Adidas Ag · XETR:ADS
Adidas — Q2 2020 Earnings Presentation
52 slides from Adidas's earnings presentation, Aug 6, 2020
Slide 1: August 6, 2020
August 6, 2020
Slide 2: Legal Disclaimer
LEGAL DISCLAIMER This presentation and other statements made in connection herewith may contain forward- looking statements with respect to Management’s plans and expectations for the future development of adidas. Such forward-looking statements are subject to risks and uncertainties, which are beyo
Slide 3: Agenda
AGENDA 01 INTRODUCTION 02 BUSINESS UPDATE 03 FINANCIAL UPDATE 04 OPERATIONAL UPDATE 05 OUTLOOK 3
Slide 4: Introduction
INTRODUCTION
Slide 5: Management Focus: Navigating Toward Long-Term Success
MANAGEMENT FOCUS NAVIGATING TOWARD LONG-TERM SUCCESS 5
Slide 6: Execute Through COVID-19: Store Fleet Largely Operational at End of Q2
EXECUTE THROUGH COVID-19 STORE FLEET LARGELY OPERATIONAL AT THE END OF Q2 100% 100% 90% June: 17% Store fleet largely 80% January: operational First stores in March: 70% China closed As stores in China re-opened, Rest of World closed down May: 60% Business in Greater China returned to growth 50% 50%
Slide 7: Execute Through COVID-19: Protecting Our People, Communities and Partners
EXECUTE THROUGH COVID-19 PROTECTING OUR PEOPLE, COMMUNITIES AND PARTNERS REMAINS TOP PRIORITY HEALTH AND SAFETY IN OUR STORES Executing store re-opening in accordance with social distancing measures and local regulations HEALTH AND SAFETY IN OUR OFFICES Providing workplace flexibility and safe in-of
Slide 8: Shape Structural Trends: Long-Term Industry Trends Supporting Future Growth
SHAPE STRUCTURAL TRENDS LONG-TERM INDUSTRY TRENDS SUPPORTING FUTURE GROWTH HEALTH AND SPORTS EVEN MORE IMPORTANT TO CONSUMERS Around 50% of age group 18-34 plan to exercise more as a result of the coronavirus pandemic ~ ~ FASHION SHIFT TOWARD ATHLEISURE SET TO ACCELERATE Around 75% of surveyed compa
Slide 9: Create Lasting Change Now: Diverse Company, Zero Tolerance for Discrimination
CREATE LASTING CHANGE NOW WE ARE A DIVERSE COMPANY WITH ZERO TOLERANCE FOR DISCRIMINATION AND RACISM > ~ Around 90% of our employees Employees from more than 100 nations Women represent 34% of hold international passports work at the company’s global HQ management positions globally 9
Slide 10: Create Lasting Change Now: Commitments to Drive Further Change
CREATE LASTING CHANGE NOW COMMITMENTS TO DRIVE FURTHER CHANGE COMMITMENTS GLOBALLY COMMITMENTS IN THE UNITED STATES WE ESTABLISH A COMMITTEE TO ACCELERATE INCLUSION & EQUALITY WE INVEST $ 120 MILLION IN OUR BLACK COMMUNITIES OVER 5 YEARS Committee to focus on advancement of underrepresented groups;
Slide 11: Business Update
BUSINESS UPDATE
Slide 12: Consumer Highlights Q2 2020
CONSUMER HIGHLIGHTS Q2 2020 12
Slide 13: Strengths & Weaknesses Q2 2020
STRENGTHS & WEAKNESSES Q2 2020 GREATER CHINA RECOVERY AHEAD OF INITIAL PLAN NORTH AMERICA LAGGING BEHIND OTHER MAJOR MARKETS + − Return to growth in May paving the way for flat quarter Store fleet not yet fully operational due to external developments DTC BUSINESS UP SLIGHTLY DUE TO DIGITAL ACCELERA
Slide 14: P&L at a Glance Q2 2020
P&L AT A GLANCE Q2 2020 REVENUES DECREASE 34% CURRENCY-NEUTRAL And 35% in euro terms to € 3.579 billion GROSS MARGIN DOWN 2.4PP TO 51.0% Headwinds from promotional activity, adverse FX and inventory allowances OPERATING LOSS OF € 333 MILLION Due to revenue shortfall and coronavirus-related charges N
Slide 15: Strategic Growth Areas Q2 2020
STRATEGIC GROWTH AREAS Q2 2020 ADIDAS NORTH AMERICA Despite triple-digit e-com growth GREATER CHINA Double-digit growth in May and June E-COMMERCE Triple-digit growth in April and May Currency-neutral. 15
Slide 16: adidas and Reebok Brand Performance
ADIDAS AND REEBOK BRAND PERFORMANCE MORE PRONOUNCED DECLINE FOR REEBOK DUE TO HIGHER NORTH AMERICA EXPOSURE ADIDAS REVENUES REEBOK REVENUES % % Currency-neutral. 16
Slide 17: Financial Update
FINANCIAL UPDATE
Slide 18: Revenue Growth by Market Segment
REVENUE GROWTH BY MARKET SEGMENT CORONAVIRUS HAD A GLOBAL IMPACT IN Q2 -34% -40% Operating margin: 24.0% (-2.3pp) -38% Operating margin: -1.8% (-13.2pp) Operating margin: 2.7% (-22.5pp) -16% Operating margin: 31.0% (-3.9pp) -64% -60% Operating margin: -21.2% (-49.7pp) Operating margin: -10.5% (-25.1
Slide 19: P&L Overview
P&L OVERVIEW Q2 RESULTS REFLECT MATERIAL NEGATIVE CORONAVIRUS IMPACT (€ in millions) Q2 2020 Q2 2019 Y-O-Y Slight increase when excluding inventory allowances NET SALES 3,579 5,509 -35% – details on separate slide GROSS MARGIN 51.0% 53.5% -2.4pp OTHER OPERATING EXPENSES 2,189 2,346 -7% (in % of sale
Slide 20: Gross Margin Development Decomposed
GROSS MARGIN DEVELOPMENT DECOMPOSED SLIGHT INCREASE WHEN EXCLUDING INVENTORY ALLOWANCES 53.5% 51.0% Gross margin Sourcing & Channel & Pricing FX Inventory Gross margin Q2 2019 Other market mix mix impact allowances Q2 2020 Illustrative. 20
Slide 21: Overhead Cost Development Decomposed
OVERHEAD COST DEVELOPMENT DECOMPOSED DOUBLE-DIGIT UNDERLYING DECLINE MASKED BY E-COM GROWTH AND CORONAVIRUS-RELATED COSTS Q2 OOH DEVELOPMENT DECOMPOSITION € in billions 1 Underlying decline resulting from tactical measures 3 ▪ T&E as well as other discretionary spend reduced materially ▪ Personnel e
Slide 22: Net Debt and Equity Position
NET DEBT AND EQUITY POSITION NET DEBT INCREASES BY € 1,154 MILLION YEAR-ON-YEAR -1,154 362 89 Net debt At € 792 million Equity position -735 At € 6,230 million -792 -1,028 Equity ratio At 30.7% Q2/16 Q2/17 Q2/18 Q2/19 Q2/20 (Net debt)/net cash at quarter-end, € in millions. 22
Slide 23: Average Operating Working Capital
AVERAGE OPERATING WORKING CAPITAL EFFECTIVE CASH MEASURES PARTLY OFFSET INVENTORY INCREASE +3.3PP 21.4% 21.5% 20.4% 20.1% Inventories up 49% c.n. year-on-year 18.3% Plans to manage down toward year-end in place Receivables down 31% c.n. year-on-year Execution of cash measures and fewer shipments Pay
Slide 24: Operational Update
OPERATIONAL UPDATE
Slide 25: Execute Through COVID-19: Striking the Balance Between Short and Long Term
EXECUTE THROUGH COVID-19 STRIKING THE BALANCE BETWEEN SHORT AND LONG TERM 1 2 3 4 25
Slide 26: Inventory Normalization Toward Year-End from Peak in June
1 INVENTORY NORMALIZATION TOWARD YEAR-END FROM PEAK IN JUNE OPERATIONAL FLEXIBILITY Peak Plan for effective inventory normalization: level ▪ Event-related and ‘evergreen’ product stored and repurposed into 2021 product ▪ > 1,000 own factory outlets being used as store fleet now largely operational ▪
Slide 27: Flexibly Driving Our Product Pipeline
1 FLEXIBLY DRIVING OUR PRODUCT PIPELINE OPERATIONAL FLEXIBILITY 27
Slide 28: Short-Term Cash Measures
2 SHORT-TERM CASH MEASURES FINANCIAL FLEXIBILITY Increase inflows ▪ Push e-com ▪ Prioritize China and other open markets ▪ Intensify credit collection efforts Reduce ▪ Trade payables: proactive adjustment of order book outflows ▪ OPEX: cut discretionary spend, reduce management compensation, make us
Slide 29: No Operating Cash Outflow in Q2 Despite Material Net Sales Decline
2 NO OPERATING CASH OUTFLOW IN Q2 DESPITE MATERIAL NET SALES DECLINE FINANCIAL FLEXIBILITY € in billions Q1 Q2 0 -0.8 -1.1 No operating cash outflow in Q2 thanks to execution of cost and cash measures -1.9 Net sales change year-on-year Net cash (used in) / generated from operating activities Illustr
Slide 30: Cash Position Stable at €2.0 Billion
2 CASH POSITION STABLE AT € 2.0 BILLION FINANCIAL FLEXIBILITY € in billions 0.1 -0.1 0 2.0 2.0 Total cash Total cash Operating cashflow Financing cashflow Investing cashflow March 31, 2020 June 30, 2020 30
Slide 31: Credit Rating: Investment-Grade A+ / A2
2 CREDIT RATING ADIDAS AWARDED INVESTMENT-GRADE RATINGS A+ Outlook stable A2 Outlook stable ▪ Global scale and reach within an attractive industry ▪ High brand awareness and sports credibility ▪ Strong focus on innovation ▪ Track record of sales growth and margin improvement ▪ Strong credit metrics,
Slide 32: Digital Brand Building Drives Commercial Success
3 DIGITAL BRAND BUILDING DRIVES COMMERCIAL SUCCESS DIGITAL OPPORTUNITIES BRAND-BUILDING PLATFORMS COMMERCIAL PLATFORMS RUNNING & TRAINING APP CREATORS CLUB SOCIAL MEDIA ADIDAS APP ~400m >50% video views >3x >50% Training app usage more >4x >50% sales growth >60% >50% of online sales for the #hometea
Slide 33: Integrated Ecosystem Established and Further Building Blocks Defined
3 INTEGRATED ECOSYSTEM ESTABLISHED AND FURTHER BUILDING BLOCKS DEFINED DIGITAL OPPORTUNITIES Building blocks and investments for future growth ADIDAS APP >6X ▪ Members first: Creators Club as anchor of the digital adidas experience E-COM WAREHOUSES RUNTASTIC ▪ Targeted marketing: Consistent storytel
Slide 34: Commercializing Digital Capabilities Through Rapid Creation
3 COMMERCIALIZING DIGITAL CAPABILITIES THROUGH RAPID CREATION DIGITAL OPPORTUNITIES 34
Slide 35: Winning With the Winners Through Digital Sell-In Process
3 WINNING WITH THE WINNERS THROUGH DIGITAL SELL-IN PROCESS DIGITAL OPPORTUNITIES 35
Slide 36: Store Opening Trend Positive Throughout July
4 STORE OPENING TREND POSITIVE THROUGHOUT JULY RETAIL RECOVERY July: Positive store opening trend throughout July 100% 8% June: Store fleet largely January: operational First stores in March: China closed As stores in China re-opened, Rest of World closed down May: Business in Greater China 50% retu
Slide 37: Own Retail Traffic and Conversion Trend
4 OWN RETAIL TRAFFIC AND CONVERSION TREND RETAIL RECOVERY ASIA-PACIFIC EUROPE NORTH AMERICA Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun Conversion rate vs. PY (%) Traffic vs. PY (%) Illustrative. 37
Slide 38: Outlook
OUTLOOK
Slide 39: RDY
RDY 39
Slide 40: Running
RUNNING 40
Slide 41: Outdoor
OUTDOOR 41
Slide 42: Clubs
£<<@ mirates FLY BETTER
Slide 43: ZX 2K Boost
ZX 2K BOOST 43
Slide 44: Hype
HYPE 44
Slide 45: Superstar
SUPERSTAR 45
Slide 46: Clean Classics
CLEAN CLASSICS 46
Slide 47: Reebok
REEBOK 47
Slide 48: Outlook for Q3 2020: Significant Sequential Improvement Expected
OUTLOOK FOR Q3 2020 SIGNIFICANT SEQUENTIAL IMPROVEMENT EXPECTED Q3 2020 Trend Q1 2020 Q2 2020 (vs. Q2) Q3 2020 outlook: Net sales -19% -34% Net sales: mid- to high-single-digit decline North America +1% -38% Operating profit: of € 600-700 million Asia-Pacific -45% -16% Key assumptions: Europe -8% -4
Slide 49: Outlook for Q3 2020: Return to Double-Digit Operating Margin Implied
OUTLOOK FOR Q3 2020 RETURN TO DOUBLE-DIGIT OPERATING MARGIN IN Q3 IMPLIED Improvement of around € 1.0 billion € in billions € 600-700 million Q1 Q2 Q3 0.1 -0.3 -19% Mid- to high-single- digit decline -34% Net sales change year-on-year currency-neutral Operating profit 49
Slide 50: Summary
SUMMARY 1 Creating lasting change for diversity and inclusion now 2 Sufficient short-term flexibility to keep navigating to long-term success 3 Exceptional growth in e-com enabled by integrated digital ecosystem 4 Business normalization on track with store fleet now largely operational 5 Shaping str
Slide 51: Q&A
Q&A
Slide 52: adidas Investor Relations Team
ADIDAS INVESTOR RELATIONS TEAM COMMUNICATIONS ADRIAN ROTT SEBASTIAN STEFFEN Senior Director Investor Head of Investor Relations Relations CHRISTOPH RUMP ANJA KLIEBER PHILIPP ULRICH MORITZ VERLEGER LAURA SÄNGER Director Investor Senior Manager Investor Manager Investor Manager Investor Assistant Mana