BOOST as the must-have innovation also for the female athletes. We had successful launch activations in major cities around the world and the initial feedback we have received from female consumers is very encouraging. Q1 also saw the introduction of PureBoost ZG, another super-light running shoe that helps us gain even more credibility in the area of energy running.

 In addition to some very exciting product launches, the overall visibility of BOOST continues to gain traction. Within the marathon scene, BOOST is more and more being the synonym for crossing the finish line before anybody else does. Only a couple of weeks ago, Lemi Berhanu won the Boston Marathon, wearing of course BOOST. In total, BOOST is now looking back on 18 major marathon wins, and we continue counting as we speak.

 In Training, we also enjoyed great momentum during the quarter, as sales increased 15% with double-digit growth rates in all major markets. Within the training business, the female athlete is playing an increasingly important role, and it comes as no surprise that our women's business outperformed the male business during the first quarter.

 We received very positive feedback on our Here to Create campaign launched in February, which has been a major activation tool so far this year. Later in March, we announced a multi-year partnership with Wanderlust, producer of the largest yoga lifestyle events in the world, which helps us to bring an entirely new level of everyday fitness engagement with the female athletes. Through marketing activation like recent innovative product concepts, we have identified the right anchors to get the versatile female athlete hooked to the brand and our Training business.

 Moving over to our Lifestyle business, where the unparalleled momentum from the prior year continued right into the first quarter of 2016. Revenues at adidas Originals grew 45% with strong double-digit increases in all markets, except Russia and CIS. And while we continued to experience huge demand around established key franchises, such as Superstar or the Stan Smith.

 The clear highlight of the first quarter bears only of three letters, NMD, the hottest shoe model in the games this year. The global launch of NMD on March 17 was just phenomenal, beating our own very high expectations and creating unbelievable hyper-growth key destination doors and online channels. We witnessed consumers going crazy, trying to get their hands on a pair, building record queues in crashing websites. Sell-through rates have been unbelievable with more than 400,000 pairs sold only on one day. This unparalleled success is even more impressive, keeping in mind that there is no major asset involved. This really speaks for the power of the brand. In addition, there are two other factors behind the NMD madness. One the one hand, it is of course, unique look and feel, as NMD is technically a running shoe realized as a lifestyle sneaker. Its mid-sole is elevated with adidas BOOST technology, while the upper utilizes integrity of adidas brand width. This offers highest comfort, combined with cutting-edge design. On the other hand, the success of NMD also goes back to a number of special activations, including launch events and campaigns that took place in key cities around the world. And this, ladies and gentlemen, is the best example of how big franchisees are born and what it takes to create unparalleled hype in the industry.

 Moving over to Reebok, where the positive trends from the prior year continued during the first three months of 2016. With a 6% sales increase in the first quarter, Reebok not only saw a further acceleration in topline growth, the brand now also looks back on 12 consecutive [quarters of growth]. Of particular note is once again the fact that Reebok achieved double-digit sales increases in key markets, such as Western Europe, Greater China, Japan and Middle East, Africa and the other parts of Asia. In addition, from a category perspective, Reebok saw sales increases in two of its key categories, Training and Classics.

 Another valid proof point showing that Reebok is making further strides in improving its brand desirability is the fact that the gross margin improved by 40 basis points during the first quarter, mainly due to a more favorable regional mix.

 One market where the brand is still facing major challenges is North America, where we started to streamline Reebok's distribution footprint during the course of 2015 by reducing the number of factory outlets. In 2016, we will continue to pursue that path, as we are convinced this is a painful, yet necessary move for a more profitable future. We will also ensure we further increase the brand's retail visibility by growing the number of shop in shop solutions with key retailers, while at the same time opening up to 20 showrooms in 2016 to introduce a new Reebok to consumers across key locations in the US. And bringing back Reebok to a successful and profitable growth path in its home market is the brand's most relevant goal going forward and we will not stop working towards that goal until it is achieved.

 Another important goal of our strategic plan until 2020 is to better focus our efforts on those areas of our business where we can have the biggest impact in reaching our consumers and winning their brand loyalty. In this context, we made some important strategic decisions recently that will allow us to sharpen our focus even more going forward.

 The first strategic decision is related to adidas neo, which once again showed tremendous performance during the first quarter, with revenues up 60%. As you know, over the last five years, we have grown adidas neo from a small startup into a successful vertical business model with sales reaching EUR1 billion in 2015. We're all very proud of where we have taken adidas neo and what we have achieved so far.

 Part of this journey was to develop our own vertical retail format. In these stores, we have been testing new ways of engaging with our target audience, connecting our brand with young consumers and gaining relevance among this audience. At the same time, we successfully developed speed capabilities for the Group and used our own adidas neo stores as pallets for many of these programs. And while our own adidas neo stores will remain an important part of our distribution in most parts of the world, data shows that in other parts we are more successful when exclusively offering adidas neo product at key wholesale partners. And as a result, we have decided that in Western Europe we will offer our highly successful adidas neo product through our key wholesale partners in the future. And as a result of that we will close our 16 own adidas neo stores in Germany, the Czech Republic and Poland. And while we are convinced that this decision is the right one and will help us to accelerate our brand, the vast majority of the neo store fleet, we're operating some 2,000 neo shops in China alone, will not be impacted by this decision.

 In addition, this morning, we made an important decision on our future [with regards] to Golf. After recently having concluded our extensive strategic review, we have now decided that going forward, we will focus our efforts in Golf on further strengthening our position as a leading provider of innovative golf footwear and apparel through the adidas Golf brand. Our intention therefore is to actively seek a buyer for the hard goods part of our Golf business, more precisely, for TaylorMade and Adams, as well as a leisure lifestyle offering of the Ashworth brand.

 During this process, we will of course ensure the TaylorMade's exclusive positioning and the strong brand claim in the industry will be reflected at any given point in time. TaylorMade continues to be the clear Number one driver brand in the industry and the most played brand [on tour]. The most recent product launches, such as the M1 and the M2 have once again proven TaylorMade's unrivaled leadership when it comes to innovation. And (inaudible) TaylorMade also has secured a Number 1 brand in the world, playing our product.

 And looking at the performance during the first quarter, while our total Golf business was down 1%, it is important to highlight that this decline had nothing, nothing to do with TaylorMade. The decline was solely related to lower revenues from the Adams and the Ashworth brands. TaylorMade, in contrast, managed to return to growth, up 6% versus the prior year, driven by sales increases in the brand's most important categories, metalwoods and irons. In addition, sales at adidas Golf also increased, driven by high single-digit growth in footwear, underlying the viability of this part of our business.

 You should also not forget that we have made major progress with our restructuring plan announced last year. Hence, the organization around TaylorMade will definitely be a much more nimble and profitable one going forward. I am convinced that with its leadership position in the industry and the turnaround plan gaining traction, which is clearly reflected in the topline improvement recorded in Q1, as well as the recent market share gains, TaylorMade offers attractive growth opportunities in the future. However, we decided that now is the time to focus even more on our core strengths in the athletic footwear and the apparel market. The planned divestiture will allow us to reduce complexity and focus our efforts on those areas of our business that offer the highest return.

 So as you can see, ladies and gentlemen, in addition to the huge operational progress we made during the first three months, we also made further progress when it comes to strategic decisions that will positively impact our Group in the long term.

 With this let me now hand over to Robin, who will guide you through the financials of the first quarter, before I conclude our conference call by looking into our nearer future and what to expect from it.



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 Robin Stalker,  adidas AG - CFO   [4]
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 Thanks very much, and good afternoon also from my side, ladies and gentlemen. In the next few minutes I will provide you with a more detailed overview of the financial performance during the first few months of 2016. In this quarter, there was an exceptionally big challenge to decide what markets, channels and categories we should focus on, as we've seen strong growth across the board. So let's start with a bird's eye view on our market segments before we dive deeper into just a selected few.

 As you can see, we were able to build on the strong momentum we experienced in the fourth quarter of 2015, with sales growth accelerating in nearly all of our markets. All of our market segments recorded strong double-digit increases during the first quarter with the exception of Russia/CIS. As Herbert has already mentioned, we are especially excited to see our four focused markets perform extremely well.

 Let me therefore dive deeper into each of those markets. Starting with Western Europe, where we succeeded in sustaining our strong momentum in the last quarter. In Q1, 2016, we were able to grow sales by 25%, driven by a 26% increase at adidas and a 15% growth at Reebok. At brand adidas, we saw excellent growth in the football category, which gives us every reason to be confident that we'll be able to continue taking market share from our competitors, supported by our strong presence at the UEFA EURO.

 From a market perspective, the strong growth in Western Europe was driven by double-digit revenue increases in all major countries, led by the UK, Germany, Italy and France. Additionally, our own retail business showed significant growth during the first quarter. Sales growth of 25% was driven by strong comp store sales increases, up a tremendous 17% in the period.

 Looking at the segment's profitability, it was already largely anticipated that the strengthening of the US dollar will have a highly negative impact on gross margins. However, through pricing initiatives and positive product mix effects, we were able to largely mitigate these negative effects and to limit the decline to 2 percentage points, resulting in a gross margin of 46.1% for the quarter. This also impacted Western Europe's operating profit, which increased at a disproportionate rate of 12% to EUR313 million, resulting in a decline of 2.3 percentage points in operating margin to 22.2%.

 Let's turn to North America where sales accelerated strongly in the first quarter. Revenues increased 22%, driven by even more distinct growth of brand adidas of 31%. And ladies and gentlemen, we're proud to note that this growth was driven by our lifestyle and performance businesses. The latter is the clear sign that our grassroots activation is paying off with the US consumers starting to acknowledge us as an authentic sports performance brand.

 This becomes even more visible when you look at the categories. Our US sports business increased more than 50% in the first quarter, but also key categories such as training and running recorded double-digit growth within the quarter. The latter was supported by the increasing popularity of our Ultra BOOST franchise. In total, sports performance sales in the US grew 20% in Q1. At Reebok, we are still on track with streamlining the business and rebuilding brand reputation in North America. Hence, Reebok sales in Q1 declined 13%, but in line with our expectations.

 Although you might expect that the activation of the US consumer comes at a high price, I can tell you that we were actually able to turn around operating performance from a loss of EUR9 million in the previous year to a profit of EUR19 million in the first quarter of 2016. This translates into an operating margin increase of 4.1 percentage points to 2.7%, supported by an increase in gross margin of 1.2 percentage points and of course further operating leverage.

 Let's move to Greater China, where we managed to further accelerate our already strong growth momentum from the previous year. Sales increased a strong 30% during the quarter as a result of double-digit sales growth at adidas and Reebok, where revenues grew 30% and 22% respectively. Our first quarter performance marks the eighth consecutive quarter of double-digit growth in the region, although we were facing quite difficult comparisons from the previous year, where sales were already up 21%.

 It is particularly pleasing that also in Greater China our performance business at brand adidas is witnessing accelerating momentum, thereby showcasing China's growing interest in sport. In the first quarter the brand not only recorded double-digit growth in the training and running categories, but achieved tremendous double-digit growth in the football category, in line with the government's ambitious objectives to develop football in China. Likewise, Reebok as a core fitness brand, profited strongly from the ongoing trend towards a healthier lifestyle in China. The brand was able to grow all major categories at double-digit rates.

 The strong topline momentum further accelerated on the way down to the bottom line. Not only where we able to further improve our gross margin by 1.3 percentage points to 57.2%, we also generated strong leverage in operating expenses, which only increased by 20% in the first quarter. As a result, operating profit in Greater China was up 36% and almost reached the EUR300 million mark, whilst operating margin increased 2.5 percentage points, ending the quarter at an impressive level of 39.1%. This ladies and gentlemen, demonstrate that China's sports performance market is still in its infancy and we believe there is still plenty of room for growth.

 Let's finish our journey through our market segments with a look at Latin America. In total, sales accelerated in the first quarter, growing by 19%. The increase was mainly due to strong double-digit growth at brand adidas, which is successfully witnessing -- sorry, successfully withstanding macroeconomic challenges within the segments and countries. Reebok sales declined during the course of the quarter.

 From a countries' perspective, Argentina, Mexico and Chile remain the major growth drivers of the segment, but Brazil also made a strong recovery and recorded impressive double-digit growth, ahead of the Olympic Games. Therefore, we have every confidence that this market segment will remain a major growth driver throughout 2016 and also in the years to come.

 Gross margin in Latin America has also showed a pleasing trend in the first quarter, increasing 2.8 percentage points to 45.2%. This development was not only driven by more favorable pricing mix, but also by an improved product and channel mix. The segment ended the first quarter with an operating profit of EUR56 million or an operating margin of 14.1%, up 40 basis points versus the prior year.

 Turning away from our markets to our last outstanding operating segment, Other Businesses, where sales increased 6% in the first quarter. This development was driven by strong double-digit revenue growth at other centrally managed businesses. TaylorMade-adidas Golf and Reebok-CCM Hockey recorded a decrease of 1% and 2% respectively. The decline at TaylorMade-adidas Golf was solely related to the Ashworth and Adams brand, as Herbert has already mentioned.

 Gross margin in Other Businesses was down 0.5 percentage points to 36.9%, mainly due to lower product margins at TaylorMade-adidas Golf. Given stable operating expense, the segment recorded operating expense leverage, which ultimately resulted in an operating loss of only EUR1 million, following a loss of EUR5 million in the previous year.

 I turn now to our Group's performance and the major operating P&L items. Let's start with the Group's gross margin, which increased 0.3 percentage points to 49.4%, despite severe currency headwinds, which wiped out almost 400 basis points of gross margin. These headwinds, however, were more than compensated by a significantly more favorable pricing and product mix the Group experienced during the quarter. This, ladies and gentlemen, is a clear sign of the desirability of our brands and underpins our ability to implement price increases, based on our relentless focus on bringing innovative and exciting products to the market.

 By brand, the adidas gross margin remained at a strong level of 47.4%, down 20 basis points, while Reebok's gross margin increased to 38.0%.

 Other operating expenses grew at a distinctly lower rate than Group revenues, up 13% to EUR1.9 billion. This translates into operating expenses as a percent of sales of 40.3%, 1.3 percentage points below the prior year level, mainly as a result of operating leverage on both expenditure for point of sale and marketing investments, as well as operating overhead expenditure. Additionally, different phasing of the Group's expenditure for marketing investments, in particular with regard to the UEFA EURO and The Rio Olympic Games in Q2 and Q3 also supported the positive trend in the first quarter.

 Now adding together the positive effects from higher a gross margin as well as operating leverage, the Group's operating margin increased a strong 1.4 percentage points to 10.3%. In absolute terms, the Group's operating profit increased 35% to EUR490 million.

 Let's continue with a brief look at the P&L, non-operating items. In the first quarter of 2016, we recorded net financial income of EUR6 million, compared to zero in the prior year. This development was due to positive exchange rate effects, as well as a decline in interest expenses. The Group's tax rate returned to a normalized rate of 29.5% in the first quarter of the year. Compared to the previous year, the tax rate decreased 0.4 percentage points. Our quarterly net income from continuing operations increased 38% to EUR350 million. This translates into diluted earnings per share from continuing operations of EUR1.71, up 38% compared to the prior year.

 Moving over to the retail part of our business, which reveals a trend just as pleasing as our overall Group performance, revenues were up 22%. Comparable store sales increased a strong 13% during the first quarter with double-digit growth across all regions, except Russia/CIS. By brand, adidas comp store sales grew 15%, while Reebok comp store sales were up 3%.

 Looking at our online business, e-commerce once again showed a particularly strong development during the quarter, with sales up 47% year-over-year. Gross margin in our retail business increased an impressive 3.3 percentage points to 61.2%, while operating margin showed an even stronger improvement, driven by additional leverage on operating overhead. In the first quarter operating margin was up 5.5 percentage points to 19.6%.

 Moving over to the balance sheet, operating working capital as a percentage of sales decreased 1.7 percentage points to 20.2%. The improvement mainly reflects the strong topline development during the last 12 months, as well as our continued focus on tight working capital management.

 We ended the first quarter of 2016 with net borrowings of EUR809 million, an increase of EUR267 million versus last year, as a result of the utilization of cash for the purchase of fixed assets, the acquisition of Runtastic and the share buyback program. However, put into perspective with our EBITDA development, the ratio remained virtually unchanged, amounting to 0.5 times. Finally, our equity ratio remains at a strong level of 42.3% at the end of the first quarter compared to 46.7% in the prior year.

 So, ladies and gentlemen, to wrap up the financial part for the day and to conclude on our very successful start in 2016, our first quarter achievements clearly show how our relentless focus on the consumer ultimately translates into outstanding financial results. Our accomplishments this year so far are a real testament to the strength of our brand. Our product and marketing initiatives are resonating extremely well with consumers across all regions. We are more focused and close to the consumer than ever before, which gives us every confidence in the Group's momentum going forward.

 And with this maybe now I'll hand back to Herbert who will share with you our outlook for the remainder of the year.



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 Herbert Hainer,  adidas AG - CEO   [5]
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 Thank you, Robin. Okay, ladies and gentlemen, let me now give you a quick overview of what you can expect from us in the second quarter, adding to what we already talked about at the beginning of March when we published our full year results.

 Let me start with football, for sure, one of the most exciting categories in 2016, with two major football events just around the corner. The Euro 2016 and the Copa America. Those events would be perfect platforms for the adidas Brand to activate core assets, key franchisees and tailored messages. And this will lift the engagement with our football consumer as we move through the year.

 Let me start with the Copa America. We have a strong and unique partnership portfolio around South America's most successful federation, including Argentina, Mexico and Colombia. Through football stars such as Leo Messi, Luis Suarez, and James Rodriguez, there is no doubt our brand will enjoy unparalleled visibility during the event, which gives us a huge opportunity not only in South America, but also in North America, where the tournament will be hosted for the first time in history.

 As the official sponsor of the Euro 2016, as well as a partner of nine high caliber teams, including world champion Germany and the reigning champion Spain, we're excitedly looking forward to the start of the tournament on June 10. And I promise you, we are more than prepared for it.

 In addition, during the summer we will also see exciting and innovative product launches in our football category, supported by exclusive presales in our direct-to-consumer channels, as well as through selected e-tailers. This will include a new version of our successful ace and X franchises, inspired by the trophies that players around the world thrive to win in order to write their names into the history books. And we have everything in place to engage in a close manner with the football communities in key cities. Through our various newsrooms, we will ensure we are in a constant dialog with our target audience.

 All of this not only gives us the confidence that adidas will once again be the clear winner of this sports summer, it also reinforces our bullish view that the current strong momentum in football will last way beyond the second quarter.

 Let me now turn to running, where our rapid growth path will remain highly visible during the second quarter, as our focus on key running footwear franchises continues to gain traction. We will continuously build on our existing key franchises, Ultra Boost and PureBOOST, with new silhouettes coming up soon.

 Ultra Boost is and will continue to be the hottest running shoe, not only, but also in the all-important US market. Here a couple of weeks ago, after the launch of the new colorways, we sold over 5,000 pairs within one hour on adidas.com. And the next edition of Ultra Boost is almost there. In June, we will be launching Ultra Boost Uncaged, the next edition of this successful franchise family. It will help our running business to further strengthen our positioning in energy running, as it will provide our consumers the next level of lightweight, smooth and energetic running.

 Talking about the US running market, let me remind you that the commercially relevant price point is actually at much lower price tag, and that this part of the running market still represents a huge opportunity for our brands. To further hit the sweet spot of the running market, our Bounce franchise plays a central role and we'll continue to focus on Bounce to further increase its high-profile and make it the next success story.

 In this context, we are very much looking forward to the next [step up], AlphaBounce. Hitting the market at price points of around $100, the AlphaBounce has already received phenomenal feedback from our most important retailers in North America. As a result, we are confident that we can drive considerable volumes in the months to come.

 Let me move over to Originals, where we build upon the outstanding hype and the momentum we have created around the [brand] over the last couple of months. As we have told you already several times, our focus has been and will continue to be on creating constant newness in our existing key footwear franchises, be it Superstar, Stan Smith, ZX Flux, Tubular and NMD, and in carefully managing their lifecycle. You can definitely expect new and exciting trend and color updates within all of our five footwear franchisees in Q2, including Stan Smith's Roland Garros [Pack], the ZX Flux Racer Asym branded and Tubular Nova Emerald. At the same time, we will further broaden the overall horizon of franchisees, just like our original team has done in a fantastic way within NMD. And all of this will of course be supported by exciting product launches, resulting from key collaborations with Kanye West, (inaudible) and White Mountaineering. In addition, our Future Campaign, which was launched earlier this year, will see new chapters coming up in Q2, thereby continuing the dialog with influential [streetwear hounds].

 Last but certainly not least, we will create additional hype with adidas Originals first full-length skateboarding film called Away Days. Filmed over the course of three years and featuring some of the biggest talent in skateboarding, the film is the first of its kind and will enjoy a world premier tour through our key cities starting on May 29. All in all, ladies and gentlemen, there is no doubt adidas Originals is as hot as never before and we are all well positioned and prepared to elevate our lifestyle business to new heights in 2016.

 This is also true for adidas neo, where the second quarter has started with a real blockbuster launch when neo introduced its newest footwear technology, Cloudfoam, a lifestyle footwear concept. This innovative development features a soft lightweight cushioning, thereby providing ultimate support and immediate comfort for the consumer. The launch of Cloudfoam was supported by a big social media led campaign. Fronted by YouTube sensations Amanda Steele and Marcus Butler, the campaign encourages consumers to step in, [to do the Jinx and laugh the most, posting pictures of [these things], they are most passionate about an instagram using Cloudfoam hash tag. First stellar data from our own retail stores is extremely promising and confirms our bullish view on neo's newest footwear concept.

 To conclude, at Reebok, we will continue to [enhance the] brand's fitness throughout 2016, underlining Reebok's positioning as the global fitness brand. And in this context, last week, Reebok successfully launched its new and striking global fitness campaign called 25,915 days, reminding people that they have on average 25,915 days in life to push their limits, overcome every obstacle and to honor the body they have been given. The campaign is a continuation of Reebok's award winning Be More Human marketing platform and is unconditionally targeted at the fit-gen consumer.

 2016 will also see an ongoing strong focus on local brands with events and activations, such as the Reebok CrossFit Games in the US taking place throughout May and July. Around the event, Reebok will officially launch an updated version of its well proven CrossFit Nano Training Shoe, which makes us confident that Reebok's important training business will experience ongoing robust demand in 2016.

 And in Classics, the strong momentum from the first quarter is set to continue. At the beginning of Q2, Reebok unveiled the Question Mid Misunderstood, the latest footwear release in the 20th anniversary of the Reebok Question Mid celebration, honoring the great Allen Iverson. Misunderstood takes inspiration from newspaper headlines and has notable quotes about Allen, both positive and negative in a black and white coloring. Available at $130 at select retailers, the shoes will for sure create additional hype around Reebok's strong lifestyle business.

 So as you can see, ladies and gentlemen, Q2 will be another great quarter for the adidas Group, fueled by a number of exciting product launches, inspiring activation campaigns and global sports events, we have every confidence that the strong momentum the Group witnessed during the first quarter will continue over the next month.

 In light of the strong brand momentum at both adidas and Reebok and to give credit to our strong first quarter performance, we have increased our top and bottom-line outlook for 2016. We now expect sales to increase at the rate of around 15%, driven by double-digit growth in all markets, except Russia/CIS, where we still expect revenues to be around the prior year level. Following the improvement in our Group's gross margin in Q1, which is a direct reflection of the strength of our brands across regions and categories, we now expect to compensate almost all of the severe headwinds which we will be facing this year from negative currency effects, as well as further labor cost increases in our sourcing countries already in the gross margin level. As a result, we are now confident we'll be able to limit the gross margins decline to a maximum of 50 basis points compared to the prior year level of 48.3%. This together with leverage on our operating expense will lead to an operating margin improvement of up to 50 basis points, to a level between 6.6% and 7%.

 As a result of both an increased topline outlook as well as an improved expectation on our operating margin, we now project net income from continuing operations to increase at the rate between 15% and 18% compared to the prior year level of EUR720 million.

 With that ladies and gentlemen, Robin and I are now happy to take all your questions. Thanks very much for listening.



==============================
Questions and Answers
------------------------------
Operator   [1]
------------------------------


 (Operator Instructions) John Guy, MainFirst.



------------------------------
 John Guy,  MainFirst - Analyst   [2]
------------------------------


 Three questions please. If I could start with the Originals business, you've had a very strong start indeed. I think Originals was roughly EUR3.5 billion turnover business for you in 2015. I appreciate that the comp was reasonably tough at 31%, although on a relative basis, the comp gets tougher going into the fourth quarter by about 15%. What confidence do you have that Tubular and ZX Flux will be able to generate same type of consumer reaction that you've had with Stan Smith and Superstar and MMD? That's my first question.

 My second question is around average trade working capital. There is a good improvement there, around 170 basis points. The inventory was up to 25% gross on a constant currency basis, again sales up 22%. Are you happy with the inventory position across your key markets? Is it completely clean in terms of how you see it? It looks like there was an additional build in the North American market. And can you give us some indication as to how much of the sales reflect sell-in over sell-out trends?

 And finally, my third question is just on the Japanese market. There was a pretty strong spike there. Is that really reflective of the increased football Chinese consumers that we are seeing in that market or is there something else that we should be reading into the Japanese growth that we're seeing? Many thanks.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [3]
------------------------------


 Okay John, let me answer is the first question on the Originals business. As we have told you already since quite some time, one of the key targets within our new plan, creating the new is to build franchises. And in Originals we have five named, as you said, Stan Smith, Tubular, ZX Flux, NMD and Superstar. And I think we have learned quite a lot how to bring this product to market. And as we have seen NMD was by far the best success, which we ever had with 400,000 pairs sold on one day. Of course this will not happen every day, but we are absolutely convinced that with Tubular we have the next strong franchise which we are building.

 So, yes, obviously, with a 30%, 40% increase, it gets tougher to comp quarter by quarter, but we are absolutely confident that we'll manage our Originals business and the demand of this franchise is in the right way, as you have seen in the past when we took Superstar, [asked them to] miss from the market for a certain period of time.

 And your third question on the Japanese market, there was a certain shift from the fourth quarter into the first quarter and also in the first quarter in 2015 we had a change of our trade term policy, which therefore led to an underdeveloped first quarter in 2015. This all helped by growing our first quarter 2016 by 44%. But I also don't want to hide that our business is very strong in Japan, especially when I look to our own retail stores, we see very good progress.



------------------------------
 John Guy,  MainFirst - Analyst   [4]
------------------------------
 So on that, do you have any idea in terms of how much of that is local consumption or driven by tourism in your Japanese market?



------------------------------
 Herbert Hainer,  adidas AG - CEO   [5]
------------------------------
 No, unfortunately, John, I don't have any idea.



------------------------------
 John Guy,  MainFirst - Analyst   [6]
------------------------------
 Okay. Thanks for that.



------------------------------
 Robin Stalker,  adidas AG - CFO   [7]
------------------------------
 John, your second question about inventories, looking at this in detail, the inventories are great, clean, in fact, overall the aging has slightly improved again. The largest growth is obviously in major markets such as Western Europe and pleasing also to see growth in the others, but this is reflecting the sell-through also, and the demand is not an issue.





------------------------------
Operator   [8]
------------------------------
 Fred Speirs, UBS.



------------------------------
 Fred Speirs,  UBS - Analyst   [9]
------------------------------
 Three questions please. First on the Q1 sales growth component of the adidas brand. You're taking this good price mix in several regions, which seems to have been well received by the consumer, judging by your segmental gross margins. So I wondered, could you talk a bit about the price mix contribution to sales growth in Q1? Could you also perhaps talk about your pricing plans for the rest of the year in Western Europe?

 My second question was also on momentum within adidas. With Q1 significantly ahead of your initial internal expectations, and if we look ahead, do you see any reason why the current sales momentum could not be sustained over the next six months, particularly if you think about your current order book?

 Last question on the US, we're seeing excellent sell-out figures for adidas in the SportScan data. Just wondered if you could confirm whether you are also starting to see a pickup in brand perceptions relative to your key competitors in that market when you look at net promoter scores? Thank you.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [10]
------------------------------
 So let me start by starting with the last one. The brand perception from the consumer in US, absolutely, we see an increase, as I said during my speech that we have NPS as one of our KPIs for all the regions and we definitely see an uptick there. We see it in market share and obviously when you talk also to the key retailers, you will hear the same.

 Pricing in Western Europe, yes, definitely we were able to raise our prices, because of the new products, which we brought into the market. I spoke about the football footwear product, ACE16+, or on the other hand, in the running silhouettes with our BOOST technology. And this definitely gives us a leverage that we can have better prices in the market. But as I also said during my speech, I definitely do see a lot of potential in running, especially around the $100 price barrier in the US, which we obviously will go after that as well. I don't have any doubt, because as you rightly said that we know already our sales for the next six months. I don't have any doubt at all that we will have a strong second, third, and fourth quarter and that 2016 will be a record year for us.

 And the first question was about adidas price mix and contribution, I look to Robin.



------------------------------
 Robin Stalker,  adidas AG - CFO   [11]
------------------------------
 Okay, thanks Herbert. I think here the point, Fred, is yes, as Herbert has said, not just for Western Europe, but for the other markets also we've been successful increasing our prices. I think also a factor in terms of the performance here is to note that we are getting more sales through at full price, and this is a positive thing for us. You would have recalled from our strategic plan that we want to increase our full price sell-through and it's early days, but this is also effective, it's helping that mix and the gross margin.





------------------------------
Operator   [12]
------------------------------
 Adrian Rott, Deutsche Bank.



------------------------------
 Adrian Rott,  Deutsche Bank - Analyst   [13]
------------------------------
 Three questions please. Number one, just going back to Originals real quick, if you look at your future order book, can you tell us what's -- just roughly the volume split between your Classic silhouettes, i. e., Superstar and Stan Smith, as opposed to the younger franchises, i.e. NMD, Flux and Tubular? And on NMD specifically, what's the rough timeline of scaling up this franchise?

 Then secondly, you've mentioned in the slide pack that footwear and training was up double-digits. Can you give me a hint which footwear franchises belong to training? I thought it's historically been an apparel category. And then just on retail like-for-likes, which for adidas were plus 15%. Can you sort of give some color on how that splits up into HomeCourts, Neighborhood Stores and the factory outlets and maybe comment a little bit on what's driving people into stores/ In your view, is it event related, or has traffic been picking up around releases from Originals and running, for example, just to understand the sort of like-for-like drivers? Thank you.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [14]
------------------------------
 In terms of Originals, I think I cannot answer your question exactly on percentages, but I can give you a picture. On Superstar and Stan Smith, we have a consistent common business during the 12-year period, because this we see it by the volumes which we give to the market. Whereas on the new silhouettes like NMD, as I said before, we had 400,000 pairs sold on one day. Obviously, here you have a peak when you launch and then we drive by limited volumes, or controlled volumes, let's put it that way, to make it a sustainable franchise. So I think you have to two different pictures. One, which is a consistent one, which are in the market already since 20 years and then the new ones, Tubular, NMD, which coming in, having a big boost when we launch it and then we drive it to a consistent business going forward in the next years.

 In terms of training, I think it's fair to say the training is still mainly apparel driven. Footwear is only a small part, because footwear is mainly divided into running and for basketball etcetera. And we only have a few footwear silhouettes in training. So it's mainly the apparel business. So, therefore the growth is comparable to that what we had in the past.





------------------------------
 Robin Stalker,  adidas AG - CFO   [15]
------------------------------
 And in terms of the growth at our own retail shops of 15%, that's 24% in the concept stores, 14% in factory outlets and a decline of 7% in the [concession courts].





------------------------------
Operator   [16]
------------------------------
 Antoine Belge, HSBC.





------------------------------
 Antoine Belge,  HSBC - Analyst   [17]
------------------------------
 The first question relates to the disposal as part of your Golf business. I like to check a few figures with you. I think last year the overall Golf business was around EUR900 million. So, is it fair to assume that to settle that around EUR600 million will go and what was actually the amount of losses attributable to that part that will be disposed? And also what type of -- are your expectations or requirement in terms of how much you want from that business and then what do you intend to do with the cash you would get?

 Second question on the US business. Obviously, third quarter of strong growth and actually accelerating. I think you already mentioned a few of the reasons behind that. But what is causing the acceleration sequentially?

 And finally with regards to the EURO 2016 Football Championship. Is it fair to say that Q1 was actually not a big quarter in terms of products after maybe I think Q4 saw the launch of the balls and then the jerseys and then it's probably going to be Q2 and Q3, and actually do you expect more in Q2 or fairly even between Q2 and Q3? Thank you.



------------------------------
 Robin Stalker,  adidas AG - CFO   [18]
------------------------------
 Okay, Antoine, starting with TaylorMade, yes, your estimate is pretty correct, around about EUR900 million was the sales in that segment last year, and about two-thirds relates to the hardgood business, TaylorMade and then the business of Adams and Ashworth. And we had a loss last year about EUR100 million in that segment, which we described. What we want for it is the best price we can get for it. And we've just taken the strategic decision, so I can't give you any other comments on what's the sort of prices at this stage. We'll enter into negotiations and we'll keep you informed of that.

 We have the goal to continue to invest in our business and so the proceeds of the sale will in the first instance be used to continue to invest in our business. And we have a good shareholder return program ongoing, but we don't have any acquisitions or anything of that planned at this stage.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [19]
------------------------------
 To your second question, on the one in the US, I think there is not only one specific thing which is helping us to get this momentum in US. It's a variety of initiatives, which we have taken, starting one and a half years ago with changing the management, with putting a new strategy in place, then investing more in the market. I mean you have heard when we talked about during the [last year], with Aaron Rodgers, James Harden, then obviously Kanye West has helped a lot; Pharrell Williams. But also more selective distribution strategy that will bring the right product to the right distribution channels, which obviously helps sell-through and it helps more full price sell through, as Robin has alluded, which then gives us a better margin. And I think this all together is really keeping our momentum up.

 And in addition to that, I think you have read it, we have definitely been the number one sneaker brand in the US in 2015. I think we had five or six models within the first 10 sneakers. And I don't see any stop for that. Once again, when you see what happens in the US and how we get more and more shelf space, how we put more and more shop-in-shops, be it on the sporting goods side or on the mall base, and as I said during the speech, it's not only the Originals business, so don't get it wrong. We are also very proud about our Sport Performance business in the US, especially on the US sports categories. So I must say I'm quite pleased. Still a long way to go and still a huge potential for us to grow our business here. But the last three quarters and the next three quarters will be definitely fantastic.

 In terms of Euro Championship, you're completely right, Q1 is a rather smaller quarter, because we introduced ball in Q4 2015 and the jerseys of all the competing teams of us. And then in Q2, obviously, as closer we get to the World Cup, the more the jersey sales go up again. And then Q3, depends a little bit on the performance of our teams. If they go to the final, then -- which is in July, which is Q3, then obviously we will fill the pipeline again. But I must say I am very optimistic for the Euro, because we have nine teams as you know, more than anybody else. We have the ball, we have strong teams as Germany, Spain and not to forget Benelux, which might be right for a surprise. So this is quite an exciting time. And then Copa America is directly coming after that.





------------------------------
Operator   [20]
------------------------------
 Omar Saad, Evercore ISI.



------------------------------
 Omar Saad,  Evercore ISI - Analyst   [21]
------------------------------
 Congratulations on another very nice quarter. I have a couple of questions. My first question, I wanted to ask if you could elaborate a little bit on -- you clearly have some really strong products with very strong demand, very hot in the marketplace. I wondered if you could give maybe a little bit more detail and help us understand how the Company is managing the demand and the distribution and what's different today versus maybe how the Company would have managed some of these really strong areas in the past? What's changed and how has the strategy evolved? And then I have one more follow-up too.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [22]
------------------------------


 Yes. Omar, as we have said already, one and a half year ago through our new strategy, creating the new, we definitely will put the consumer in front of everything we do and we said we definitely believe that we get much more insight into the market and therefore can steer our product flow better into the distribution channels where this consumer type is shopping, which I just said as an example in the US.

 We don't give Originals not to anybody anymore. As you might have heard and seen that one or the other retailer is complaining. But this is what we do believe is the right thing. We don't give every performance -- high performance product to every retailer anymore, which also might cause one or the other complain, but we definitely do believe this is right for the business and the success is definitely supporting our strategic decisions.

 And then obviously with our market research and the consumer insights, we definitely know much more where the consumer is going, what they're buying and also therefore, controlling the volumes and the amount which we're giving into the market. So far we are quite pleased with what we see in terms of A, sell-through data in the market, therefore, higher full price, obviously if the sell through is better, request from the consumers and I think this has definitely proved positive that what we are doing to steer the momentum in the market is the right one.



------------------------------
 Omar Saad,  Evercore ISI - Analyst   [23]
------------------------------


 And then, Herbert, if I could also ask a question on the Performance side, it's really intriguing to see -- there seems to be an inflection in the Performance business. I know it's not a growth number, I think 22% this quarter constant currency, it is not a number that you guys publish every quarter. But maybe help us understand what's changed there too in that side of the business. Is it the product platforms, boost in other, is it marketing, is it the move to more of a sport specific category approach? Help us understand what's really driving, in your opinion, that inflection.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [24]
------------------------------


 Omar, obviously we would be happy to report every quarter 22% increase, but as you rightly said this might not always be possible. First and foremost, I think we have gone back to where we always have been strong, in bringing innovative products to market. And I think I have said it during 2015, it was definitely our mistake that for the World Cup in 2014, we didn't have a new innovative football product. This was clearly a miss and I feel guilty for that, but it is what it is. But this is our strength and we took a bold move with the new football footwear category, where we went from four silos back to two silos, but we definitely -- this was an outcome of the market research which we did with a lot of young kids playing in the streets. They clearly told us you have only two type of players. You have the one who wants to control the game and you have the other one who is trying to create chaos, like Thomas Muller, for example. Unfortunately didn't create chaos yesterday. And this is the same in running. I think our running shoes, with all respect, are the best running shoes which are in the market. And we have shown sustainability and consequence in BOOST, because you might remember, when we first launched BOOST, a lot of comment here, why double sole, and it's maybe too soft and blah, blah, blah. But we were convinced about that, that this will be the standard in the future, you will see in the running, cushioning and energy policy.

 So I think these are the main ingredients that we went back to where our strength is, bringing innovative products to the market, launch it in an exciting way, as we did, and then distributed through the right channels that we get to the consumer who is coming to this distribution channel. And this will continue and therefore I'm absolutely convinced that the positive momentum, especially for our innovative products on a few of the -- or on more or less all the Performance categories will continue. And I'm convinced that in Basketball, you will see in 6 to 12 months, you will see the same picture.





------------------------------
Operator   [25]
------------------------------
 Andreas Inderst, Macquarie.



------------------------------
 Andreas Inderst,  Macquarie - Analyst   [26]
------------------------------
 Thank you and good quarter. I have a couple of questions. The first one on NMD, in terms of potential, what's actually your sales level you have for the Superstar and the Stan Smith, just to evaluate the NMD potential you might have in the medium term? That's the first question.

 A second question on speed to market and full price sales. Robin, you mentioned this was one contributor for the gross margin improvement. Where are you actually today versus your target to have 50% of sales in terms of speed, 45 days, in terms of deliveries? That's my second question.

 And my third question on the US market, we have seen good operational leverage in the first quarter. Is that run rate we can assume also for the next few quarters, given your bullish comments on the topline? Thank you.





------------------------------
 Herbert Hainer,  adidas AG - CEO   [27]
------------------------------
 On NMD, obviously, we don't give you all the precise figures, because I'm sure our competitors are listening to the call as well. But let me just give you a hint. We have sold 15 million pairs of Superstar last year, so this should give you a kind of a potential what we are looking for.





------------------------------
 Robin Stalker,  adidas AG - CFO   [28]
------------------------------
 And for the last two questions Andreas, (inaudible) very early days with full price sell-through, our announcement about our creating new plan goes through to 2020, there's a lot of work to be done on those key initiatives, which is helping us get closer to those goals, but we're still very much at the early stages. 2016 is the first year of that strategic business plan. You'll hear more about when we talk about those particular initiatives when we do some sort of tutorial later in the year.

 Second part for me was about operational leverage. Yes, very definitely. I mean we were talking about this last year, when I was talking about the massive headwinds coming from the sourcing this year, because of the devaluation of the euro against the dollar and we were looking for leverage in any case for operating overheads, particularly in 2016. I can confirm we are definitely going to be getting that. I think what you're seeing in the first quarter is not just our operating overhead leverage. It's a smaller part. A larger part of the [amount] was because of the marketing versus budget expenditure. And this is to savings and also timing related phasing, because of the way we spend our money, obviously recognizing that we have certain events this year. But I expect, particularly with the topline growth that we are now expecting that yes, we had a good operating leverage and that is one of the reasons why we also felt that we could increase our guidance for bottom line development for us for 2016.





------------------------------
Operator   [29]
------------------------------
 Jamie Bajwa, Goldman Sachs.



------------------------------
 Jamie Bajwa,  Goldman Sachs - Analyst   [30]
------------------------------
 Just a couple of quick questions from me. You gave a bit of detail in terms of your retail progression in Western Europe and Latin America. I wish if you could help us understand how it is trending elsewhere in the world, particularly in areas like the US relative to wholesale?

 And then the second question also on your e-commerce business. You mentioned that the direct e-commerce business has grown 47%. Are you seeing similar sorts of rate of growth at third parties as well? That's it from me.



------------------------------
 Robin Stalker,  adidas AG - CFO   [31]
------------------------------


 Retailers, obviously, different size in the various markets that we have, but we have a strong growth in all of our regions in retail. I'm just trying to find the particular figures, 17%, I think is the figure in North America. In terms of the -- what was the second question, sorry.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [32]
------------------------------


 The second question was on e-commerce and obviously we don't have all the members of all our retail partners on e-commerce. But my personal assumption is that our product and our site obviously are growing much faster, because we put a lot of content around the products, which we put on to our Ecom and we follow it diligently day-by-day, minute-by-minute. Of course, be it the original product or the key innovation product on the footwear side for football or for running are doing very well with our wholesale partners as well. But as I said, we definitely have a stronger run with our own e-commerce site.





------------------------------
Operator   [33]
------------------------------


 Jurgen Kolb, Kepler Cheuvreux.



------------------------------
 Jurgen Kolb,  Kepler Cheuvreux - Analyst   [34]
------------------------------


 Three questions from my side. First of all, regarding the closures of the 16 new stores, over what period you are planning to close them and should we expect any specific closure costs associated here, or is it just the ending of lease contracts, so that you can close them down? First question.

 Second one, on the US again, I was wondering if you could maybe provide us with the sales distribution in the individual sales channels or retail channels, broken down into sporting goods or mall-based retailers. What is the sales split in the US market for Brand adidas at this point in time?

 And lastly, also on the US market, the new Brooklyn design office that is, as far as I understand, just wanted to double check, already fully operational, has it already impacted some of the collections or is that something which is still to come for spring, for fall, winter maybe this year? Thanks.





------------------------------
 Herbert Hainer,  adidas AG - CEO   [35]
------------------------------
 Hey Jurgen, on the first question, we will close all of the 16 neo stores until the end of the year and you don't need to expect any material one-time cost. This is all reflected in our forecast already.

 On the US sales distribution, yes, of course, we have the numbers, got the percentage of the individual distribution channels, but this we don't disclose. And secondly, I am certainly sorry, the Brooklyn office is officially opened or will be officially opened in September, but the designers are already onboard and of course are working already. The design which is successful so far is still done by ourselves, so you can expect more from the new designers in New York.



------------------------------
Operator   [36]
------------------------------
 Chiara Battistini, JP Morgan.



------------------------------
 Chiara Battistini,  JP Morgan - Analyst   [37]
------------------------------
 I have three, if I may. First of all on pricing, some of your peers, or your competitors have commented on a level of price increases of -- or ASP of a high-single digit for the (inaudible) also comfortable with? And on pricing also, Puma last week on their conference call mentioned that they think that some of the retailers are not fully passing through the price increases implemented by the brand. So, what are you seeing on that front, please?

 Then on football, please, in the last event years you provided a target for football sales, if I'm not mistaken, couple of years ago it was around EUR2 billion, say, from football in 2014. What kind of levels are you expecting from this category this year? And just a clarification on the contribution from the UEFA in Q1, because you mentioned the football apparel was up double-digit in quarter one, thanks to good demand of the kits for the teams. So does that include also the replica shirts for the European teams or no?

 And finally, on Originals, just a very quick question on -- can I just confirm that it's roughly now -- just would be more than 20% of total sales of Group and would you be able to give also contribution on profits, please? Thank you.



------------------------------
 Robin Stalker,  adidas AG - CFO   [38]
------------------------------
 I think, although we don't have any specifics on the actual price increases, it's also very difficult to give this the payment out in the market and obviously on the particular product, we don't do an across-the-board one figure price increase. We look at it as intelligently we can and what kind of market they take, what are the particular consumers, what is the particular product we are looking at and so that will vary. But a high-single digit, which is probably fair.

 In terms of whether dealers are passing it on, I have no comment. I do not have any information on that. Whatever competitors have said, you may have to ask them for more detail.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [39]
------------------------------
 But in addition to that Robin, definitely Chiara, speaks once again for the demand of and the desirability of your brand. If your brand is hot then there is no reason to reduce prices or not giving price increases to the consumer. So, therefore, as Robin said, we haven't seen anything that people are not sticking to our recommended retail prices.

 In terms of football, I mean what you said the increase in the replica kits is mainly driven by Manchester United and Juventus, Torin, which we brought new to our roster. But as we said already before and we definitely expect a boost in the Q2, as the Champions League is coming to a final, where our teams Bayern Munich and Real Madrid are playing until the semifinal and now the European Championship starts.

 And what was the fourth question?



------------------------------
 Robin Stalker,  adidas AG - CFO   [40]
------------------------------
 Share of Originals.



------------------------------
 Herbert Hainer,  adidas AG - CEO   [41]
------------------------------
 The share of Originals is still under 30%. Obviously, we have nice gross, but as you have seen, we also grow very well on the Performance side and most probably during the second quarter this will be even higher. And just to give you another example, in China in the first quarter, the growth of Performance and Originals was at the same level. As, once again, we said before, we are managing very carefully our growth, but don't be concerned about that one, because we have a clear sharp focus on that, because we definitely want to have a long-term Originals business, and not just a few quarters.





------------------------------
 Robin Stalker,  adidas AG - CFO   [42]
------------------------------
 And finally, Chiara, we do not break down profitability by the segments.



------------------------------
 Chiara Battistini,  JP Morgan - Analyst   [43]
------------------------------
 And just on football, do you have a target in terms of sales, as you had in previous event years, or no?





------------------------------
 Herbert Hainer,  adidas AG - CEO   [44]
------------------------------
 Of course, we have one. So have in mind that in 2015, we did a little bit over EUR2.2 billion, and of course we will break a new record in 2016, but we haven't given out the number yet.





------------------------------
Operator   [45]
------------------------------
 That will conclude today's Q&A session. I will now hand the call back to Sebastian Steffen for any concluding remarks. Thank you.



------------------------------
 Sebastian Steffen,  adidas AG - VP, IR   [46]
------------------------------
 Thank you very much, Daniel. And thank you very much ladies and gentlemen. Thank you very much, Herbert and Robin. This actually completes our conference call today. I know that there were a couple of more questions out there. So I can only encourage you that of course the IR team is available and if you have any questions on the details of this call or any other topic, please don't hesitate to reach out us.

 Our next reporting date for our second quarter results will be at the beginning of August, August 4. However, at this stage, I would like to invite you and Robin had already mentioned that to our third IR tutorial workshop, which will take place here in Herzo on July, 18. And during this half-day workshop, we will once again provide you more insight into our new strategic business plan, creating the new. This time we will take a deeper look into the three strategic choices that we had introduced last year, in March, speed, cities and open source and we would of course be delighted if you could join us here on site. Of course, the event will also be webcast on our Group website. There will of course be a formal invitation that will go out over the next couple of weeks, but it would be great if you could already block this date in your calendar.

 So, as I said, if you have any questions, please don't hesitate to reach out to the IR team. With that I would like to thank you for your participation. Wish you a very good day and look forward to talking to you soon. Bye-bye.



------------------------------
Operator   [47]
------------------------------
 That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.






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