Yahoo Finance adidas AG (PNK:ADDYY) Q1 2024 Earnings Call Transcript
adidas AG (PNK:ADDYY) Q1 2024 Earnings Call Transcript April 30, 2024
adidas AG isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, welcome to the adidas AG Q1 2024 Conference Call and Live Webcast. I am Alice the chorus call operator. [Operator Instructions]. The conference will be recorded for publication or webcast. At this time it is my pleasure to hand over to Sebastian Steffen, Head of Investor Relations. Please go ahead, sir.
Sebastian Steffen: Thanks very much, Alice. Hello, everyone, from sunny Herzogenaurach. Welcome to our Q1 2024 Results Conference Call. Our presenters today are our CEO, Bjorn Gulden; and our CFO, Harm Ohlmeyer. Before Bjorn and Harm will take you through the puts and takes of the quarter and explain our expectations for the rest of the year, [Operator Instructions]. And now, without any further ado, over to you, Bjorn.
Bjorn Gulden: Thanks, and hello, everybody. I hope you're all in good shape and good mood. I think the picture on the screen is an important one. It shows both the men and the female team of Real Madrid, playing in the Y-3 Yamamoto design, and I think that mirrors a little bit of what we are trying to do to merge lifestyle and sport [indiscernible] And of course, tonight is a special night with Bayern playing Real and I hope you'll all cheer for the Bayern because that's where we are a shareholder as you know. You saw all the numbers already a couple of weeks ago, where we went out to [indiscernible] and you know we went out to [indiscernible] because the year has actually started better than we had expected and we'll try to take you through the story why and then get a little bit more into the details for now.
Our same store for currency neutral, up 8%. We should take the Yeezy business out which was €150 million, it's around 5% up. And that is stronger than what we had expected given the order book where we were at the beginning of the year. That was positive, but what was even more positive was that the gross margin reached 51.2%, up 640 basis points. And again, I think everything that we had an impact of was positive. And the only negative thing was, of course, the currency, which is still pulling off in the wrong direction. The Yeezy effect on the gross margin is about 70 basis points. So that tells you that the underlying adidas gross margin is already above 50%. And as you know, that is very important for us to get to the profitability that we want midterm.
If you put that all together, we then had an operating profit of €336 million. That's up from €60 million a year ago. And the same thing here, the contribution from Yeezy on the profit line was a little bit less than €50 million. So it shows you that the underlying adidas contribution is then around €290 million. What is very important for us, and you know it was one of the major targets when we met the first time a year ago was to get our inventories down and as you can see, it is now at €4.4 billion, which is a reduction of €1.2 billion. And of course, this is the underlying thing that can, what should I say, support both our growth with fresh inventory where we can have good sell-through. And of course, it was extremely important for our gross margin.
And again, I am actually very proud about and the sales team and what my friend here has done on the financial team to actually have a discipline to get this executed in the different markets. If you put it all together, we then also said we increased our guidance on the top line from mid-single digit to mid- to high single digit. And the operating profit, EBIT from around €500 million to €700 million. When you then say why have we had this improvement, it's obvious that our franchises in footwear lifestyle is continuing to do very, very well. We started talking about the Terrace side, because they had the Samba and Spezial a year ago and what has been added afterwards is the Campus, which are now all selling the Samba in certain markets.
and lately also the SL72, which you remember is also Terrace side, but on the running, midsole and it's picture from Munich in 72. So this is what I've turned the brand around on the lifestyle side. But it's not only the old franchises, it's also the new product. We've had the most successful soccer launch, I think, ever with the Predator. We are very happy with the jersey sales and the launch for both the EURO and the COPA. We have successfully launched the Supernova Rise, which is our answer to running specialty on top of the very successful adizero range. We have launched the most innovative trail running shoes, the Agravic Speed. And we've had certain successes with our 2 franchises Anthony Edwards and Harden in the basketball arena. And then we have started doing collabs with a superstar.
Here you see [indiscernible] collab that we have done. So many new things that is adding to the lifestyle area that has helped us getting the numbers as positive as they are. If you then look geographically, we start with the only negative number, that is North America down 4%. And again, we have said all the time that we believe North America is lagging 6 to 9 months behind. We believe that America will turn into positive in the second half and one of the reasons we are optimistic is that the inventory in the U.S. is now down 41% compared to a year ago. So a much cleaner, and we also start to see that our retailers are getting cleaner with our inventory. If you then look at our home market in Europe of 14% and very, very happy with the development in Europe.
And I think it's fair to say that our sell-through is even higher than our sell-in. So the growth currently with the consumer is even higher than the 14% you see, but a tremendous success in Europe in the turnaround. If you then look into Greater China, plus 8%, I think we've spoken about China many times, and we have said that we think we can grow double digit already this year. 8% is a little bit shy of double digit, but not a lot. There is a lot of energy in the market. We are doing a lot of activities, both in performance and lifestyle. We are very happy with the performance of the team, and we feel confident that we will end the year up double digit despite, I would say, an economy that is maybe not as hot as many people would have hoped for.
If we then look into Japan and South Korea, 2 markets that are very dependent on trends. South Korea is the market that is leading trends currently, we are up 7%, and here we start to see that demand is higher than supply and we are very optimistic about the midterm development of those important markets. Remember, these markets were earlier into the market and is now separately managed with local people reporting straight into headquarter. LatAm, still a very strong quarter, plus 18% and that is despite all the issues we have with Argentina and also in Brazil, a difficult economy, high inflation, the team doing a great job. And then, finally, Emerging Markets, where our entrepreneurs running the smaller and new markets are doing a great job and where we are making the progress that we had planned.
That gives you the 8% growth, and as I said, excluding Yeezy, which was around €150 million, has done 5%. Why do we have this growth? i think one reason is that we continue to invest heavily in marketing. In September last year, we launched original campaign, and during first quarter this year we have launched a You Got This campaign which is replacing Impossible is Nothing as our tagline. And I do think, as you see how we look around the world, we have a global frame that [indiscernible] the local content, both on the lifestyle area and on the performance area and we are very, very happy with the way the new adidas actually looks. In that line being globally -- having global credibility but be locally relevant is very important and that means that we are working with local brands for collaborations.
We are localizing global product lines, like you see in Korea, and we are doing a lot of big activations in markets like China. You see here on page here our regional apparel activation which is a huge activation and also very, very successful. In general, localizing our go-to-market process is very important. You see here examples of Stan Smith in Mexico and actually doing activations there. You see Pharrell together with Edison Chen, actually doing an activation in Japan for the collab around Superstar and then also in America and LatAm, very, very active, what should I say, what is relevant for the consumer in our approach to be very relevant in the local market, but within the global frame of the brand. We do not only invest in marketing, but also in infrastructure.
Here, you see the new distribution center in Saudi Arabia. And you see our new distribution center in Europe. We call it Campus South, which is actually in the Northern Italy. And I think it's one of the most automatic distribution centers in the market. And then maybe more emotional, but I think is extremely important for the brand, we do have our shoe factory in Scheinfeld, 40 minutes from here. We are using that to produce our original soccer shoes, the World Cup and the but are now also doing lifestyle products on the high end of the market. And I think because it's so important, I would like to show you a little bit video that we for 1-hour collabs because it is really something special for us and it shows the importance of footwear and the manufacturing process.
I think it's very cool and again, this is the center of what they're all about and making it and very important for us that we keep this factory and we all continue to invest in it to make product, but also to use it as a place to show people how we make footwear and educate the next generation in showmaking. If you look at the channels, our wholesale business, remember this is what we sell into the retail, grew by 2%, might not be so impressive but you have to remember we're coming from order books being down 20% and I can assure you the order book now is positive and you will start to see the wholesale business continue to grow. If you look at our own retail, these are the physical stores you see up 11%, fantastic like-for-like in our concept stores, many of them about 20%, 30%, 40%, 50%.
And doing extremely well because, of course, these stores have only adidas product. And of course, we clearly see that the consumer when she or he can get a full adidas assortment, they're buying a lot more than they did last year. Factory outlets also growing, but at a smaller rate. And that is, of course, that we still have our factory outlets full of clearance, it's going to be less and less clearance and you will start to see the freshness also coming through in our factory outlet. Our e-com growing at 34%, of course, some of this is Yeezy, but even if you take Yeezy out, we have double-digit growth in our e-com. And the good thing is that we're discounting less and less and our full price share is growing double digit, which is the same we reported last quarter because we clearly see that the combination of having our e-commerce brand and then commercial is, of course, what helps us, and it's not about optimizing the top line.
That gives you the following split, 62% wholesale, 38% D2C where on retail, the stores are 21% and e-com being 17%. I can't tell you what the optimal mix is, but we think this 65-35, 60-40 is currently with the business, we see a healthy mix. And then, of course, we will optimize distribution market by market as we go. But currently, we are very happy with this split. We are investing in new stores. Here you see examples from markets like in India, but also in Colombia. And you also see a new store in Ukraine, and I have to take the chance to thank our team in Ukraine, the job that they're doing and the energy and the most difficult circumstance is unbelievable. And believe it or not, the business in Ukraine is also actually doing very well.
The other store you see here is the new store in Champs Elysees, that's opening in the next 4 weeks in the middle of [indiscernible] and it will open before the Olympics, and it's going to be one of our most important stores, and I hope you all will have the chance to stop by. On the right side, you see it's not only about new stores. It's also about elevating and rejuvenating the old stores. And here, you see some examples, especially from Korea and Japan, where we are investing in elevating the brand. But as I said many times, we can only be successful if we look good next to the other brands. And here you see examples of how we have been elevated in SNIPES and DICK'S and JD and also in a Turkish retailer called Boyner. I could have shown you the same examples out of Footlocker, because the Footlocker stores lately have looked as good as anybody else with our product.
And I think we have done huge steps with the way we look in all the high suite stores. If you then look at the divisions, footwear growing at 13%, apparel only growing at 2% and we have said all the time that apparel is more highly inventoried in general and that there has been more difficult to get growth. Happy to report that our soccer or football jerseys for both the COPA and the Euro is doing very well, higher than what we expected, so we are supplying more. But also that the regional line is starting to grow. So I think we will start to see also a bigger growth in apparel going forward. Accessory mainly following the growth rate of apparel, and that's why it is basically flattish. That leads to the mix, 60% almost being footwear, 35% apparel and 6% being accessories, which again, I think we will have to agree is a healthy mix.
If you look at the split between performance and lifestyle, it is fair to say that the business now is driven by Lifestyle. And I have to repeat that we couldn't have asked for a better, what should I say, distribution. The original growth is driving the heat of the brand. It opens the brand up for the younger consumer. The younger consumer tends to go towards 3-stripes, first on footwear and then on apparel, and that is, of course, helping us tremendously also on the performance side. The performance side is already growing in the high end and running in soccer, in basketball and in outdoor. And the next step is, of course, also to open that up for the more commercial area. And I would say, the more everyday runners area or I would say, the more comfort area.
But again, very positive development for us to have this development. We continue to invest in partners. The guy on the left side is Yamal, the 16-year kid playing for both Barcelona and the Spanish national team, extremely proud that our sports marketing people were able to sign him long term, many people say he is the new Messi. Let's see, but at least playing both on the national team and in Barcelona at the age of 16, it's very, very special. This is just a mix of different signatures. You see on the right side, baseball players both in Japan and the U.S. You see female basketball players, you see actors and you do see that we signed the best soccer club or football club in Saudi. There are many, many, many more, but I just want to see or show you the risk of what you're investing in.
And I hope you clearly also see the focus on local partnerships to help the business in the different markets. Where we have invested a lot, and I've seen the success is, of course, in the high-end running. Our running team are basically winning all the major marathons, and you see it here, like in London Marathon, where we took 5 out of 6 podiums. That means both on the men and the female side. And also in Boston, Lemma won the men's class, and we had more of the women in the top 10. And in general, I have to say that the Evo that you see is probably the most innovative sports shoe that has ever been made and at 137 grams with a carbon plate, it is setting records everywhere. Talking about records. We had our Road to Records run on campus in the weekend.
And as you can see, we had one world record on the mile, we have 2 under 20 world records, and we have 9 national records here on campus, fantastic performance. And then of the employees also joined and we run 5k, and we have more than 1,000 of employees being part of it and a unique event where you're all invited next year to both run and watch because it's something very, very, very special. If you then try to summarize where we are. You clearly see, we have the hottest shoes on the street, and we are maintaining them in a healthy way. It's not only , but it's also the Campus. And not only do we maintain it, but we continue to invest in the campaign to support them. And when you ask, are they running out of steam? The answer is definitely no.
these are social search in Europe where you see the Campus, Samba, Gazelle are all going upwards. And you see that Campus is now more searched than Samba and you clearly see that we have 3 of the hottest shoes in the market before any competitor is coming. The social search is an important indicator for us market by market to see at what point in time do we need to manage the flow in a different way. If you then go into the future, the SL72, we started talking about a quarter ago. That's now being also scale. So many retailers are now asking for more , the sale through both men and women is good. And this will then also be assured that you'll do several million pairs going forward. We have the lo profile trend that we have talked about for a while.
We saw a trending in the market on the carpet. We saw it be used by the coolest people, I personally think it's an extension of the Terrace trend. And with our history, both in martial arts, in boxing and in motorsport, we will have volumes of lo profile coming to the market already at the back end of the summer. Then we have spoken about lifestyle running. We have been criticized for not having innovation on lifestyle running. We are having 5, 6 projects that are going to market as we speak and the rest of the '24 year. Some of them in very small quantities, some of them scalable. And as I said many times, you cannot program what shoe in this area will be successful. That's why we have more than one. We are, for example, reintroducing the old equipment line that we were very, very successful doing in the '90s, that's best of adidas, and you will start to see that being seeded into the trendsetters and into the fashion influencers.
So a lot of excitement coming when it gets to new silhouettes and new materials and new concept of lifestyle running. And then as you know, Superstar is the hottest and biggest shoe that adidas has ever had. We are starting to heat that up again. We are cleaning the market, meaning taking seasonal colors out of the market. We will focus on white/black, black/white, super black and super white. But given the success now of Terrace and Campus we don't see the necessity of scaling it quickly. So we will take it slow and make sure that we're not overheating the market on our range. And with that, blah, blah, I hand over to my friend, Harm, who will take you through the real numbers.
Harm Ohlmeyer: Yes. Thanks, Bjorn, for all the -- I wouldn't call it blah, blah, good content that we do on the marketing and sales side. And I just want to shed some light on what it really means for our financial performance and starting with the net sales, as always. I think everything has almost been said already. So 8% currency-neutral growth in the first quarter. Of course, when we exclude the €150 million that we did with Yeezy, it's 5% currency-neutral. But what's even more important, what we said early in the year that we have a 400 basis point headwind on the currency. You can see it exactly here, the 8% currency neutral is actually 4% nominal reported. So exactly what we said at the beginning of the year from the headwind, but of course, the performance is slightly better than we expected.
What's even more important is the gross profit, and that's where we see the improvement, and I want to fast forward to the next chart right away, you see the improvement from gross margin in Q1 2023 was 44.8%, significant improvement of 640 basis points to 51.2%, but as all of you interested in as well, what does it really mean underlying without Yeezy? And you see very clearly Yeezy didn't have a huge effect, only 70 basis points. So underlying, we had 50.5%. And again, with some gives and takes, we can confidently say we are above the 50% mark on the gross margin again, and that is really a great achievement in Q1. And as Bjorn said, very much linked to the inventory as well. That shows you some more details on the next slide as well, where we always said we have tremendous FX headwinds, especially in the first half, but also for the full year.
And you see the benefits now of high freight rates last year, where we get the benefits on trade, product mix, market mix, of course, less discounting, better product cost as well. And of course, especially in Q1, we have the benefit of huge inventory provision that we built last year in the first quarter, we didn't do this year, we actually had some releases as well as we have such healthy inventory. And of course, that is not being repeated for the remainder of the year. So it's definitely a special event in Q1 as well, but most importantly, it's a comparison to last year. So again, very healthy margin in Q1 and very optimistic for the remainder of the year. There are 2 things, before you get carried away on the gross margin, there are 2 effects probably for the second half that I want to mention right away.
I'm pretty sure a question will come as well. As we are growing faster than expected and normally hedging 80% of our product purchases. Of course, we got to buy some of the product at spot rate. So given where the U.S. dollar is right now and the other currencies as well, of course, that is something that we saw would develop better in the second half. So that's one thing you should know. And the second thing is, as Bjorn indicated, the growth in wholesale was 2%, and we want to accelerate that one for the remainder of the year. And also there, I don't want to make a big story out of it, but of course, the channel mix will be something to watch for the next quarter as well. But again, all positive given where we started the year, just be aware of it, that you don't get too excited about it immediately.
When we talk about marketing and operating overheads, very clearly, we keep investing to marketing also something we said very clearly, so €56 million more than last year. That is linked to the campaigns and you got this campaign that we launched starting at the Super Bowl, but many more events afterwards as well. And also on the operating overhead, I don't even want to talk about leverage. So we keep investing into sales. And as Bjorn said, we want to have a cautious approach, how we want to make sure that we start growing the top line and having healthy inventory and great gross margins before we talk about restructuring that other brands are doing. So we are focusing on getting the product to the consumer that is more important, but you see leverage starts and it will continue.
That all leads to an operating profit of €336 million, significantly up from last year. And also here, only €50 million from the Yeezy contribution. So all in all, a solid without Yeezy underlying business, it's around €290 million. Nothing really new on this one, as Bjorn already talked about it. And, if we go to the next level, and I think there was quite some interest of many of you when we launched the numbers. Of course, we gained some interest as we have more cash on the balance sheet, and we earn some interest around the world. So we are somewhat better on the financial income, but also on the financial expenses. I want to shed some light in here because it went up significantly. There are pretty much 2 effects that I would like to explain that account for the majority of that increase, and that is, one, inflation accounting in Turkey and Argentina that has a significant impact on this one, which run through the financial results.
And the second one is we did some repatriation of cash from Argentina that is very pronounced in the first quarter. So rest assured and don't quadruple that number for the remainder of the year. It was more pronounced in Q1 and will normalize over the next quarters to come. So again, it doesn't look good in the first quarter, but these are the 2 effects, hyperinflation in Turkey and Argentina and repatriation of cash from these countries. Now when we come to the income before tax and also the tax rate. And of course, in the short term, we don't want to optimize the tax rate, and we won't be able to do so because the IBT is still pretty, pretty small relative to the past. Again, as we are becoming a better company this year, a good company next year and a healthy company in '26.
Of course, the tax rate will improve as well. But compared to last year, you see already that we are getting to a normalized rate of around 30%. And as we improve over the years to come, we will get to a tax rate that we used to have a couple of years ago. But everything is very much linked to the operating profit that we need to run into operational business first. That, of course, leads to a much better net income from a negative €24 million in Q1 '23 to now a positive €171 million in Q1 2024. We talked a lot about inventories. We can't repeat it often enough. We brought it down significantly, even 20% currency neutral. And this is when I look at the details coming from €5.7 billion by the end of Q1 '23, including €500 million of Yeezy inventory that at that point, we didn't know how to clear, what to do with it and you see confidently we cleared now €300 million of Yeezy inventory, now ending up with €4.4 million at the end of March '24, including the €4.4 billion, it's €200 million Yeezy inventory in.
And I can probably clearly say today, that's probably the lowest inventory you will see for the years to come because we believe it's very healthy, not just from the size of inventory, but also from the aging of inventory that we believe that is a great base. And as we want to grow over the next couple of quarters and beyond, assume that is a low point that we have achieved now. Total receivables, as we indicated, wholesale, given the order books that we had is just a slight growth with 2% in Q1. That's why you still see receivables being down compared to last year, but that is also something you should expect going forward that receivables are growing as we grow our wholesale business, so really no surprise here. The same is on the accounts payable, we start sourcing more products through the growth that we are envisioning for the quarters and the years to come.
So also that is a low point. And of course, we diligently manage both lines, receivables and also payables, but assume that is also going up in the quarters to come and it's only slightly going up as you get -- when you're prepared for accelerated growth in Q2 and in the second half. Overall, that leads to an operating working capital that has improved significantly as well. It's a combination of all the 3 above. Not a surprise. If you add up these numbers that we made tremendous progress on the operating working capital. If you compare that in percentages over the last quarters, of course, we had some low lines in Q1 '23 and Q2 '23, but you see the progress that we did not just on the inventories, but there was a main contributor to this one.
And as we go to the road of being a better company than a good company and a healthy company, you can measure us if you get -- if you become a healthy company in '26, that is probably something we'd like to see below 20% again. But again, tremendous progress has been made on the average operating working capital development. That comes to cash, also improved from €778 million to now more than €1 billion, 40% up. And if you can call me on this one, I always said, I feel comfortable if you get to €1.5 billion in cash, that's probably, with no further signs, a good number that we would like to have on the balance sheet, living in a volatile world. And not only, when we get there, we talk about other measures for to do with the cash, but for now we want to make sure that we are investing into the operation of business, especially with some of the numbers that we have shown earlier that we get out of our concept stores, we want to make sure we keep investing in the brand and the D2C and wholesale business as we did since last year.
Now if we improve our cash, which will further improve for the quarters to come. And of course, as we are not planning to refinance our bond that it becomes due in September, October this year, we also believe that the overall adjusted net borrowings over EBITDA ratio will improve significantly this year, which is important not just for us and the health of our balance sheet and company, but also for the rating agencies. So we are committed for the next couple of years to also get a healthy adjusted net borrowings EBITDA ratio of below 2% again and that shows again not just the P&L, but also the balance sheet is at very healthy levels, and the liquidity is also fine. So that's where we are. More questions later. With that, I would like to hand over to Bjorn again.
Bjorn Gulden: Well, then we just have the outlook. No surprise for you. We told you this only a couple of weeks ago, but just to repeat it, we are now expecting the net sales growth to grow from mid-single digits to mid- to high single digit increase and our operating profit, our EBIT to grow from around €500 million to around €700 million. The assumption in this is that we will sell off the remaining Yeezy inventory, the €200 million, at cost, which means no profit, but selling it at cost. We still expect significant FX headwind. And as we said many times, we will continue to kind of overinvest in marketing and sales to build the momentum then to get the leverage as we grow. The Yeezy business, I would like just to explain again, so we're sure we all have it the right way.
In Q1, we sold €150 million. The next 3 quarters we expect to sell off all the inventory, which is another €200 million. And that gives you then the total revenue of Yeezy of €350 million. If you remember, last year, we sold €750 million, so it's then €400 million less. And again, compared to the guidance we had at the beginning of the year, we only promised to sell €250 million, so that's then an increase of €100 million. On the EBIT level, we made €50 million ballpark in Q1. We do not expect to do any EBIT on the €200 million we're selling off. So the total impact on the guidance is done, the €50 million. If you then look at the top line on the underlying business, you see we started the year with mid-single-digit increase.
We have then added €100 million more on the Yeezy, the €250 million, or the €350 million, minus the €250 million. And then the underlying business, the adidas business, we see an increase of €300 million, that sums up to €400 million and the €400 million gives you then the change from mid-single digit to mid- to high single digit. And then finally, on the EBIT, we started with the €500 million. We add the €50 million from Yeezy and then an underlying €150 million from the adidas business, that is a total of €200 million, and that gives you the €700 million. I also want to get back to one thing that we talked about at the beginning of the year, we said that the year will start flattish and then accelerate. Now of course, the flattish was better in the first half or the first quarter.
We expect still the second half to be up double digit. So you will see an acceleration. And why do we say that? Well, it is because we think we will maintain the franchisees in a good way. And then we will have quite some interesting product launches. Some of them you see here, we will reintroduce f50 as a second silo in soccer. Next to the Predator, we have a new Drop Step, which is the best selling training shoe that we have. We will relaunch the Z.N.E., which is the sportswear [indiscernible]. We have a lot of, what should I say, interesting stuff coming on the originals apparel, especially for her and adicolor. We will have a new adizero Adios Pro, this time Pro 4 shoe, which, in my opinion, is the best running shoe we ever launched. We will have a new UltraBOOST, which is combining running with comfort and everyday, what should I say, leisure.
We have decided to launch more colors of the successful Anthony Edwards and as I said, we're starting to scale SL72. So we feel very comfortable with the pipeline of product for the rest of the year. And then as a year of sport 2 weeks ago, we launched our Olympic packages in Paris. We are making shoes for 41 different sports, that is 49 different shoe models. We have launched separate uniform for all the federations you see here and although I would have wished to have even more federations and they will come in the future, I think we'll have a great presence both in apparel and in footwear during Olympics, and you will see adidas from a very, very good side. And again, remember, we have the Euro here, we have the Copa America in the U.S., both tournaments very, very much dominated by 3-stripes, both on footwear and on apparel.
You have the Olympic Games, which should be a great, great happening for everybody. And then it follows up with the Paralympic Games, which again will be as exciting. And when you put that all in context, we strongly believe that we predict on the right track in '23. We believe that everything that you have seen, we will be a better company in '24, that will continue in '25 to put both top line and some growth to the bottom line. And then in 2026, we think we will be a good and healthy adidas again. And I just want to remind you that, if we do the math, we think we believe double-digit growth, we believe that we need 50% to 52% margin that we can get leverage to have 30% operating overhead that we will continue to invest 12% in marketing, and that will then give you the famous 10% EBIT.
I'm very happy with the way things have developed in the last 3 months. It shows the strength of the brand and the strength of this company. And again, we think if we do our job, we are on a very, very good track to deliver you what we have promised. So with that, I hand back again to you, Seb.
Sebastian Steffen: Yes. Thanks, Bjorn, and I'm going to hand over to Alice, who is going to moderate our Q&A session.
Operator: [Operator Instructions]. Our first question comes from the line of Piral Dadhania, RBC.
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