Adidas AG

XETRA:ADS

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the adidas AG Q1 2020 Conference Call. [Operator Instructions]I would now like to turn the call over to Sebastian Steffen, Senior Vice President, Investor Relations. Please go ahead.

[Sebastian Steffen, Senior Vice President of Investor Relations]

Thanks very much, Stuart, and good afternoon or good morning to those of you joining us from the U.S., and welcome to our first quarter 2020 results conference call. First of all, I hope you and your families are well.Our presenters during today's call will be our CEO, Kasper Rorsted; and our CFO, Harm Ohlmeyer. As always, we will kick it off in a second with the prepared remarks from Kasper and Harm, followed by the Q&A session. [Operator Instructions]And now over to you, Kasper.

[Kasper Bo Rorsted, CEO & Member of Executive Board]

Thank you very much, and welcome also from my side. Today, first, we'll give you a high level on both short and long-term aspects of our business. Then a brief update on the business and the financials in the first quarter. Then a deep dive into how we operationally address the challenges and opportunities, and finally, current trading and the outlook.We are indeed living in unprecedented times, not only around the globe but also for sport and for adidas. Globally, 185 countries, which is 93% of all countries in the globe, have confirmed cases of corona. And the remaining 7 have not present -- doesn't mean they don't have. Currently, there are no sporting events. All sporting events cancel or have been postponed. Major events like Euro or the Olympics or tournaments in the different countries, local runs, are all put on hold at this stage.And 60% of our business -- our businesses have standstill since mid-March. So that means 60% of our business is completely closed. Stores are only open in a few countries, and more than 70% of our global stores are still closed. The only consistent store that's opened 24/7 and is more important than ever is, of course, adidas.com or reebok.com.During this crisis, our first and foremost priority has been the security and health of our employees. What we've done is we have shut down most offices as precautionary measure to protect our employees. That means that more than 40,000 people are today are working from home in flexible working environment. And I have to say that we're very proud to see our employees are coming together to put -- support each other, our business and our communities and working in a digital setup that probably 2 or 3 years ago, none of us would have believed to be viable.Secondly is to ensure the financial viability for our employees and remain committed to protecting them with their families. And of course, we know that not only financially but also exposure wise, particularly our retail staff has been more exposed than the rest. And our DC staff that's currently working, whom we're very proud of. And secondly, ensuring that our supply chain continues to stay up. Many of our partners have been around for more than 10 years, actually, 85% of our partners. And we have a deep responsibility for the extended supply chain to ensure that they will be around when the crisis go away. And we'll speak more about what we're doing to make ceratin that this important partner, an important chain of our value chain, will remain up.At the same time, we want to support the global community, whether that be with safety equipment, where we're working with Carbon in the U.S. to produce face masks or local manufacturing in the different countries, which we're doing as we speak. We've made financial donations to the WHO Solidarity Response Fund, to the China Youth Development Fund and other initiatives. And in our e-com, we gave $2 -- or EUR 2 donation to the WSA Solidarity Response Fund for every e-com purchase above EUR 20. And then we have ensured that people work out from home by giving them access to a premium part of our Runtastic app, and hundreds of thousands of athletes using our videos to make certain that the train and stay fit from home. This is a very important part because a big part of the global population today are "locked up" in apartments or houses and are not allowed to get out and their well-being is important for us moving forward.When I look upon how we've been running the company for the past 6 weeks has really been divided into 3 groups: increase inflows, reduce outflows and an additional financing, meaning we went from a P&L to a balance sheet because that was what was required. We changed the way we did this mid-March. Basically, we had the following priorities: more aggressively push e-com and reallocate resources to e-com; secondly, doubling down on recovery in China and Korea and where opportunities come; and number three, of course, intensify collections wherever possible.When we look upon the reduced outflows, it was practically adjust order book and use fixable cost base without jeopardizing future prospects. We'll give you more details later. And of course, also on the CapEx side, basically stop retail expansion, remodeling and new IT projects and reallocate resources from IT to our digital setup.And then, of course, look upon the underlying financing. What we have done is we believe that financial flexibility is key. The majority of businesses are closed and uncertain when that will change. And what we have done is we have tapped into existing credit facilities and repatriated cash from foreign subsidiaries. We have access now to additional EUR 3 billion of cash through the KfW syndicated loan, which we'll use to bridge this unprecedented situation. Harm will speak you more through this in detail.And in this context, we'd like to thank the German government for its fast and comprehensive course of action in response to this global financial crisis -- global crisis.What are the long-term implications for the industry? And here, I'd like just to pause a second just -- because I think it's important that we get the long-term very clear ahead of us. We believe that health and sport will become even more important to the consumers moving forward. I believe very few people globally have not thought about their own health almost on a daily basis in the last 6 to 8 weeks. So the move towards a more health and exercise-oriented global population has been accelerated through corona, maybe not in the short term, but definitely in the medium-term and in the long term.The global brands and brand strength matters more than ever and behaving appropriately and also being present and engaging with the consumer throughout the crisis is extremely important. And thirdly is we're seeing a fast forwarding of the digital transformation. Since 2016, digital has been our agenda as a digital cornerstone, but there's no doubt that the acceleration we're seeing right now towards a more digital and DTC-led company is getting a huge step forward compared to a normal setup. So there are long-term implications for the industry, where several of them are very, very positive. That does not preclude that we have significant challenges in the short term, but the medium, long-term remains or has increased in the positive outlook.Now let me take you through the business update. We continue to leverage multiple dimensions of innovation, and that means launching new products or new campaigns. Our #hometeam campaign has been our biggest campaign ever in the history of adidas, where we're using 60% of our global assets in promoting our brand and engagement with consumers, where we have new campaigns within the framework coming up every single day. It has been a new way of engaging with the consumer, and a way what we see forward will be an extremely effective way. And as you can see, it has been our most effective campaign ever.At the same time, products also continue to sell. Our Superstar, which celebrates its 50 years anniversary, was up 20% in the first quarter despite the 20% down for the company. Our Predator football boot was up 30% in the first quarter. And not to forget, while it's a while ago, the launch of the Beyoncé Ivy Park collection in January was instantly sold out and continues to have an extremely high buzz. It means that we have one of the most exciting females related to the entertainment industry relating or working with adidas, and we're very excited with the future launches that are coming.So while we speak about a quarter in great crisis, we have been able to see a number of successful product launches, story launches and also new collaborations.When I look upon the strength and weaknesses, we were actually off to a good start before the coronavirus started. After the first 2 months, we're running at an 8% growth, excluding APAC. So very similar to what we've seen in the past or in the higher end.We also have immediately put a number of effective actions in place to keep our people safe. As I said, 40,000 people are working from home, and we've had a very low exposure to the coronavirus within the adidas family.We've done an extremely fair shift of resources towards digital, not only product and money resources but also people resources from in -- within our organization, where we're taking traditional IT resources and allocated them to speed up our development of our digital platforms. And we've built sufficient financial flexibility within our company.Of course, there are also things that gave us a lot of challenges. The global breakout of the outbreak of the coronavirus and the speed -- and it hit particularly in the beginning of March, with Europe, U.S. and Latin America being impacted within 3 days. The headwind from the exposure we have to Greater China, which will, in the longer term, be positive for us. But of course, with the 23% share of our business coming from China, we were very much exposed in the first quarter.The elevated inventory levels that are coming out of this, not only for us or the sporting goods industry, for the globe as such, if the globe closes down for 6 weeks, not having elevated inventory levels would be, I would say, a misjudgment. And we'll continue to be able to deal with that or have to deal with them moving forward.And then, of course, from a number of standpoint, a material decline in our profitability for the first quarter, down more than 90%.Now this brings me to the P&L at a glance. Revenue decreases 19% in currency-neutral and also nominal to EUR 4.753 billion. The gross margin down 420 basis points to 49.3% due to declines in most markets. The operating margin down 13.5 percentage points, down to 1.4%. And net income from continued operations, down 97% to EUR 20 million. And basic EPS down a bit less, 96%, to EUR 0.13 per share.If you look upon the strategic growth areas, North America grew 1% but had double-digit growth into end of February, then we had the store closures. Greater China, down 58% and particularly around the Chinese New Year and into February, where we were heavily impacted. We're seeing a recovery starting to materialize in March, which we'll speak about later in this presentation.And on e-com, up 35% for the full quarter, up 55% in March and up a triple-digit in the beginning of April. So we are clearly seeing a huge migration towards -- business migration towards e-com.From a brand standpoint, the adidas brand was down 20% and the Reebok brand was down 12%. The reason why the Reebok brand was down less than the adidas brand was the relatively lesser exposure overall to Asia compared to adidas. That picture will, of course, change moving forward. But I would still say we still have very, very strong product launches, whether it was Superstar, YEEZY, Beyoncé and even adilette, which I'll get to later.But with this, I'd like to hand over to Harm, who'll take you through the financials in more detail. Harm, please?

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

Thank you, Kasper. Let's start with the development of our market segments. A look at our regions on the world map illustrates how the coronavirus and its negative impact on our business model actually moved from East to West. Asia Pacific was impacted first and most severely in Q1 with revenues down 45%, mainly driven by a sales decline of around EUR 800 million or 58% in Greater China. This includes the take-backs in a triple-digit-million euro amount to manage inventory leveled in the market. While stores in Greater China and South Korea reopened during March, closures came into effect in most other parts of the world. Up until this point, we had a good start to the year with 8% growth by the end of February, excluding APAC. Europe was up in the mid-single digits, while most other regions posted double-digit growth in the first 2 months.Closures, hence significantly weighing on the first quarter sales developments in emerging markets was minus 11%; in Europe, minus 8%; Latin America, flat; North America, plus 1%; and to a lesser extent, in Russia/CIS, plus 9%. Declines in regional operating margins correspond to the revenue shortfalls, reflecting the operating deleverage.When we take a closer look to the P&L in Q1, Kasper mentioned already the 90% decline on the net sales, both in currency-neutral and nominal. So if you go a little deeper in gross margin, a decline of 420 basis points to 49.3%, driven by less favorable regional mix due to the overproportionate sales decline in Greater China and negative FX developments given the strong dollar. In addition, we recorded cost in a high double-digit million euro amount related to the cancellation of purchase orders from suppliers in Asia to adjust the inbound flow of inventories to the current circumstances. This alone accounted for almost 2 percentage points off the gross margin decline.Operating expenses, minus 1%; and as a percentage of sales, plus 9.1 percentage points, starting with the marketing investment. Marketing remained stable as we executed the majority of our consumer marketing and product activation efforts in full during the first 2 months of the year and accelerated investments to support e-commerce.Operating overhead decreased 1%, including the impact of higher bad debt allowances. More detailed on our approach to cost flexibility, I will give you later on.Operating profit declined 93% to EUR 65 million, and the decline reflects operating deleverage due to the revenue of shortfall. This includes a combined negative impact of around EUR 250 million from the product take-backs in Greater China, the cancellation of purchase orders and the increase in bad debt allowance. And again, the take-backs amount to a triple-digit million amount, the cancellation of purchase orders and the penalties associated with that is a high double-digit number. And again, we accepted this hit in the P&L in Q1 to prepare for a healthier second half.On the net debt and equity position, the net debt amounted to EUR 570 million at quarter end. This represents a deterioration of more than EUR 1.4 billion compared to the net cash position of EUR 873 million at year-end. The net debt position still is modest in historical context. You see 2016 and 2017 was closer to EUR 1 billion. More detail on the liquidity developments and measures later on, and the equity ratio remains solid at over 32%.Now on the development of the operating working capital. Only moderate increase in average operating working capital to 19.4% as a percentage of sales. The inventories were actually up 36% currency-neutral due to the inevitably lower-than-expected product sell-through caused by the broad-based store closures and consequently, lower shipments to our retail stores or to our hotel accounts. Receivables down 5% currency-neutral, partly driven by lower shipments towards quarter end. Payables were up 25% currency-neutral, also reflecting measures to manage our cash outflows.Now I would like to give you some more details on the priorities that we set as a management team in these unprecedented times. With our current priorities, we are striking the balance between short-term challenges and long-term opportunities. Health and safety of our people and community, of course, remains a top priority. 4 of our further priorities to be covered in this section, the operational flexibility. So we have plans in place to manage our inventories and our cost. The financial flexibility, we explain the decisive measures we have taken and the access to additional liquidity. The digital opportunities, e-com, more important than ever before, and the learnings from China, the first major market on the road to recovery. I'm going to discuss our operational and financial flexibility. Kasper then is going to cover digital and China.Adjusting our cost base to protect cash and profits, given our lower top line, is the #1 priority. Of course, we are doing this case by case in order to not jeopardize our future prospects. When we go into the details of our cost, I would like to decompose a little bit based on the fiscal year 2019 and what our flexibility is in 2020. And of course, again, the cost for focus on technical measures to not jeopardize our future prospects. When you look at the operating overheads, which is more than 2/3 of our cost base, personnel expenses are largely fixed. We go through these unprecedented times with our 60,000 employees and remain committed to protecting their financial security.We execute on strict saving plans in logistics, travel and entertainment, IT projects and anything that is discretionary in spent. We also have flexibility in e-commerce and DCs or warehouses but consider those areas to be critical for our store that is open 24/7, which is digital.On the marketing side, which is almost 1/3 of our cost base, we realize savings through variable endorsement contract components and the cancellation of physical events. We also remain committed to brand building sports marketing contracts and campaigns. Kasper talked about the #hometeam, which level's more than 50% of our global assets in the campaign.Different to Q1, where we had limited time to react to the rapid global spread of COVID-19 towards the end of the quarter, both operating overheads as well as marketing investments will be down year-over-year in Q2 in absolute terms. We also have a plan in place to arrive at a healthy and reasonable inventory level at year-end. First, it's a proactive order management to align deliveries towards lower demand and repurpose and liquidate existing inventories through the course of the year.So the first chart that you're seeing here right now -- and please understand that the bar chart that you're seeing here are illustrative by nature. So don't calculate every bar chart, it's an illustration. And you see that we placed orders in the blue chart that will be delivered. We also placed orders that we have actually postponed to later quarters or later months, and we actually canceled some orders proactively as well. And all the cancellations have been a close alignment with our suppliers. That's how we are managing the inflows of inventories through 3 distinct measures. And then, of course, we're optimizing the inventory flow through the full year as well as we are starting with an elevated inventory level. And we are pulling several levers to deal with the existing inventories. First, there's evergreen products that will be repurposed into 2020 products. And these are not just the Stan Smiths and Superstars. There's a lot of products that will be as relevant in spring/summer '21 as they are in 2020.The majority of remaining products will go to our own operated factory outlets. We have 1,100 factory outlets globally, and we stopped ordering for these outlets to clear some of the inventory that has been built or will be built in Q2.e-com will also provide an opportunity to clear inventory through commercial moments and major online sales events throughout the year. The most prominent will be Cyber Week and it will be Singles Day or Doubles Day in China. And the smaller portion can also be moved through selective retail partners. However, I want to be very clear, we do expect the promotional environment as the closure affect the entire industry in the second half. Against the background arriving at reasonable inventory levels at the end of the crisis is a clear priority for us. That is also reflected in operating working capital targets we have reintroduced for all markets, whether it's in inventories or receivables management.We have also taken some decisive measures to ensure additional liquidity. The current situation poses a challenge even for healthy companies, in particular when it comes to liquidity. We have sufficient financial flexibility. We suspended the dividend and the share buyback. We reduced management compensation. We will use existing cash buffer and tap into unused credit facilities. And access to the additional EUR 3 billion syndicated loans through KfW and partner banks, which we will use to bridge this unprecedented situation.Now I would like to show you some more details on the cash outflow in Q1 and the cash development in Q1. So let's take a closer look at the cash consumption first. As you can see on the left-hand side, it was primarily driven -- the overall cash consumption of EUR 1.4 billion was primarily driven by operating working capital of EUR 1.1 billion. And then, of course, we had the share buyback and then keep investing in our company with CapEx.The outflow was limited by effective measures, roughly EUR 300 million to maximize cash inflows while minimizing also outflows. That's what you see on the right-hand side. The right-hand side also displays where we tapped into existing credit lines and other sources of funding, roughly EUR 1.2 billion. As a result, we had a cash position of EUR 2 billion at the end of March. EUR 1.3 billion of that is directly accessible at the AG level, while EUR 700 million is sitting in foreign subsidiaries.So what is our total accessible liquidity on a decomposed basis? As explained on the previous chart, we had EUR 2 billion of cash at the end of March. We have already repatriated some cash from foreign subsidiaries, but there's still EUR 700 million sitting in these subsidiaries that are not readily available and only partially available to us. We now have also access to an additional EUR 3 billion through the KfW syndicated loan. So EUR 2.4 billion from KfW plus EUR 600 million from our consortium from our partner banks.Let me be very clear, this revolving loan comes at customary market conditions. It does not include any government subsidy or any equity position into adidas. We will make use of this loan to cover our liquidity needs during the current crisis. We will pay back any used part of the loan, including interest and fees, as soon as the situation normalizes. As nobody knows when this will be, we can also -- we can also not predict reliably at this point in time to what degree we are going to make use of the credit facility and when will it be paid back. We aim to make use of other funding sources as they become available in order to substitute the syndicated loan. In sum, we have direct access to EUR 4.3 billion of liquidity, which provides us with sufficient flexibility.With that, I would like to hand over to Kasper again.

[Kasper Bo Rorsted, CEO & Member of Executive Board]

Thank you very much. So Harm spoke about the part of the balance sheet. Let me now go back to the P&L. There is no doubt that the 1 store that is open in the world is e-com, and we've been using that very strategically, not only in the last 6 weeks but basically since 2016. We originally had a target of approximately EUR 4 billion for 2020. So despite the fact that we have a, I would say, meltdown of the global trading environment, we have now raised the target to beyond EUR 4 billion.And what we've done is we have reallocated resources across the organization where there's technical resources, marketing resources or sales resources to ensure that we accelerate the growth that we'd originally planned. We're driving brand awareness and digital sales through consumer-facing campaigns and well-received product launches. I spoke about a number of them today. And as I said, we are looking upon and using e-com as a mitigation to minimize impact of the potential disruption.So while we're making great progress in this area, let me just -- one thought -- one moment of caution, of course, we will not be able to subsidize the business we will be losing completely in our brick-and-mortar. But what we are doing, we are dramatically accelerating our e-com business and also for the long term, moving into a more DTC focused setup.And what we did was, as I said, we doubled down and raised our targets. We're prioritizing our in-house supply chain and reallocating inventory to e-com. Meaning that in the past, we would have in count now inventory that was reserved for wholesale orders that has now been reallocated and of course, making certain that our e-com business can get access to all of inventory.We're focusing product launches in our digital channel. We're shifting, as I said, marketing investments towards digital, so increasing our marketing spend. We're reallocating people from the entire organization to where it makes sense within our -- the e-com setup. And we're also having efforts to support growth in our digital partners business, so the wholesale business. And that means that not only the Zalandos of this world, but JD, Foot Locker, et cetera, who all have digital channels that we continue to collaborate with them and cooperate because part of our business is coming through that channel environment. That is not included in the numbers I'm speaking about up here. So a strong increased focus on our e-com business to make sure that in the short and the medium term, it will help the company.So we also leverage our integrated digital ecosystem to drive brand awareness and sales. We do hype launches such as YEEZY or Beyoncé or 4D. We engage consumers through free premium access to our running and training app because we know when people engage through our app, we have a higher conversion rate. And we're launching social media campaigns like #hometeam campaign, the most successful campaign we've ever done. That means that the successful e-com growth, we had this approach from creating the new from the previous years, we'll continue to move forward, and we believe we have built a proven recipe for success in digital.When we look upon China, and trying to take the first learnings out of China and understand how can we apply these learnings to the road to the recovery for other markets, we're looking upon and saying -- seeing the retail business are recovering since stores are opening at the beginning of March. But traffic and conversion trends are normalizing over time, but they are below normal rates. So even when traffic goes up, conversion still remains lower.We're seeing e-commerce business also impacted during February but recovers much quicker, driven by aggressive doubling down on digital channels. And we see the same in other markets, when the market closes down, it also brings initially the digital channel down, and that then recovers after a couple of weeks.And we have built a successful strategy to revitalize retail after the end of the confinement period, creating brand moments and campaigns to drive traffic and conversion. It's clear that when the stores have been empty for 4, 6, 8 or maybe 10 weeks and consumers have not been in the store, it takes a while to get people back into the store and convert. And we're taking all the learnings from China and building that into a recovery plan for the rest.And what we've given you here is a chart which is indicative of what we have. The China DTC business, so the direct-to-consumer business, has shown a rebound after the sharp decline in February. We're seeing sales growth in own stores turning positive at the beginning of April, however, mainly driven by commercial movements we created in our own stores, and that will continue across the board for the entire industry. We see sell-through levels in franchise continue to below prior year level, partly due to commercial moments but also partially due to locations. We're seeing traffic conversion in-store normalizing gradually over time rather than instantly. So that means that the new normal is not I go back and did this week what I did 6 weeks ago. It takes a while to come back to previous levels.As we said, e-commerce was also impacted but less and recovered earlier, in China e-com accelerated to triple-digit growth in the first weeks of April. So let me just pause here and just repeat the e-com number. e-com was 35% for the quarter, it was 55% for the month of March and in China it's now triple-digit in April. So you can see the rapid acceleration we're seeing in e-com. We're seeing similar chart and developments in our other regions, as you see in this chart, with the delay factor. So you're seeing a relative improvements in all markets as time goes by.So we're taking the proven setup from China on how to stay engaged with the consumers and restart business. And we believe what we serve -- we need to serve the consumers' needs in digital also during the lockdown, irrespective of whether a transaction will take place. That means we stay in touch with consumers and celebrate in a confinement period with them, try to make certain that they understand we're coming out of a closure, and we initiate commercial moments to drive traffic after restrictions were lifted.We're confident that 2020 will only be a temporary dip in what is a long-term growth story in China. We've seen double-digit growth from 2015 to '19, and we're confident that China will go back to previous growth levels.Now let me come to the outlook. We focus so much on the coronavirus that sometimes we forget that we actually have a normal company to run. And our product engine continues to run now digitally. We have record sales of our yoga mats. Fit From Home keeps our communities alive. The iconic adilette growing triple-digit in April as we activate our loungewear products. So people now start using the adilette as their home shoe. We're expanding the UltraBOOST franchise with new prime blue recycled models. We've celebrated the 50-year anniversary, and we are celebrating, of Superstar with a unique Pharrell collaboration. And as I said, we grew the business 20% in the first quarter, despite the overall business being down by 20%. We see 3 years of 4D in May and continue to scale across categories and price points. And the Reebok Zig Kinetica continues strong performance in our DTC channels and through partners. So what I'm saying is we continue to create products. We're going to continue to bring products into the market, now just predominantly through the digital channels.When we look upon how do we get through this, we look upon it in 3 stages: managing the storm; coming out of the storm; and managing the new normal. The managing the storm is partly what we spoke about before. It's how do we get our balance sheet under control, generate cash flow that allows us to make the right decisions for the future. And that contains the health and safety of our people. The right operational flexibility in our supply chain, ensuring that we have the financial flexibility to maneuver and going after our digital opportunities.Coming out of storm is understand how the changing preferences and shopping behaviors impact our business in the future, and that's where digital and DTC helps us. The ramp-up of locations when we can, and we're not only in control of that ourselves, of course, it's very much under government scrutiny. And I think what you're seeing in the weeks to come is going to be one of the most important moments is the opening up of Germany, which is the first major country outside Asia that is opening up, and you're seeing a slow sequential opening up of retail environments.And depending on the learnings from this, I'm certain that many countries will draw their own conclusions and make decisions, but of course, I'm certain, impacted and also influenced by the learnings of Germany.Making certain that we have the right resource and inventory reallocation, so where do we have inventory, how we spend it in the most appropriate way and refocus on the long-term strategy execution. So we want to make certain that we're capable of taking the long-term right decisions for the company, investing in the right store at the right place or investing in the right sport asset, which is why the financing is so important for us, while at the same time, being very prudent on the cost side.And coming out of the recession or the normal, understanding what is the impact of, do we have a global recession, and which kind of economic uncertainty will come. We're certain that health and sport will be even more important moving forward. I spoke about before and I'll reiterate here, we're very confident that the very positive position of sport will continue and will be enhanced moving forward. Brand strength matters, and that's why we continue to invest in the brand because it is going to be a consolidation around the pick. And it has brought and will continue to bring a fast forward of the digital transformation for our industry but also for our company.If you look upon the current situation, we're right now trading in an environment where 70% of our stores are closed or 80% are partially closed. So it's a very different trading environment that we've had. But at the same time, we are working on how does the world look beyond this position and engaging very deeply with local authorities to understand how we can open up. But this is the trading environment you've seen through April. That means that 70% of our stores have been completely closed and approximately 10% have been partially closed. All countries more or less with the exception of China and Korea has been closed. The only global store is online.Our picture should not be any different to pretty much any other picture in the world because what we're describing here is the legal -- the consequences of the legal decisions that the countries in the globe has taken, and of course, it has had a significant impact in our business.And that brings me then to the outlook for the second quarter. We expect revenues to be down by more than 40%. In Q3, only 3 countries were impacted for a prolonged period: China; Korea; and Japan. In Q2, China and Korea recovering versus Q1, e-com is accelerating versus March with 55%. But almost all other stores have been shut for the first month in Q2 and will most likely stay shut for a while. So we lost more than EUR 1 billion already in April. And obviously, Q2 sales will decline as we've seen the start, and it will be more outspoken than in the first quarter. So we expect a revenue decline in the second quarter of more than 40%.The Q2 operating losses in the triple-digit minimum range. We have taken the flexibility in our cost base and are making use to make sure we protect cash and profits. Margin, working budget and operating overheads are going to be done in -- be down in absolute terms in the second quarter. At the same time, we'll also remain committed to protecting our employees' financial security. We need to make certain that we have a sound and well-functioning employee base that will allow us to start up when the start-up happens. And that's why we need to make certain that we take the right decisions, not only from the employee base but also making certain that we don't take any decisions that jeopardizes the future prospects of our business, and again, deliver in Q2, given the more pronounced top line growth.So the outlook is based on the following assumption: Our current assumption is that we will be able to sequentially reopen stores throughout May and June and have a largely operational store base by the end of Q2. In Europe, we've already started to open selective stores, 20 are open and 20 more to come. In North America, we expect to start with the first reopening of the stores mid-May.However, there are still many uncertainties as we manage through 2020: the speed of recovery in China plus the risk of setbacks; the duration of store closures and openings in the rest of the world; the economy and consumer sentiment and excess inventories across all markets. That's why in the context of this, we do not believe it's possible to provide the outlook for 2020 that includes the impact of the coronavirus, but we'll give you a quarterly outlook as we speak.When it comes to our strategy, we will hereby inform you that we will now present our strategy in March 2021 because we do not believe that we can present it in the right environment by the end of 2020. We see that the global economy is still very volatile. And we want to make certain that we have found a position of a high level of stability, not only for the global economy but also for the company to ensure that we give you the right economic outlook for our next 5-year circle.We believe that despite the challenges that we have seen, there is an opportunity to become a circular winner from this crisis based on what I said before. The move and acceleration towards a more healthy lifestyle, the increased focus on digital and the consolidation around pure stronger bones.That brings me to the summary. We're focusing on navigating the company through this period of time, which nobody has seen before. We're using our operational flexibility that is sufficient and also our financial flexibility. We're doubling down our digital channels and tools to ensure that we migrate our company faster towards the DTC setup. We're seeing the structural industry trends being amplified and accelerated, which in the medium-term is an opportunity and a bigger -- and a positive for adidas. And we believe enabling the long-term success by preparing for the new normal, dealing with the current, but make certain that we're prepared for tomorrow, and we're doing both in parallel.With this, I like to thank you for your patience, and Harm and I now look forward to taking your questions. Thank you.

[Operator]

[Operator Instructions] The first question comes from the line of Graham Renwick from Berenberg.

[Graham Ian Renwick, Analyst]

Just a few questions for me, please. Just firstly, on gross margin, is it possible for you just to break out the components of that 420 basis points decline in Q1. In particular, what was the discounting element of that? And was there an inventory provision or increased inventory provisioning in Q1 COGS for future markdown, given the elevated inventory levels you have? And if so, how much?And then secondly, on e-commerce, just wanted to get an understanding of how much of that sharp increase in growth have been driven by sort of promotional activity versus underlying demand. And when we think about the new target for over EUR 4 billion in sales, is there going to be a lot of clearance within that, that won't repeat next year? Or is that going to be a sustainable base that you can grow the e-commerce business of next year? I mean ultimately, will you have a structurally higher share of e-commerce going into next year?

[Kasper Bo Rorsted, CEO & Member of Executive Board]

Yes, Graham. Starting with the 420 basis points on the gross margin, as I indicated earlier, of course, there's market mix and there's FX in there. There's limited promotional activities in there, just limited to China. But otherwise, I mean it came too late and in end of March for other markets. So it was normalized, as you saw. And then the remainder is CPO cancellation, the penalties for that, where you said it's a high double-digit amount. Of course, there's an inventory revision in there as well. But as you know, based on our policies, the inventory buildup that we have in Q1 is pretty much current inventory that we're having of spring/summer '20. So it's only a limited amount of inventory revision in there.

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

When it comes to your e-commerce question, we don't do the split out between promotional and nonpromotional-driven revenue. You should assume, particularly in the latter part of the quarter, that more has been promotion. But just remind you that we did not see the closedown of the 3 largest, Europe, U.S. or Latin America, before around the [15, 16]. From a clearing standpoint, of course, part of it is clearing. But Harm also very clearly said we have 1,100 factory outlets. Of course, they will, for next year, be the primary clearinghouse for us. So we need to find the right balance. I do believe that the foundation we're putting up will be a sustainable one because when consumers get used to shop online, frankly, they shop online with and without clearing. But we will be using, of course, also this year, our factory outlets as primary clearing channel. Right now, because they're not open, we're forced also just to use e-com. Over time, of course, that will migrate more and more to our factory outlets.

[Graham Ian Renwick, Analyst]

That's great. Can I just follow up? Is there any sort of stats you can give on sort of the greater engagement you're seeing through digital channels? For example, how many more people have signed up for your -- or downloaded the app in Q1? How many people have signed up for the Runtastic apps? Is there anything you can sort of gives there, to give us a sense of the greater engagement you're seeing there?

[Kasper Bo Rorsted, CEO & Member of Executive Board]

No, we don't give those stats out. But of course, you can assume there is a correlation between the revenue growth and the stat because we are seeing a very strong revenue growth.

[Operator]

The next question comes from the line of Geoff Lowery from Redburn.

[Geoff Lowery, Partner of Non]

Two comments, please. Firstly, can you help us understand what your approach is to inventory that sits with your channel partners outside China? Obviously, you took back a significant element of inventory that was sitting out there in China. Can you help us with the strategy ex China?And secondly, just on gross margin, to understand the 200 basis points or so that you've taken for cancellation and adjustment to forward orders. Does that get your full year buy into line with where you want it to be? Or will some element of the charge for that recur across quarters 2 to 4, please?

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

Yes, Geoff, probably stating -- starting with the gross margin, as we indicated on CPO cancellation. And you can assume that this is largely covering what we had to adjust for the full year, assuming also the recovery in the second half through the net sales. So assume it's a hit that we took in Q1 to be at healthier levels in the second half. And based on our order windows, that's where we had the flexibility also towards the year-end. So assume it's largely covered in the first quarter.Secondly, on the inventory approach, we are not exactly repeating what we did in China. In China, when we did the take-back, there was an isolated event in China where we did it for China. And of course, this will, as Kasper mentioned, be cleared through the factory outlet network that we have in China that is also opened in China as we speak.We will have a different approach in the rest of the world, where we have been better prepared now. Based on the learnings also from China, we're working with our account relentlessly. We are now adjusting the seasons where we are shifting -- as I indicated in our bridge as well, we are shifting the season by 4 weeks or 6 weeks. We are planning more diligently, what are the carryovers in spring/summer '21. So it's a much more strategic approach relative to the technical approach that we had in China. So do not assume that we have a similar approach for the rest of the world as we have seen for China in Q1 and with respect of impact on Q1 financials.

[Operator]

The next question is from the line of Piral Dadhania from RBC.

[Piral Dadhania, Director of Premium Brands]

So if I could perhaps start on -- with North America. I believe that was the only region to see a significant gross margin gain of 280 basis points. Could you just help us understand what the drivers of that game are? Was it channel, FX or perhaps anything else? And equally, in North America, I think OpEx increased by close to 30% in the quarter as well. So could you perhaps just help us understand whether there's anything specific just to call out there?And secondly, just in terms of the EUR 250 million one-off, could you perhaps just break out how much of that was in COGS? And how much of that was in OpEx related to product take-backs, bad debt provisioning and PO cancelations?

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

Yes. Starting with North America. Of course, the gross margin, indeed, you identify that as better than prior year. And again, you always find the comparable quarter. As you remember, we had the capacity constraints last year in the U.S., where we had some challenges to get the product in. That's why it's positive in Q1 2020 relative to the negatives that we had last year.Then you had a question on the operating overheads. Yes, it's also comparable to last year, where we had the additional supply chain cost and the -- not -- it wasn't the airfreight because that is in the margin. But there was the additional cost that we had to bring the product in, and we had additional operating overhead not just last year but also this year as well. On the one-offs, as I said, the PO cancellation is primarily in the gross margin. And there are some -- of course, in the market mix, you see it in the gross margin as well. And some of the take-backs from China, you will see in the gross margin. And then primarily, what you see in the bad debt is on the operating overhead.

[Operator]

Next question is from the line of Elena Mariani from Morgan Stanley.

[Elena Mariani, Executive Director of Luxury Goods and Brands]

My first one is about your performance versus peers. I'm talking about Western peers and also in -- to a certain extent, Chinese peers. I was curious to understand how you explain the delta in performance versus your main competitors, which seems to have posted -- or guided to a milder P&L impact from the virus. Is this because you're buying back more stock, so you're taking a larger hit initially while perhaps others will take a more gradual approach? Or is it because of a different distribution structure mainly in China? Is there anything that we've been missing just because, particularly in China, even if you exclude the impacts on your inventory buyback, the underlying performance seems to be poorer versus other peers?And then second question is about the moving parts of your working capital. Could you comment on the relationship and the dialogue you've been having with your suppliers and retailers? And I was looking at your Q1 moving parts. And I was curious to hear whether you've been given some extension in the payment terms by your suppliers? Or maybe simply, you're using the maximum headroom available? And same questions for the retailers, which sort of flexibility are you giving them on payment terms? And what have you been agreeing with them on the future sell-in and the level of discounting they will be able to apply to unsold products?

[Kasper Bo Rorsted, CEO & Member of Executive Board]

So Elena, let me start with the first question, and Harm will take the second question. Right now, there is no peers that are reporting in the same time period. And I think that's the most important part here. The coronavirus started around the 20th of January. And depending on which reporting cycle you have, you actually have different closure dates. So to the best of my knowledge, I don't believe there's any of our peers that reported a first quarter that's identical to the calendar quarter. For me, that is the most important one.So for us, I don't know where the comparisons are coming. The comparisons that we have, which is the only one we can have is, we've looked upon online trading on the Chinese trading platforms, where we've actually been either #1 and #2 consistently in the last, I would say, 8 weeks on online trading. The reported trading in the period, I do not believe, and maybe I'm wrong, but I have not seen any of our competitors coming out and reporting Q1 comparable numbers from a timing standpoint to us. So that's why I can't comment on it because I simply -- I don't believe anybody has done it.

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

Yes. On the second question on the operating working capital, indeed, first and foremost, we work with all our suppliers to make sure that they're -- that we're going through it as partners. So of course, we reviewed the payment terms. We also reviewed the utilization of our suppliers. And everything was in good collaboration with our suppliers, that we stay healthy on both sides. Then of course, beyond the trade suppliers, we have nontrade procurement as well, where we rather talk about the IT project or other discretionary spend that we have, where we extended our payment terms. And you saw part of that in the payables.When it comes to the retailers, it's a market-by-market, account-by-account approach. And as I said, we are not repeating what we did in China with the product take-backs. We have a different approach in other markets. And depending on the account, there are different strategies to it that our sales team are executing depending on when it's opening, depending on what the inventory levels are, depending on what the overdue of the receivables are. But as you mentioned earlier, we are definitely very diligent on our collection side as well, but it's a give-get scenario account by account and market by market.

[Elena Mariani, Executive Director of Luxury Goods and Brands]

Great. Maybe just one small follow-up. So is it fair to say that in China, you've practically done everything, you've pulled back as much as possible. So you are ready to restart with some new fresh sell-in. While perhaps in other markets, it's going to take more time for the inventory to be cleaned up, given that you cannot use that onetime approach.

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

That would be a correct assumption. But the one caveat you should have, of course, is the Chinese inventory matching the sell-out? And we expect China to be back to previous level by the end of this quarter. So the end of the quarter, you're reaching the right -- the same trading level. So of course, that assumes that, that forecast is correct. Right now, that is the indication that we have when we look upon the daily trading increase in China, online or off-line. But of course, that's an assumption that we're having right now. All assumptions are volatile.

[Operator]

Next question is from the line of Jurgen Kolb from Kepler Cheuvreux.

[Jurgen Kolb, Analyst]

Yes. Two questions. First of all, on the CapEx line for this year, maybe a quick word on what you're planning for the full year. And also in this respect, with respect to the own stores development, as you push more of the online business, does that mean that you're planning more store closures this year? And maybe with a little view on the next years, what you think will happen at your own retail business in the physical stores. And on the debt side, of the EUR 2.1 billion bilateral credit line, I believe you had, how much of that is drawn at this point in time?

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

On the first one, on the CapEx line, Jurgen, of course, we reviewed every CapEx spend that we have. And we delayed some of the retail expansion. We have delayed some of the remodeling. We're optimizing it. We definitely reviewed some of the IT projects. So based on the guidance that we have given, we assume it's significantly below that guidance without raising a new guidance now for CapEx specifically. But we went through every line and we'll significantly reduce that one.When it comes to the credit lines, I'm not going to give you the details to what has been drawn. But you can see in the bridge that I presented earlier, there has been -- EUR 900 million has been drawn on committed and uncommitted lines, and there's been EUR 300 million extra financing that we have realized. So EUR 1.2 billion is additional cash that we've brought in, in the first quarter. That's as much as I can say about that.

[Jurgen Kolb, Analyst]

With the own stores, own retail stores, maybe more closures this year than initially planned?

[Kasper Bo Rorsted, CEO & Member of Executive Board]

That will be -- that will evaluate the situation as we see it moving forward. So there is no doubt that in certain areas, there will be store closure. I would not rule out that we'll do store openings. So we believe we can find the right retail locations at the right price that we know is long-term appropriate for the company. I would not rule that out. But right now, we're looking upon it. It very much depends upon what is the opening scenarios, and that will, to a certain extent, drive it. We have done a substantial "remodeling and cleanup" of our retail fleet in the last couple of years and have a fairly updated retail fleet.

[Operator]

The next question is from the line of Warwick Okines from Exane BNP Paribas.

[Alexander Richard Edward Okines, Research Analyst]

I've got 2 questions. Firstly, could you give us a sense of the scale of newness product launches that you've delayed and postponed as a result of the lockdowns. It doesn't sound like you've delayed a lot so far, but just interested in your thoughts on that.And then secondly, on cost savings. Thanks very much for the very helpful charts around flexibility for 2020. Could you comment anything -- anymore about Q2, though? Because the dynamics, obviously, are quite different in Q2, having so many stores closed. Are there differences? Or should we use the pie charts that you've given us as a decent guide for our estimates for 2Q?

[Kasper Bo Rorsted, CEO & Member of Executive Board]

So I will take the product launches. We have made very few changes to our product launches in the past quarter and also the quarter to come, also because a lot of the product launches are related to the season. So if you want to have a summer product, there's no point in delaying a summer product to a fall launch. So we have the products, which are time relevant. And then what we have, we call the evergreen products. The evergreen products will have carryover with, so that means they will last longer. It could be a black pair of adidas trousers with white stripes on. They are not very -- they're not very relevant to the time.But of course, the other products, we continue to, either from a relevant standpoint due to the season or simply because we're operating within an architecture. The architecture would be the 4D products where we continue to evolve and develop new products or our new running series of SL20. Those will, of course, continue to launch. And now we've just chosen to launch them online. And we believe it's the right way of doing it. So continue to overall launch around the calendar the evergreen products. It's that -- the black training pants or the adilettes. They will have a longer life time than maybe normally. But overall, we have not had a big change in our launch calendar.

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

On the cost savings, Warwick, of course, as I said, we will be below prior year in the second quarter, but still there will be deleverage. And what we need to balance is the technical measures that we're implementing without jeopardizing our future prospects. And again, we are protecting our 60,000 employees. But we -- of course, we had more time to go deeper into the cost base for Q2, and that's what you will see. But do not expect that we can mitigate the significant sales decline on the cost side, but it will be below prior year, both on the marketing and on the operating overhead.

[Kasper Bo Rorsted, CEO & Member of Executive Board]

I would just like to just mention a point that Harm has touched on before, with the acceleration we're seeing in e-commerce that is flowing into operating overhead. So when you see that we came from 35% to 55% and triple-digit in the month of April, that is an expense that we're seeing occurring in operating overhead. So I just want to make sure that you have that as a reference in your modeling.

[Operator]

Next question is from the line of Omar Saad from Evercore ISI.

[Omar Regis Saad]

Thank you very much for the comprehensive presentation. It's very clear what your near-term and long-term priorities are. Two questions. I wanted to know, number one, if you have a view on organized sports this fall, whether it's a professional level or the youth and school level. I think that it's pretty to -- or it's easier to think about the pro sports with testing, getting back on field, maybe not with full stadiums. But I think that the youth sport level, it's maybe organized sports and team sports, it's harder for us to understand how that might play out.And then my second question is on conversion. The comments you made in China around conversion I was interesting. Is the weaker conversion happening online as well? It doesn't sound like it. And then in stores, do you think the conversion is weaker with apparel versus footwear? Because there's a safety fear or trying products on in the dressing rooms. Are you seeing any different consumer behavior around traffic and conversion in younger consumers in China versus older? Any sort of color around that both dynamics would be very helpful.

[Kasper Bo Rorsted, CEO & Member of Executive Board]

So on the first one, sports participation. This is a very difficult question because there's one element, which is in regulation. What does the different countries allow you to do? And I'm not speaking -- I'm speaking about the question you asked, not the big sporting events. So there's a regulation element of it that, frankly, we have to go through country by country. And that's why you cannot have a generic opinion about it. The opinion we do have is that we believe there's a greater level of interest in sport, particularly for youth. If you've been locked up for 6 or 8 weeks, and our kids also, and I think all of you have, they go crazy because they want to go out and exercise. We think that, that will continue. So even if there is a more conservative approach to it, the likelihood that some kind of running or movement exercise is going to be allowed is very, very high, but you really got to do it one by one.On online, we believe we have -- there's an increase in online conversion. There's a decrease in in-store conversion. And we believe the reason why there's a decrease in in-store conversion is the consumers are just trying to get back and live a normal life again and starting to see what's in the store. We think over time, that will normalize. We do not report whether it's by category. But the most important part is to get traffic up, get people start feeling comfortable in the store. We do not believe -- I will say the following: We have not run the hypothesis that there should be a lower conversion rate for footwear versus apparel. That's not the indication. We have neither pro or con. Right now, we're just seeing an overall lower conversion rate. But of course, as I said, the primary interest we have is getting traffic back into our store. And the more we get that, then over time, conversion will go up again, we feel comfortable about.

[Operator]

Next question is from the line of Jamie Merriman from Bernstein.

[Jamie Susan Merriman, Senior Analyst]

The first question is whether you could speak to any learnings that you've had from the impact of coronavirus in terms of either reinforcing your strategy or reshaping it beyond the digital transformation that you've talked about. I'm thinking, as you think about these issues like conversion in stores in China, does that cause you to think differently about using an app in-store to check out for consumers, for example? Or are there any other things that you've taken away from this that will cause a shift in how you're thinking about the use of the store?And then second, can you just clarify exactly what's the Q2 guidance assumes in terms of a store reopening, timing for North America and Europe?

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

So I would say that the biggest, I would say, not learning but change within our strategic framework or underpinning our strategic framework is the acceleration of digital. Whether it's how we communicate the use of apps, the direct transaction within our landing page, or in our -- on our store -- excuse me, on our landing page or in our app, ship from store is definitely becoming more and more prevalent. So a lot of stores we're using building inventories and shipping from a, I would say, a closed door. So the digital acceleration along with probably the presence of sustainability are the 2 most pronounced acceleration points within our current strategic framework. And that is -- and we expect that also to occur across the board in other countries because we are seeing it coming up. And we're seeing an increased acceleration of the app, the downloads of the app and interest of also Hype apps like our [ Trilogy ] app.But when it comes to the store openings, so I think Kasper mentioned that in his remarks that, Jamie, our assumption is that we will be able to sequentially reopen our stores throughout the month of May and June and then have a largely operational store base by the end of Q2. For Europe, this means that we've actually already started to open select stores. The first 20 are opened. The next 20 are going to come over the next week, and then we will have to see how it continues from there. And in North America, we expect to start with first store openings in mid-May.These are, of course, assumptions. So -- and those assumptions will be impacted by local legislation. So if it happens early, it happens earlier. If it happens later, it happens later. Well, that's based -- that is, our Q2 outlook is based on what we just said here.

[Operator]

The next question is from the line of Cedric Lecasble from MainFirst.

[Cedric Lecasble, Research Analyst]

I have 2. The first one is on your marketing budget this year. Given the interesting comments on the shift towards digital, could you help us maybe understand the kind of a big picture for marketing? And should we expect any volatility quarter -- from the quarter to another in marketing spend during the year?And the second question would be on the pileup of inventories. Given your ordering changes, cancellations, when do you expect the kind of peak of inventory buildup happening?

[Kasper Bo Rorsted, CEO & Member of Executive Board]

So when we look upon our marketing spend, as Harm indicated, a lot of our spend is closed down in campaigns. What you should assume is that, overall, the marketing spend will be down year-over-year. You didn't see that in the first quarter. You'll see an acceleration in the second and the third quarter of that spend despite the fact that we are taking our overall marketing spend for digital up, but you'll start seeing it in absolute terms. Actually, I think in terms of relative terms makes less sense because of the volatility of the revenue line. On actual terms year-over-year will be down in Q2. And of course, we expect it to be significantly down on the full year basis under the current assumption that it will continue to be impacted also in the third and the fourth quarter. So our current assumption is significantly down year-over-year, down quarter-over-quarter, up on e-commerce.

[Harm Ohlmeyer, CFO, Labor Director & Member of Executive Board]

Yes. And on the inventory, I mean based on our order patterns, I mean the whole lockdown globally happened in mid-March and the order months that we got impacted significantly still was kind of August and beyond. And of course, we went a little bit before that as well with some of the cancellations that I talked about earlier.So depending on the ramp-up that we did -- Sebastian (sic) [ Kasper ] just described, May, June, you should assume that June, July is probably the peak of the inventory buildup for us during the year.

[Operator]

The last call from the line of Antoine Belge from HSBC France.

[Antoine Belge, Global of Consumer and Retail Research]

Thanks again for the very useful chart in your presentation. 2 questions. So first of all, regarding China, I think you commented that you expected that region to come back to positive growth during the quarter. Could you maybe give a bit of flavor of the trends that you're seeing? And maybe would that mean that you're still negative currently overall in China at the moment? And second question regarding your guidance for Q2. First of all, that triple-digit million, does it mean between EUR 100 million and EUR 200 million? What's the gross margin sort of guidance? Is it a decline, which would be more severe than in Q1 or lower? That would be helpful.

[Kasper Bo Rorsted, CEO & Member of Executive Board]

So Antoine, thank you very much for your question. Let me clarify the China situation. We believe that by the end of the quarter, we will be on or above previous year. But that means for the quarter, China will be below. We expect our online sales to be substantially above and our own retail sales to be substantially above. We still expect the wholesale to -- the franchise to be low to clarify that. So you should look upon the ramp of it and it's the ramp by the end of it.For the guidance of the second quarter, as we said, pretty much the world with 2 countries exception has been closed for April. So you should make the assumption that very little business outside or no business outside. Digital business has been made in all regions, besides Korea and China. That means that we expect a 40% decline versus a 20%. We're breaking even at the 20%. And then I have to, unfortunately, say you have to make your own assumptions, but it is in the triple-digit millions for what we're seeing.So that is the best guidance we can give you at this stage for the second quarter. But right now, we will -- we're exposed to the same as everybody else, and that's a closed down month of April. And of course, the opening up, as the previous question was asking us, is the key. When is -- when our country is opening up, which are legally driven and what is the ramp in the countries. And you can see the ramp, which we explained to you about in China. Maybe before we completely close, let me just make the following remarks. While it's a very painful process to go through because we operate in industry when a store closes, you don't sell anything but online, that has very clearly impacted our business, as you can see. The reverse also goes, when the store opens up, we can start trading again. So we have a more profound impact. We believe we have one that's probably of a shorter duration than others.We believe that -- as I said, that the global transfer of the sporting goods industry remain unchanged or even improved in the medium term. Of course, not in the short-term because that's why we're sitting in where we're sitting. But the global trends towards health, towards sport, towards living a more casual lifestyle with having millions of people working from home has been very clearly substantiated through "adilette," to change toward a digital setup and a DTC model with the implication it has from our gross margin. And also, operating overhead is dramatically accelerated. So while we see 2020 being a very painful year, I'm certain you would do the same. We do believe that the underlying trends are equally good or even better in the medium term. We have to get to the medium term, and that's what we're getting ourselves through. We will take the right decisions in the company when it comes to. cost. But also I want to say a lot of the assets that will come in the market will -- might come in the market at a different price in the second and the third quarter because of demand/supply. And we want to make certain that attractive sports assets that could be on the market at a lower price point than normal that we don't get ourselves out of that market and be jeopardized or be punished for that in the next 5 years to come.With this, both Harm, Sebastian and I look forward to speaking to you over the next weeks and months to explain to you how we see the business. And I can assure you that should we see deviation, positive or negative, we will keep you updated appropriately.

[Sebastian Steffen, Senior Vice President of Investor Relations]

Thanks very much, Kasper. Thanks very much also to Harm. Ladies and gentlemen, this concludes our Q1 2020 results conference call. Our next reporting date will be August 6 for our Q2 results. If you still have any questions, please feel free to reach out to Adrian, Christoph or myself. I guess you know how to track us down.And with that, I would like to thank you for your participation. Bye-bye and most importantly, stay safe. Bye-bye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.