Adidas Ag · XETR:ADS
Adidas — Q3 2022 Earnings Presentation
57 slides from Adidas's earnings presentation, Nov 9, 2022
Slide 1: Q3 2022 Results
03 2022 RESULTS NOVEMBER 09, 2022 adidas
Slide 2: Forward-looking statements disclaimer
This presentation and other statements made in connection herewith may contain forward-looking statements with respect to Management’s plans and expectations for the future development of adidas. Such forward-looking statements are subject to risks and uncertainties, which are beyond the control of
Slide 3: Agenda
AGENDA & WR = adidas BUSINESS UPDATE FINANCIAL UPDATE OPERATIONAL UPDATE OUTLOOK
Slide 4: Business Update
Slide 5: Consumer Highlights
Slide 6: Impossible Is Nothing
IMPOSSIBLE ISNOTHING .0\ adidas
Slide 7: Revenues up 12% excluding Greater China
Revenues up 12% excluding Greater China Strong performance in Europe and Emerging Markets Strong double-digit increase in both regions Own-retail revenues up 7% reflecting robust sell-out Driven by Football (+36%) and Running (+24%) Net income down due to Russia/CIS exit, customs risks, legal disput
Slide 8: Q3 profitability highlights
Up 11% in Euro terms to € 6,408 million Price increases overcompensated by increased supply chain costs, higher discounting and unfavorable market mix Reflecting operating margin of 8.8% Reflecting significant adverse impact from several one-offs
Slide 9: Own-retail revenues up 7%
Own-retail revenues up 7% Reflecting 10% growth in DTC Driven by strong double-digit DTC growth in both Europe and Emerging Markets
Slide 10: Consumer experience across touchpoints
Supported by improving consumer experience across all touchpoints Reflecting successful sell-through of product Additional go-lives excite our most valuable consumers
Slide 11: Jersey launches ahead of FIFA World Cup
Jersey launches fueling consumer excitement ahead of FIFA World Cup Latest iterations of successful franchises resonating extremely well Reflecting strong momentum of Forum franchise
Slide 12: Financial Update
Slide 13: Operating margin by market
Operating margin: 19.7% Operating margin: 18.8% (-3.9pp vs. 2021) Operating margin: 22.7% (-1.5pp vs. 2021) (-3.8pp vs. 2021) Operating margin: 23.2% (+5.7pp vs. 2021) Operating margin: 26.2% (+6.0pp vs. 2021)
Slide 14: Sales growth excluding Greater China
+13% sales growth in markets excl. Greater China QTD August September
Slide 15: Q3 income statement
Net Sales 6,408 5,752 +11% Gross Margin 49.1% 50.1% -1.0pp Around 50% Other Operating Expenses 2,676 2,237 +20% (in % of sales) 41.8% 38.9% +2.9pp Marketing and Point-of-Sale Expenses 691 674 +2% (in % of sales) 10.8% 11.7% -0.9pp Operating Overhead Expenses 1,985 1,562 +27% (in % of sales) 31.0% 27
Slide 16: Gross margin development
50.1% (-1.7pp) 49.1% (-1.0pp) Strong increase in supply chain costs Strong increase in supply chain costs Significant sales decline in China and tough Significant sales decline in China amid prior year e-com comps continued focus on DTC Slightly positive FX Favorable FX Only selective price increase
Slide 17: Gross margin bridge
FX turning significantly ~2.5pp negative ~0.5pp ~2.5pp ~4pp Increased promotional ~4pp activity ~0.5pp 49.7% Significantly lower 51.2% ~3pp Yeezy business 49.7% ~2pp ~2pp ~40.0% Gross margin Gross margin Gross margin Gross margin Pricing FX Discounts Sourcing Mix FX Discounts Yeezy Other Mix Q4 2022
Slide 18: Several one-off costs impacting H2 2022
SEVERAL ONE-OFF COSTS IMPACTING THE COMPANY'S BOTTOM- LINE IN H2 2022 WIND-DOWN OF BUSINESS ACCELERATED CASH HIGHER PROVISIONS FOR — RECENTLY SETTLED BUSINESS IMPROVEMENT OPERATIONS IN RUSSIA POOLING IN HIGH CUSTOMS-RELATED RISKS LEGAL DISPUTE PROGRAM TO SAFEGUARD INFLATIONARY COUNTRIES PROFITABILIT
Slide 19: One-off cost breakdown
Russia ~15% ~10% ~10% Customs risks ~45% ~20% Cash pooling ~55% ~15% Legal dispute ~10% ~20% Business improvement program Operating overheads ~10% ~5% ~15% Cost of sales ~20% Financial expenses ~55% ~55% ~25% Tax ~15%
Slide 20: Inventory and working capital trend
Due to slowing consumer demand in major Western markets in September Reflecting strong net sales growth in Latin America and Emerging Markets Driven by significantly higher sourcing volume and increased product costs Q3/21 Q4/21 Q1/22 Q2/22 Q3/22
Slide 21: Inventory growth drivers
+43% +21% Around 60% €1.1bn of reported inventory growth ~€0.4bn ~€0.4bn ~€0.5bn €6.3bn ~€0.3bn €5.2bn €3.7bn Inventory Vietnam Lead FX Cost Inventory Underlying Inventory end of lockdowns times increases end of increase end of Q3 2021 Q3 2022 Q3 2022 - Reported - - Special effects - - Reported -
Slide 22: Inventory normalization
INVENTORY NORMALIZATION EXPECTED INVENTORY DEVELOPMENT AT QUARTER END FOCUSING ON NORTH AMERICA AND CORE EUROPE Ae) €6.3bn oo Y CLEARING EXCESS INVENTORY a AGGRESSIVELY 2022 Yeezy if SIGNIFICANTLY DECREASING OVERALL BUYING VOLUME dy r= LOWERING PLANNED PURCHASES =~ FORFACTORY OUTLETS JQ TACTICALLY R
Slide 23: Operational Update
OPERATIO UPDATE
Slide 24: Leveraging momentum
LEVERAGING Members Week eas) PERFORMANCE MARKET — PHYSICAL DIGITAL CATEGORIES MOMENTUM EXPERIENCE EXPERIENCE DOUBLING DOWN ON adidas u
Slide 25: Performance categories
1 PERFORMANCE CATEGORIES YTD SEPTEMBER NET SALES GROWTH RUNNING —_ ——_| ussports NEW PRODUCT INTRODUCTIONS AHEAD OF MAJOR SPORTS EVENTS AND SCALING OF SUCCESSFUL FRANCHISES adidas ‘CURRENCY: NEUTRAL NET SALES GROWTH, %
Slide 26: Market momentum
‘2 MARKET MOMENTUM GREATER CHINA ——e _ | rae fr et Fe NORTHAMERICA fn | -* MARKETS REPRESENTING |). THA!) 85% OF OUR BUSINESS G20 \/ING 120 0.)),
Slide 27: Copa Predator
COPA PREDATOR un ai
Slide 28: Members Week scratch & win
A\Y Members Week east) SCRATCH & WIN
Slide 29: Addressing challenges
ADDRESSING CHALLENGES 1 2 GREATER CHINA YEEZY EXCESS INVENTORY HEADWINDS TO OVERCOME MARKET- AND COMPANY-SPECIFIC CHALLENGES
Slide 30: Challenges in Greater China and Yeezy
▪ Elevated inventory levels given slower-than-expected recovery ▪ Strict zero covid-19 policy remains in place with comprehensive from market-specific challenges preventive measures across the marketplace ▪ High dependence on lifestyle influencers historically and ▪ Daily new covid-19 cases surpasse
Slide 31: Actions to address challenges
▪ Reducing orders for upcoming seasons and executing inventory takebacks to return to healthy inventory level ▪ Leveraging factory outlets and upcoming online mega moments to accelerate speed of inventory clearance ▪ Connecting with the Chinese consumer differently by increasing the leverage of our
Slide 32: Yeezy termination impact
Immediately stopped production of Yeezy branded products and all payments to Ye and his companies Up to € 250 million net income impact in 2022 given high seasonality of Yeezy business Related to existing product as well as both previous and new colorways
Slide 33: Yeezy shortfall vs. 2022 plan
Revenue shortfall of around € 500 million vs. latest full year 2022 plan Net income shortfall of up to € 250 million vs. latest full year 2022 plan Full year business overstated due to high seasonality of Yeezy business geared toward Q4 Overall profitability overstated as Yeezy P&L only includes dir
Slide 34: Cost structure headwinds
COST STRUCTURE EXPECTED TO BE IMPACTED BY SEVERAL HEADWINDS IN 2025 ADVERSE EFFECT FROM HIGHER RAW MATERIAL FREIGHT RATES STILL AT SALARY ADJUSTMENTS TO STRENGTHENING OF USD AND PRODUCT COSTS ELEVATED LEVELS COMPENSATE INFLATION adidas 4
Slide 35: Business Improvement Program
BIP CONSISTS OF HEADQUARTER BRANDS MARKETS GLOBAL OPERATIONS eri: a i wat HO OOH OPTIMIZATION MWB OPTIMIZATION RETAIL FOB MITIGATION PRICING IT MARKETS OOH OPTIMIZATION SUPPLY CHAIN MANAGEMENT BUSINESS IMPROVEMENT PROGRAM SAFEGUARDS PROFITABILITY IN 2023 adidas 8
Slide 36: Outlook
OUTLOOK
Slide 37: Q4 2022 and FY 2022 expectations
YTD Q4 2022 FY 2022 YTD Q4 2022 FY 2022 September - Expected - - Expected - September - Expected - - Expected -
Slide 38: Quarterly sales trend and Q4 expectation
Q4 2022 QTD August September October - Expected-
Slide 39: Q4 outlook drivers
As of October 20, Outlook 2022 YTD FIFA World Product Easier Q4 2022 Q4 2022 September Cup Launches Comps - Expected- - Expected-
Slide 40: Launches in full swing
OFFICIAL MATCH BALL ~ALRIHLA adidas LAUNCHES IN FULL SWING JULY | AUGUST | SEPTEMBER OCTOBER We FEDERATION HOME FOOTWEAR PACK AND AWAY KITS ~ALRIHLA DECEMBER ©) ‘quel TO BE RELEASED OFFICIAL SEMI AND FINAL MATCH BALL TO MAXIMIZE GROWTH IN FOOTBALL 0
Slide 41: FIFA World Cup 2022
FIFA WORLD CUP 2022
Slide 42: Leverage event across key categories
LEVERAGE EVENT ACROSS KEY CATEGORIES ea: USE UNIQUE EVENT BACKDROP TO 5}10\)CASE THE BEST OF ADIDAS ACROSS SEVERAL KEY CATEGORIES adidas
Slide 43: Product
PRODUCT
Slide 44: Integrated World Cup campaign
INTEGRATED MEMBERSHIP DIGITAL POINT OF SALE 4 z 5 4 SLHOW NOISNAIX4 SAALLVILINI GNNOYS UANLYd JOVYIAIT NolvdWvo JHLNO® WOOTKIdAH w = =< Zz N N i) JONITISOXI AANANOP ONIddOHS AVONIOH OL SONICWALL d3ZINLd0 GANSITY SNINNWTd MOQNIM FUOLS NI TIM aVIMLO04 adidas
Slide 45: Exemplary activation
EXEMPLARY DRIVING CREDIBILITY IN SPORT COMPLEMENTING THE GLOBAL RANGE INCREASING AVAILABILITY VIAPOP-UP CELEBRATING KEY MOMENTS DURING AND LIFESTYLE ACCORDING TO MARKET-SPECIFICS STORES AND MALL TAKEOVERS THE EVENT WITH OUR CONSUMERS IN EMERGING MARKETS AND BEYOND adidas 45
Slide 46: Basketball lifestyle-led strategy
Re-imagining and disrupting the category with a lifestyle-led strategy and holistic end-to-end product offer Authenticating adidas Basketball from the street to the court Partnership bringing a new creative and strategic viewpoint to the category Focusing on Next Gen athletes, partners that are part
Slide 47: Basketball and FOG launches
Launching three key Introducing our new Launching the Unveiling FOG Launching FOG franchises with a direct vision for adidas first collection of Athletics product Athletics product with link to the new adidas Basketball through an our elevated product to tease a store takeovers and an Basketball Cre
Slide 48: Running
Slide 49: Sportswear
Slide 50: Fashion Partnerships
Slide 51: Adicolor 70s
Slide 52: Revenue outlook by market
Mid- to high-single- Mid-single- Low-single- digit growth digit growth digit growth Double-digit decline Strong double-digit decline Strong double-digit decline High-teens growth High-teens growth Mid-teens growth Low-teens growth Low-teens growth High-single-digit growth Growth between 30% and 40%
Slide 53: FY 2022 guidance
Mid- to high-single- Mid-single- Low-single-digit digit growth digit growth growth Around 49.0% Around 47.5% Around 47.0% Around 7.0% Around 4.0% Around 2.5% Around €1.3bn Around €500m Around €250m ▪ Headwinds related to a ▪ Further deteriorating ▪ Termination of Yeezy slower recovery in China traff
Slide 54: Net income bridge
~€700m ▪ Consumer sentiment ~€500m ~€500m ▪ Inventory clearance ▪ Brand heat ~€250m ~€750m ▪ Recovery in Greater China ~€500m ▪ Yeezy impact and mitigation plan ▪ Development of freight rates and input costs ~€250m ▪ FX development Net Income Net Income Non- Net Income incl. Yeezy incl. recurring ex
Slide 55: Key dates
Effective January 1, 2023 Upon expiry of November 11, 2022 Until December 31, 2022
Slide 56: Summary
SUMMARY LEVERAGING CONTINUED MOMENTUM TO DRIVE STRONG UNDERLYING GROWTH IN 04 MAKING USE OF UPCOMING FIFA WORLD CUP TO CREATE EXCITEMENT AROUND PRODUCT AND BRAND MARKET- AND COMPANY-SPECIFIC CHALLENGES APPOINTMENT OFBAORN GULDENENSURES SMOOTH AND TIMELY CEO TRANSITION adidas 56
Slide 57: Q&A