Adidas AG

XETRA:ADS

Earnings Call Analysis

Adidas Reports Strong Q2 2024 with Robust Sales Growth

Adidas experienced a strong Q2 2024 with currency-neutral sales rising 11% and underlying business up 16%. The gross margin increased by 150 basis points to 50.8%. Despite a drop in sales from YEEZY products, operating profit nearly doubled to EUR 346 million. The company upgraded its full-year guidance to high single-digit revenue growth and an EBIT of around EUR 1 billion. Inventory improved significantly, decreasing by EUR 1 billion. Marketing expenses grew due to brand campaigns, while operating overhead costs decreased slightly. Overall, the company is on track to achieve its growth and profitability targets by 2026.

Company's Rejuvenation in 2024

Adidas is celebrating its 75th anniversary this year, and it couldn't be more fitting as the company reports a significant improvement in its business. The Olympics, Euros, and COPA events have been monumental, generating excitement and boosting sales. Their recent celebrations brought together thousands of fans and celebrities, fostering a vibrant spirit within the Adidas family.

Impressive Sales and Growth

The company has seen an 11% increase in currency-neutral sales, with the underlying Adidas business up by 16%. This growth exceeded expectations, driven by strong retail and brand interest. Gross margin improved by around 150 basis points to 50.8%, despite a decline compared to last year due to lower YEEZY sales. The company's EBIT reached EUR 346 million, almost double from the previous year.

YEEZY Impact and Future Expectations

YEEZY contributions were significant but are expected to dwindle as remaining inventory sells at cost. The initial sales guidance was EUR 500 million, which adjusted to EUR 700 million, and now stands at EUR 1 billion. This is driven by robust product pipelines and anticipated commercial product additions in the next 3-6 months .

Healthy Inventory and Improved Working Capital

The company reported a major improvement in its inventory, down by EUR 1 billion or 17% currency-neutral. Ending Q2 with EUR 4.5 billion in healthy inventory, Adidas is gearing up for sustained growth into 2025. This improvement also extended to working capital, which decreased to 21.7% from 27.1% .

Financial Stability and Tax Commitments

With a new guidance of EUR 1 billion operating profit, the company expects to maintain a tax rate below 30%. The Q2 net income more than doubled from last year, reaching EUR 211 million. Cash and cash equivalents surged 67% to EUR 1.7 billion, and the company aims to achieve a debt ratio below 2.0 by next year. .

Marketing Investments

Marketing expenses increased by EUR 90 million, reaching a 12.1% ratio. Adidas plans to continue investing around this level to achieve a 10% profitability by 2026. The focus is on operating overhead and infrastructure, with a goal of leveraging top-line growth to enhance operational efficiency .

Global Sales Performance

Adidas reported growth across various regions: Europe up 17%, Greater China up 8%, Japan and South Korea up 6%, Latin America up 25% . The retail sector showed strong performance with a 15% increase, particularly in concept stores. E-commerce saw a 31% growth when excluding YEEZY, despite an overall decline of 6%.

Future Revenue and Profit Margins

The company remains confident about achieving double-digit growth in the second half of the year, with a healthy mix of wholesale and retail sales. Growth is expected to be sustained by robust demand and strategic inventory management. For 2026, Adidas aims to become a double-digit EBIT company with gross margins between 50-52% .

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, welcome to the adidas AG Q2 2024 Conference Call and Live Webcast. I'm a Alice, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sebastian, Head of Investor Relations. Please go ahead.

[Sebastian Steffen, executive]

Thanks very much, Alice. Hello, everyone, from sunny Herzogenaurach, and welcome to our Q2 '24 [Technical Difficulty]. Our presenters today are our CEO, Bjorn Gulden; and our CFO, Harm Ohlmeyer. As always, I would like to remind you that during the Q&A session, you limit your initial questions to 2 to allow as many people as possible to ask their questions. Thanks very much in advance for sticking to that rule. I hope that you are as excited as we are about the Olympics. So before we're going to dive into the quarter, and I hope you got that metaphor here, let's have a look at the latest chapter of our brand campaign, You Got This.

[Presentation]

[Bjorn Gulden, executive]

Yes. Hello also from my side. I hope you are enjoying the Olympics as much as we do. I think so far, it's been great events and following up the Euro and COPA, we are in the middle of a beautiful sports year. I would also like you to remind you about one thing, and that is that we are still celebrating our 75th birthday. And as you can see from the slide, it's been a great event for us to celebrate. Here, you see from Herzogenaurach, we had more than 20,000 people celebrating with us. We had the -- what you call the grandchild of Adi Dassler with us. We had Herbert Hainer with us. We had Jackie Joyner-Kersee with us. And a lot of other celebrities that celebrated the fantastic history and the company we are. And last week, we also celebrated in Portland with 4,000 people. So there is a good spirit in the adidas family and very, very unique.

We have talked to you many, many times over the last 12 months about the hope that 2024 would be a great sports year. And I think we all agree it has been so far. It's also, therefore, great to report that our business is improving. You probably know all the numbers, but I'll take you through them very quickly before Harm later goes through them in detail.

Again, our currency-neutral sales were up 11%, and the adidas underlying business was up even 16%. And as you know, that's way above what we thought it would be. And it's a combination, of course, of a great sell-through and also that retail is again showing great interest for our brand and product. As important, the gross margin, as you can see here, the underlying margin is up around 150 basis points to 50.8%. When you compare it to last year, you see it's down 10 basis points, but that is, of course, that we had a huge YEEZY sales of EUR 400 million in Q2 last year, all through e-com. And this quarter, we only had EUR 200 million. That's the difference. So again, a very healthy gross margin on the underlying adidas business. That gave us an EBIT of EUR 346 million, which is almost twice what we had last year. And again, a very, very positive development that then altogether made us increase our outlook guidance for the rest of the year. And we now talk about the high single-digit growth for the full year and an EBIT of around EUR 1 billion.

Again, back to the sports. We said all the time that we look forward to the Euro, the COPA, and of course, what's going on in Paris, both from Olympics and the Paralympics. I think you agree with me that the Euro and COPA were 2 great events. I think here in Germany, it was a fantastic Euro, a, from the environment in the stadium, the atmosphere, but also the way the fans and the whole country showed up. And for us, Spain winning the tournament even greater. And as you probably have read, all media, we also had a much higher sales of jerseys, not only what we deliver into the trade, but also the sell-out through the trade was way above the expectations. And as you can see, we approached 3 million jerseys, so a great, great also commercial event.

I would also like to say that our own people, the way they activated the Euro, the way we had customers at the different games and the way we celebrated, both the brand and football, was very, very good. So a big thank you to our teams.

I think I will also, in the discussion of federations, I'd like to add this slide. Spain is the federation that wins everything. Remember, they won the World Cup for women last year. The men's team have won both the Nations League and the Euro in '24 and a weekend ago, the Under-19 also won the Euro. In addition to that, they won the Under-17, both for girls and boys. And I think the women's team also won the Nations League. So Spain is basically winning everything. And as you probably know, we have a long-term contract with them and are very, very happy for that.

When you then go to the COPA, same thing, great event. We had 8 federations at the start. Both teams in the final, Argentina and Colombia, was playing adidas, and again, Argentina won. And as you will hear later, we used this also to extend the contract with Argentina through 2038. So I think we have the best federation in Europe, and we probably have the best federation in the world under our contract and will be in Three Stripes for a long, long time. Here also the same thing again, the commerciality was great, and we sold almost 2 million jerseys around, what should I say, the teams and events. Now some of you are then calculating the sales for Q2, but you can't do that. You have to remember that the launch of these jerseys were done partly pre-Christmas, partly pre-Easter and then partly through the tournament. So that math doesn't work the way you would like it to work.

We said to you 18 months ago that 2023 was about kind of establishing a breakeven company and try to get to know each other and start on a journey. We then promised you that 2024, we should be a better company. And I think when we look through the revenue that we have for Q2, I think we can say we are pleased with what we have achieved. Even in North America, where the total business was down 8% currency neutral, the underlying business for the first time in a long, long time is up. So the adidas business is up 2%. Europe on a fantastic drive, up 19% in total, up 24% in the underlying. China, 9% both on the total and the underlying business. And I think I have to say that we're taking market share now every month in China. And in a difficult market, but many, many things have changed over the last 4 years. I'm very, very proud what the team is actually achieving.

Japan and South Korea, up 6% in total, up 10% in the underlying business, also a strong development. And then Lat Am, still on a high role, up 33% and 34%, emerging markets up 25% and 28%. And that gives you then the numbers that you already know, currency-neutral growth at 11% and the underlying business being up 16%.

I'll give you just quickly here without any animation, the first half. You see North America being down minus 6%, the underlying minus 5%. So there you see the improvement from Q1 to Q2. Europe, 17% for both; Greater China, 8% for both; Japan, South Korea, 7% for both; Lat Am, 25% for both; and emerging markets 21% and 22%. And that gives you the total growth at 10% and underlying at 10%, which then includes Q1 and Q2. Back to Q2, the wholesale business for the first time in positive territory and very strong up 17%. You remember, we had a negative order book for a while. And of course, now we have a big interest both on the brand and on the products from our retail partners, and that caused and this -- I call it almost enormous growth of 17% because that was, of course, not planned. And of course, we are struggling to deliver the demand that we currently have from our retail partners, but it shows that the retail partners are, again, interested to work with us. And we, of course, very interested to work with them closer than what we have done in the past.

Our own retail up 15%, again, very strong and very proud to see that our concept stores, the full price stores, is growing even faster than that because that shows you that when we put together our lifestyle product, both from originals and from sportswear together with performance, the consumer is coming and, she and he, is also buying. E-com, a negative number in total, minus 6%. But if you take YEEZY out, up 31%. And this is where you, of course, have to remember that all the YEEZY sales in Q2 last year were almost all going through e-com, that's the reason for this difference. That gives you a 59-41 split between wholesale and retail. And on the DTC, it's almost split equal with own retail being 22% and e-com being 19%. And I think this is under the current circumstances and our current partnership a healthy mix.

A lot of good things happening in front of the consumer, both in our own stores, but also with our retail partners. You see here some examples. So for example, the JD activation in Paris, you see the Foot Locker, the activation we did in Berlin. And you see some great space in South Korea, having again, I have to say that the brand probably looks the best ever on the lifestyle side in South Korea, which we'll go back to in a second. And then 2 things which I would ask you to have a look at. There is a new store in the stadium in -- at the Bernabéu at Real Madrid, 3x bigger than it used to be, fantastic development where you can really see both, Real Madrid and adidas, as a brand. And then very proudly, we opened our Champs-Elysées store on time, 3 weeks before the Olympics. Great, great achievement for our retail team that they managed that. And because we are so proud of it, here is a 60-second video of the store with no sound and no customers. It's the only time you will see it like this, and I urge you to take a look when you are in town.

[Presentation]

[Bjorn Gulden, executive]

So I hope you liked it. As I said, 2,800 square meters full of adidas products and in an environment and a location which is great. And again, I repeat, very proud of it.

If you then look at the divisions, continued growth in footwear of 17%, both growth in performance and in lifestyle. Apparel for the first time growing in a long, long time by plus 6%. It's not only football, but of course, footfall and football culture is part of it. And then the only negative number is accessories at minus 8%. There's many one time reasons for that. We had some big FIFA deals last year that caused high numbers. And we have had some issues with our license fee in the U.S. I think that we also have to admit that we haven't prioritized accessories. We have been very focused on turning the footwear and apparel business. And I'm pretty optimistic that when we get into next year, you will start to see also accessories in positive numbers. That gives a split of 61% footwear, 33% apparel and 6% accessories. Again, footwear should always be more than 50%, and we know it's more difficult to grow in footwear and apparel. So again, very -- what should I say -- I wouldn't say, proud, but feel very good about that split.

If you then look a little bit to consumer groups, the lifestyle side, led by Originals, basketball partnerships and skateboarding, being up 16%. If you take EC out, even 34%. So here you see how we've been able to replace the EC business then with the adidas branded business. If you look at sportswear, which is everything that does not have the original logo, but still is lifestyle. That also includes the lower price points you see for the first time in a long, long time, also in positive territory. And then our Performance business, up 14%, of course, led by football, but we also have positive numbers in basketball performance. We have positive numbers in running, which you know is very, very important for us.

When it gets to the lifestyle, we showed up at Fashion Week in Paris with our own show with Y-3 for the first time in 5 years. Very important for us to showcase that side of the brand. You know that also Japan and also Real Madrid partly played with the Y-3 logo, so we're starting to use our design wear also into sports. We did some or actually a lot of activities also during the week, for example, with Wales Bonner and then Pharrell came out and supported us with some of the new launches, both showcasing low profile and Superstar. And then, at the opening in Paris, you clearly saw him wearing the Evo, very proud, and he loves that shoe and the technology. So there's more to come on that side.

And when you look upstairs, you see a group of celebrities from sports and culture that joined us for the night before the opening. We have an adidas house, which you are happen to visit downtown Paris, where every day, every evening, we have a lot of our friends and family coming. And it's really, really cool because adidas is something very special when it gets to the Olympics. The way we merged the history with present and how we merged fashion, music, culture with sports. Many of you are looking at our products, and I also hear some noises that says it's too risky what we're doing. So I want to explain to you again what we have told you. We said we were scaling up Terrace starting with Samba, then going to Gazelle and Handball Spezial. Currently, the demand is still higher than supply. So there's no risk on this currently. Then we extended it into Campus, which is not the Terrace shoes, but it's coming out of skates and more puffy look, also more trending towards men.

And then what you should not forget, we said the retro running is the next silo. We did it with SL72. And yes, there was some noise and we did some mistakes, but happy to report that the shoes is the best seller in retail and the volumes are really starting to grow. So this will also be a big franchise for us, both for men and women. And the good thing is that the current sell-through is higher in men than in women. So a great, what should I say, franchise for the future.

We then have the whole low profile area, which we have talked about is a trend that we see coming out of martial sports like Taekwondo, but also automotive sports. And as you know, we have a lot of history here. And it's great to see that there is still a lot of activity, which was the underlining the trend. We see the sell-through in Korea, which is the leading trend country, is strong. It's not scaled up yet. So there is not really in the numbers, but it is a trend that I think you should watch. And as you know, with the Three Stripe heat we have, we think we can play a major role in this trend in the next 12 months. And I think you will see it, especially in Spring/Summer '25 as also a scalable trend.

We talked about lifestyle running. That is a leg that we need to get going again. We have 5, 6 projects that it's underway. And as I said again, they're coming at the back end of the year and meant to be scaled during '25. You see the Aruku here, which is currently being reviewed very well, and there is more to come on this side. And then finally, we have the Superstar, which you know is the most selling shoe we have in our family. We told you that we are cleaning the market, that we're starting to rebuild the heat on it, but we're not scaling it currently because, let's face it, we don't need it right now. But there are many versions of this now in the marketplace on the high, high end with very, very little supply, and we clearly see that the heat is growing. And at the point in time, we will tell you that we will let it go.

In general, and I hope you see the same Three Stripes, both on footwear and apparel, and we, as a brand, are really showing up in the street. We clearly see an apparel that the track tops and pants are trending. You see it more in the streets than you see it in the trend because as you know, apparel into the retail partners didn't really grow until now. But now in our own channels and also in retail part, the pictures you see here is really the pictures that people want. And there's currently a big, big demand buildup in these kind of products. What I'm also really proud of is this, we know that soccer and football have never been really lifestyle, what should I say, drivers. It has come more from basketball. But over the last months, our teams, by taking all jerseys, new jerseys, combining it with lifestyle pieces, we have generated this soccer street culture. And of course, there's only one brand who can own that and that's we and you will see more of this, and you will also see the original logo also on the performance side with some of our clubs. And I think we're on to something really, really interesting here because of the heritage of football is, of course, adidas and it looks good and it's both male and female and it's actually global. So I'm very, very proud of what the teams, both in soccer and in originals, has done here.

To sum it up, proud and feel very good about our lifestyle portfolio. But as you know, we are a performance brand, and it's not true that we're not investing in performance. It's also not true that we're not growing in performance. And when you look at the offers we have, I think, in football, with the f50, with the Predator and with Copa, I personally believe we have the 3 bestsellers in the industry. We see the growth there, and we feel very, very good about our product.

In running, we have overinvested competitor business. We have the Evo, which is probably the most innovative, what should I say, running shoe in the market. Today, for example, the Olympic gold winner in triathlon, the female side, won in the Evo. And most, what should I say, marathons and half marathons, are won actually by the Evo. We also have reintroduced the Ultraboost 5. We have Pro 4 coming in adizero. We have the Supernova for the specialty. And this is only part of what we have because our offer in running is very, very wide and deep and you will see us growing there in the future.

Training category, which is very important. For the first time in a long time, we have the Drop Step 3 as a global shoe, actually selling very low markets, and our positioning and strength is starting to also gain market share, both for her and for him. So you will also see more of us in training, which, of course, is a huge category when you look at it from a global point of view.

Specialty Sports, the sum of many, many sports. You remember, big discussion if we should focus on fewer sports and more sports, and I think when you see this picture, we definitely want to go back again to the adidas days where we dominated the visibility also of the smaller sports and you see already the Olympics where we participate in 41 different sports when it gets to footwear. And you will see us work directly or with licensees to have visibility and be a brand that really connects to the athlete also in smaller sports.

Outdoor, happy to say that I think on the top end of trail running with the Agravic Speed, we have the best innovation in the market. We're starting to do takedowns, and we actually believe in outdoor, both on footwear and apparel, and it's an important category for us that we know we can improve, both our distribution and our marketing.

Golf, great growth during COVID or coming out of COVID, a more stagnant market after that, but same here, both on footwear and apparel, we are taking market share and are very, very, what should I say, aggressive in the market. And also don't forget that the apparel side of Golf is also a lifestyle driver for a certain consumer, and that's why we will continue to invest in Golf.

And then we have the target to become, again, a very important sports brand in the U.S. market. To do that, you need to be visible in the American sports. Here, you see both baseball and American football as very important. We signed Texas Tech because it's the college where Mahomes came out, great activation. And in general, the new team in America is investing more in American sports. And I think you will see that over the next months and quarters that the visibility will go up.

Basketball, probably the most difficult category for a European brand to be successful in. We have now 3 franchises that are working, the Anthony Edwards, the Harden and the D.O.N. 6. That means that for the first time in a long, long time, we have sell-throughs with our retail partners that they really appreciate. And I really, really can promise you that investments in basketball, both from a product development and the visibility with players, are increasing.

We're getting some credit for the things we do on the performance side, both here with basketball, because the sell-through is good or in running [Technical Difficulty] probably being the shoe of the year in most markets also here and as you can see in China. Our teams, although the soccer season for the clubs is over, we did actually win quite some tournaments and leagues and cups in the last season. Now we are in the preparation for the next season. And of course, with high ambitions with our clubs.

I've said many, many times that India Cricket is important for us, and you know they won the Cricket T20 World Cup, which we were very proud of. We have signed and supported many athletes who has done great performances before the Olympics, and I'm 100% sure that you will see that continuing into the Olympics. And then in the last quarter, we have signed quite some athletes, many of them in the U.S., and we have signed teams and federations. Maybe you would like to look again at AC Milan, Champions League Club, Eintracht Frankfurt here in Germany. I mentioned already Texas Tech and totally new, the German Hockey Federation will also change to Three Stripes. So a lot of exciting things in smaller and in bigger sports.

Four extensions that are important for us, Candace Parker, maybe the best female basketball player, has stopped playing, but she has now joined us, being in-charge of women's basketball, so a clear commitment to that sport and who could be better at leading it as her. Anthony Edwards, we have extended the contract. So I think, firstly, he's the future of the NBA. We also extended the Olympic partnership with the team, Great Britain. And then very important, we have assured Argentina to playing with Three Stripes until at least 2038. So from a timing point of view, I think that was also close to perfect. And then finally, you probably saw the Olympics yesterday, the female team from New Zealand won the Olympic Gold, and we are actually just now celebrating the 25th anniversary with them, so a short video showing a little bit of the team spirit of them.

[Presentation]

[Bjorn Gulden, executive]

Again, for me, the Black Ferns and the All Blacks, probably the 2 teams with the biggest team spirit that you can talk about. We had All Blacks here in the training camp before the World Cup, where they have unfortunately lost the final. And we work very, very close also with the Black Ferns and congratulations to their Olympic gold medal yesterday.

And I think with that, I give over to Harm to take you through the details of the numbers.

[Harm Ohlmeyer, executive]

Thank you, Bjorn, and a warm welcome also from my side. And as you know, with a new focus on the product and a better go-to-market process. This is being reflected positively in the financials as well. And I want to give you some more details on how they developed.

First and foremost, Bjorn mentioned that already on the net sales, we are growing 11% currency-neutral. If you exclude the YEEZY revenues in both years, then actually the underlying business, which is more an indication for the future was already growing 16% currency neutral in the second quarter. See more important is the gross profit. You see here that 10 basis points down compared to prior year, but I want to decompose that a little bit. Also the YEEZY effect here. If you start on the left-hand side, if I take the YEEZY business out from last year, that was contributing roughly 200 basis points to the gross margin. So really, the underlying business was 49%. If you do the same math from the Q2 2024, you see it would be 50.5% as the impact was much smaller in '24, the second quarter of YEEZY. So that gives you the mathematical calculation of 1.5 percentage points improvement on the underlying gross margin. What is it driven by? I mean, first of all, we talked about freight quite a bit in the past. So freight better, product costs are improving as well as we are filling the factories, have a better utilization with our partners. We have less discounting, as we mentioned many, many times. We have an improved product mix. And of course, Originals plays a role here. We have some impact on inventory provisions because the aging of the inventory is much better. And we talked about currencies as well at the beginning of the year when we gave the guidance. We always said that 3 to 4 percentage points in gross margin impact. I believe it's fair to say that the first quarter is more at the higher end of that impact and the second quarter was the lower end of that impact of 3% to 4%. That's really what's in the gross margin.

If you go further down on the P&L, I want to highlight the marketing expenses. We actually spent EUR 90 million absolute more in the second quarter compared to last year. That has given all the brand campaigns and the product launches that we have done that led to an increase in the ratio of 12.1%. We always said in the future, planning your models around 12% of marketing. We don't want to save there to get to our 10% profitability by '26. And what we really need to work on is the operating overhead and the overall infrastructure. You see here that we are 2% down or EUR 25 million down -- actually EUR 35 million down to 33.2%. To be transparent here. Of course, we had some one times last year that didn't repeat. We had roughly EUR 110 million donations and EUR 50 million of strategic reviews last year. So to full transparency, we're actually slightly up, but we are still leveraging over the top line growth, and that is one of the plans towards '26 as well to get more leverage in the future out of our infrastructure as we keep growing double digit. That all led to an operating profit of EUR 346 million. And also there, there's only EUR 50 million contribution of YEEZY in there, but also there full transparency, what's the impact of YEEZY is.

If you go further down the line from operating profit to net income, you see in the second quarter, unlike the first quarter, the financial income expenses have normalized. Compared to last year, we had some one-offs in Q1 '24 that you have made transparent. And then also, when it comes to the income taxes, we are now at 30.5%. And also that is a clear indication for the full year. I can give a commitment today that we will be, with our new guidance of EUR 1 billion operating profit, we will be below 30% tax rate, and we are further normalizing that ratio as well. And overall, the second quarter now leads to EUR 211 million net income, which is more than doubling from last year.

When you go further down to the balance sheet, talking about inventories. Again, big, big improvement, EUR 1 billion or 17% currency-neutral down. If I go a little deeper here, you probably remember, end of '22, we had EUR 6 billion inventory. If I compare it to the respective quarter last year, we are EUR 1 billion down and now at EUR 4.5 billion, with around EUR 150 million YEEZY inventory still left that we want to sell at cost for the remaining months to come. But again, rest assured, EUR 4.5 billion is very healthy. It's a good aging. It's across the board, including the U.S., we have healthy inventories now and expect, with the growth profile that we have, not just in the second half, but going into '25, that this number will increase over the quarters to come. So it's very, very healthy. And a lot of work has been done around the world with a lot of teams dedicated to this one.

Of course, as you are growing the wholesale business, for the first time in quite a while, the receivables are going up slightly, but even less than our wholesale was 10% currency neutral up. That is expected. The same with accounts payable as we are sourcing more product for our growth in the future, so also that 17% up. But we see [indiscernible] effort on inventories and accounts receivables and accounts payables kind of balancing out. Our working capital improved significantly as well. If you put that in comparison to the past, we had in Q2 '23, to 27.1%, working capital over net sales. Now we're down to 21.7%. That is already better than the guidance that we gave at the beginning of the year of 23% to 24%, and we are very optimistic for the remainder of the year. Hence, we changed our guidance and upgraded to 21% to 22%. Just for everyone, again, I always have been on record if you get this number below 20%, not just a good, but really a very, very healthy company. And that is, of course, the goal for the future that we get this one ideally below 20%. But the guidance for now, for this year, 21% to 22%. Of course, that helped us also on the cash and cash equivalents, we are now up to EUR 1.7 billion, almost 67% up. It's very healthy. I always said we want to get above EUR 1.5 billion. We have achieved that faster than we would have expected. That also helped us to get a better ratio now -- adjusted net borrowings and EBITDA ratio, which is important not just for us operationally, but also for S&P and Moody's. So our commitment to both rating companies and my personal commitment is to get this ratio below 2.0, which is a very healthy level. That's the level that we had in the past. And you see the progress that we have made. I'm not promising it for this year, but are clearly getting there next year, but there's still some months to go this year. So let's see, but you see that both adjusted net borrowings improved significantly. And also the EBITDA ratio improved significantly now.

So with that, I want to hand over to Bjorn again. And I'm pretty sure you have some questions later, but let's go through the guidance first.

[Bjorn Gulden, executive]

Thanks, Harm. And then to explain to you the steps that we've taken. We are using this slide again. Remember, in March, we said we would grow mid-single digits, then we increased it after a while saying mid- to high and now, on July 16 at our -- at [indiscernible] we said high single-digit increase for the same for the profitability. We started at EUR 500 million, and we increased to EUR 700 million, and now we are around EUR 1 billion. The assumption for this is as follows. It means selling the remaining YEEZY inventory at cost. And we have around EUR 150 million left of the inventory. And that means we are currently not assuming any operating profit or any contribution on that inventory. We still expect to have strong FX headwind. And you know that has an impact both on the top line and on the gross margin. And we will continue to invest in the future and not try to look good from the numbers. That means we will continue to invest and maybe overinvest compared to the ratios when it gets to marketing and sales.

Again, to explain you the YEEZY so there's no misunderstanding. The contribution of the sales we had on YEEZY in the first quarter was EUR 150 million. Then in Q2, as we said, it was EUR 200 million. We do expect, as we have said repeatedly now, to sell the leftover of the inventory at EUR 150 million. And that would then be that -- the total sales of the YEEZY products should end around EUR 500 million.

On the profit side, we had EUR 50 million contribution both in Q1 and Q2. And since we're selling or assumed to sell inventory at cost, that means 0 contribution in the rest of the year and that means that you're then ending with an operating contribution of EUR 100 million at the end of the year. If you then look at the impact on the guidance. Again, you remember, we started at EUR 500 million, then we had the first drop -- or the contribution of YEEZY at EUR 50 million. And then the underlying business improved by EUR 150 million, that's why we said that we had a guidance of EUR 700 million. Then we had another EUR 50 million coming from YEEZY and the underlying business then adding another EUR 250 million, and that's where you are then at the current guidance of EUR 1 billion.

Why did we believe this is possible? Well, of course, it is that the current product we have in the pipeline, both that is in the stores and on the way to the store is strong. And that we know we are adding commercial products to the trade in the next 3 to 6 months, and you see some of the examples here. You do have to understand that some of the growth you had in Q2 also were demand that could have been delivered into Q3. We didn't pull anything forward to look better, but what we did, of course, was to try to use whatever retail or whatever inventory we had to fulfill demand.

So I urge you not to believe that 16% underlying will be 25% in the next quarters because we won't have the product for it. And it's pretty, pretty obvious that the demand currently on many product types is higher than what we are going to supply, just have that in your mind. And then remember, we said '23 breakeven company, '24 a better company and then '25, we think we should be a good company. And then in '26, we promised you to be a healthy company, and we define that to be a double-digit growing company that has 50% to 52% gross margin. That's where we already are, that continue to invest around 12% in marketing working budget and then have an operating ratio of around 30%. And of course, that is the challenge because that has 2 aspects. It has the growth and it has the efficiency on the cost line. We think this is all achievable, and that brings you then to what we call a healthy margin of 10% EBIT, which is what we expect to do.

Again, we are in the middle of Paris. I think personally, it's been a great start to the event. I think it's been great at the opening ceremony. The stadiums are full. The atmosphere in the city is good. And of course, we, as adidas also look great. We have told you many times that we have 49 different shoe models for 41 different disciplines. We have added federations, and we have added athletes. Of course, we always wish we had more, and I'm sure we will have more in the future. But so far, I think the brand is looking great and all feedback we're getting, both from people interested in sports, the outlets and even from retail, is great. I did already mention to you, Pharrell is showing up in Evo shoes at the opening. And if you look good, Zidane was also, of course, in adidas shoes, although a Triple White because you are not allowed to show the stripes and Zidane is a very disciplined guy. But again, he looked great and is a very, very, very important member of our family.

So far, the Olympics has been great. I think we won 12 or 13 gold medals so far. And in many of the smaller sports, and again, I cannot say how happy I am that the Olympics are going on. I think it's the right time, and I think it's a big, big party after the Euro and COPA, and I hope you all celebrate it as we are doing. So with that, I think we can conclude that we are, as a management, happy where we are through 2024. I think we have turned the brand quicker around in front of the consumer than we had even hoped for. You know to the turnaround a company is always a matter of how much time you have. And I think I personally have had luck with the timing. The timing is always crucial.

And then I think the team has worked very, very hard to do this. And I think we can showcase that some of the things we're doing is really working. We all know we have a lot of work to do in front of us to be a healthy and very good adidas, but I'm convinced we can bring adidas back again to where we used to be and be a very, very good company for the future and the best sports brand that exists.

And I think with that, I hand back to you Seb.

[Sebastian Steffen, executive]

Thanks, Bjorn. Alice, we would now be ready to take questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Zuzanna Pusz with UBS.

[Zuzanna Pusz, analyst]

I'll stick to the rule. So just two for me. Maybe the first question on Q3. I understand that, obviously, it would be quite unreasonable to extrapolate sort of your earlier comments that growth would accelerate every quarter given how impressive Q2 was already. But can you give us an idea of that sort of a mid-teens underlying momentum is something that we could reasonably assume for Q3 or should we take into account the fact that maybe there were some sort of one-off orders related to the Euro's. Just so we get an idea of, obviously, I hope no one is going to expect 25%, but just to know if that mid-teens growth is something reasonable given the strong brand momentum.

And the second question is on gross margin. I guess there was some impression in the morning that maybe your outlook in the press release, there was a comment on the gross margin, but maybe it sounded a little bit more cautious on the FX. So I was wondering if you could maybe give us an idea of how we should think about FX in H2. And it's specifically -- if maybe some of the emerging market currencies, which I believe are usually unhedged, if maybe that is adding a little bit to the gross margin pressure in H2.

[Bjorn Gulden, executive]

Yes, I'll start with the top line. I think that the demand will be very strong also in the second half. I think it's more about supply, to be honest. And we said to you earlier this year that we expected the year to start flattish and then grow into double digits in the second half. Now we manage double digits in the first half, which was not planned. And to be honest, we have, of course, struggled to supply that. You also see that the wholesale business growing 17% in the quarter. We started then to give them, what should I say, a product that they hadn't ordered at the beginning of the season. And at the same time, our like-for-likes are very strong. So I think the demand is going to be higher than what we're going to report in numbers because I don't think supply will be there.

So I don't know, to simplify demand, healthy double digits. And I think we maybe can reach double digit, but you shouldn't believe that the sales numbers will be as high as you maybe think based on the numbers we did in Q2. The question is also even if we could supply it, would we supply it, because we need to now manage certain franchises in certain markets with certain retailers in a smart way. So I think you -- the 10% growth is probably what we promised you at the beginning of the year, double-digit growth in the second half. And I think I would stick to that. And then let's see if there is an upside to it that we can then report after Q3, but we will be a little bit careful of many reasons, which I hope you appreciate. When it gets to FX, I hand over to Harm.

[Harm Ohlmeyer, executive]

Yes. Zuzanna, you probably referred to what we had in the press release at the bottom where we said there's significant currency headwinds. That was a generic comment, not especially for H2. So we have been one of the first brands saying at the very beginning of the year when we give our outlook, don't forget the translation impact on FX and the FX impact on the gross margin overall. And I just mentioned it earlier, in the first half, we had the 3% to 4% currency FX on the gross margin. So for the second half, do not worry about the FX. If we get better compared to the first half. There's no doubt, yes, there are some smaller currencies in emerging markets or Japanese yen that has not developed positively. But overall, it's going in the right direction. But what you should not forget is the second half, there is, of course, a channel mix that plays a role. We had an unprecedented comp growth in our concept stores. Excluding YEEZY, we had 31% e-commerce growth. And again, our strategy is to work with our retail partners and accelerating the wholesale growth. That is a little impact. And of course, with the growth in Originals and football, our ambition is to grow running and other categories in the second half that has a slight category impact.

But overall, again, FX is not the factor in the second half compared to the first half. We'll probably start to get some tailwind there as well, and we are getting all armed on for '25 as well. So don't read too much into the bottom of our press release. It's all good.

[Operator]

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

[Alexander Richard Okines, analyst]

Two questions, please. The first is on China. How would you characterize the adidas positioning and brand heat in China at the moment? And secondly, on the U.S., how prepared is adidas for potential tariffs in the U.S. Perhaps you could give us a sense of how much that you sell in the U.S. comes from Chinese manufacturers?

[Bjorn Gulden, executive]

Two good questions. I think you see that we're growing 9% in China in a market that has changed dramatically, I would say, in the last 4 years. You know that pre-BSI and COVID, it was dominated by the Western brands. Now the local brands have taken a lot of share and has installed business models that are more vertical. Many of them are manufacturers that go then straight to retail with their own stores. So the speed they have and the price value they have for that consumer is different than it was earlier. And we are trying to adjust to that. We have a very strong management that used to be with adidas, then left and worked also for local brands that are now back again. They have, after a very difficult time, showed a lot of energy, a lot of initiatives to improve the business model. And we are going to a model that is more local for local, and it's based on less sell-in and much more, I would say, reaction during the season, both in our own stores, of course, but also with our retail partners, which you have to remember are mono-branded stores, with adidas on the outside.

So a lot of positive things happening in the market that, of course, is holdback a little bit of the Chinese in general economy, but growing 9% and taking share I think is a respectable result when you compare it to all the Western brands, and we are all very excited about what we know about the future and the energy that the team shows.

When it gets to the U.S. and tariffs, we have basically tried not to source any products anymore from China into the U.S. So all, what should I say, supply chain plans for the U.S. is not involving China. So I think we are in good shape, should that come. And I think the team has done a lot of work already, which are not based on a possible tariffs. But in general, given the tension, we have kind of steered away from Chinese production into the U.S. market.

[Operator]

The next question comes from the line of Edouard Aubin from Morgan Stanley.

[Edouard Aubin, analyst]

Yes. So two for me as well. Apparel, Bjorn, you said it was difficult for us to strip out the impact of jersey's sales given timing. So I'm not going to ask for an exact figure, but could you please confirm that you were up in Q2 ex jersey? And also, what are you expecting, anticipating in terms of the second half, as you mentioned, that the sell-in and sell-out, there must be a timing issue given the excess inventory in the trade. So that's question number one.

And then, sorry, in running, interestingly, so you turned positive in Q2, which I think is a bit earlier than anticipated. Do you feel that you have now the right product architecture, product launch in place to continue to grow the category? And how do you see the competitive landscape there? Because again, it's very highly competitive in that specific category. So how optimistic are you about running?

[Bjorn Gulden, executive]

I think I can count, that was three questions, not two. You do it in a smart way. The apparel thing, to be honest with you, we haven't expected growth in apparel yet because we saw the market still being crowded, and we had negative order books in apparel for a long, long periods of time. I think what has happened is that given the success we have with the consumer on footwear, especially she has turned to our brand also on apparel. And despite that we had little supply on the best-selling apparel because we didn't -- because the retailers haven't ordered it. We saw a great growth in our own channels, and that sparked then the retailers also to try to get merchandise, and that's why you saw the growth already in Q2.

Of course, the soccer jerseys and the reason we say you can't put it together mathematically is that, remember, we're selling into a tournament 6 months upfront as well as you're selling pre-Christmas and you're selling pre-Easter and you're selling into the tournament and after the tournament. So you can't take those numbers as just add on the top line, which wouldn't have been there if we didn't have the events. So it's a little bit difficult to put the pieces together. But I think I can tell you that the interest in apparel from our retail partners and from the consumers is now also growing and that we're starting to see an order book that is growing also in apparel, and that's the first time that I see since I have been there.

When it gets to the running business, it is, of course, a place where we need to grow over time. But it's also the -- what should I say, the segment where you need to give it time. There's very few running brands that comes from nothing to something, especially when you have, what should I say, left the special distribution like we did. So we have to be patient. We have overinvested in products that are for people that wants to run fast. So the Evo and the adizero range is, in my opinion, the best in the market. The whole comfort running and every day running where new brands like [indiscernible] almost done a great job. We didn't have the right product for a while. I think in the architecture now when you look at both Adistar, you look at Supernova and you even look at Ultraboost 5, I do actually believe that we have the right product, but of course, we don't have the right distribution. And there, you need to give us some time to build the relations and actually place product in front of the consumer with the support from the retailers. So I think we will start and continue to grow slowly, but I think we also have to be careful that we don't expect too much too quick because then we can actually destroy the business. So a clear commitment to growing running globally, clear commitment to continue to invest in both product marketing and events and activations. But also in our plans, we are giving it some, what should I say, patience to not push it to then get what should I say, a backlash. I think that's how I would describe it.

[Operator]

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

[Geoff Lowery, analyst]

Just one question, please. Can you help us understand what's going on in North America in terms of the behavior of wholesale partners? Is your sense they're trying to run with permanently better inventory to? Or is this caution in the face of consumer that's temporary? What's really changed or otherwise there from your perspective?

[Bjorn Gulden, executive]

Well, you know during the supply chain problems when everybody had too little inventory, retailers and brands were doing great because then we were running on fresh inventory. I think what happened after that was that everybody, including brands and retail, ordered too much. So we were over inventoried. And when that happens, you will have overdiscounting. And that's what we've been through the last 18 months.

I think I should only speak for adidas because I don't want to take the words out of other brands. But for us, we worked through a lot of inventory that didn't do well. I mean we were sitting on inventory in the trade that we're not selling great. And of course, when you're not selling great, they won't buy a lot and they also discount you, which is not good for your brand image. I think we've worked through that very, very good. We have reduced our inventory in the U.S., both in the retail and in our own inventory great. That's why the new inventory that is going out in the market is selling through much, much better than it used to do. And I think also our relationship with American retailers, with a new management who are Americans, is improving every week we speak. And that's why I think you will see America continuing to grow in the next quarters. And of course, that's also what we need to do. You have to be more American to be successful in America. You have to be in the American sports. They are baseball, basketball, football and to a certain degree golf. You need to showcase that you are in high school and college sports. That is, of course, easier when you have an American President in adidas than having a foreigner. And there is a clear, clear, clear plan how to be more American in America and our product pipeline and our marketing activities is lined up to do that. And that's why I feel that we're in a good way.

And the goal for all the retailers which we speak to is, of course, to work with less inventory and have, what should I say, partners that can be more flexible on supply, and that's what we're trying to do so. I think we are in a good shape to improve. But of course, we all know we haven't done a great job before. So maybe people say it's easy. But again, we have tough competition in the U.S. from American brands, and we have to be better than what we have been before to be successful, and I'm pretty sure we will.

[Operator]

The next question comes from the line of Jurgen Kolb, Kepler Cheuvreux.

[Jurgen Kolb, analyst]

Two questions and indeed great additions in terms of teams and clubs, what you just mentioned, Bjorn, congrats to that. Two questions. One...

[Bjorn Gulden, executive]

The only thing you don't know yet is that we're changing the color [indiscernible] away from black. No, we're not, I'm just kidding.

[Jurgen Kolb, analyst]

Good that you're kidding. First one on the order book. How shall I look at it, the wholesale orders, which are up 17%. Are retailers ordering less Terrace? I mean if we just stay within the Originals and the leisure lifestyle category, are they ordering less Terrace products and now replace that with the SL or is the SL really an add-on for, let's say, the summer period when the SL is probably better placed than a Campus or whatever? And the second one on basketball. Obviously, you mentioned how important and relevant it is to be in the American sports. I was missing a little bit maybe a comment on Jerry Lorenzo and the Fear of God cooperation and how that is performing? Maybe a quick word on how happy you are with that part of the business.

[Bjorn Gulden, executive]

Well, first of all, the 17% is not the order book. The 17% is what we achieved with our retail partners, meaning wholesale in Q2. So that's the current growth. The order book that we have with our retail partners has been growing each quarter, and it is a very strong order book for the next 2 quarters as well. The question is, are we going to deliver that whole order book or not? And there are many factors that, what should I say, affect that decision.

The order book on Terrace, you have to remember that, that's been growing all the time. We would never have had these sales numbers on Terrace if we just fulfill the order book. We have had much more demand than what people ordered 12, 9 and 6 months ago because it's increasing all the time. And people are placing orders on Terrace way more than the timeline shows. So we are hunting demand on Terrace still. But when you look at what they are offering on the space, it's not that they're replacing Terrace with SL72. It's clearly in addition. The Terrace look and the Campus look and the SL72, which in all other brands will be a retro running look is complementary to each other. That means that you're getting more retail space. So we don't see any cannibalization yet on the demand when it gets to what is hot in the marketplace yet. And of course, as soon as we see that, we will then start to manage supply in a different way. But right now, we're still chasing demand.

Basketball, I didn't mention Jerry, because I'm so happy with what you see on, I would say, the NBA franchise signature molds, Tony Mitchell, Anthony Edwards and Harden. And that is, for us, I would say, a real, what should I say, connection between NBA and what you see in the store and the sell-through. The Jerry Lorenzo thing has been complicated because it's taking a long, long time to get the products in the marketplace. It's a combination of lifestyle and lifestyle performance. It did extremely well when we launched it in Japan, China and parts of the U.S., but you know the collection was 2 years delayed. So right now, we have shrunk it to make sure that supply is not bigger than demand. And we manage it now on a much, much narrower distribution than I think the plans were 3, 4 years ago. The good thing is that we don't need to do it wider right now. And by doing it more narrow and higher price points, I think it will actually help us tremendously on brand heat because we don't need to push it commercially. So it's a change that has happened over time given the circumstances. And that's the reason why we don't talk a lot about it because we want to deliver and not talk. I think that's a fair quote.

[Operator]

The next question comes from the line of Aneesha Sherman, Bernstein.

[Aneesha Sherman, analyst]

So I want to dig a little bit into gross margin, please. You've seen some structural improvements in price mix and margin mix this quarter. Q4 is typically a very promotional quarter. Are you expecting some of these structural improvements to change what Q4 looks like this year given the current momentum? And then as you go into 2025, if you're ramping up wholesale order books and you're ramping up takedown versions of Terrace and both of those are gross margin headwinds, your medium-term guidance implies about flattish gross margin. Can you talk through some of the puts and takes, some of the headwinds and tailwinds into that flattish margin guidance?

[Bjorn Gulden, executive]

Well, I can start and Harm, you can adjust me if I say something wrong. First of all, the goal is not to get gross margin to 55%, 56%. It's not like we're trying to maximize this. I think when we say we are between 50% and 52%. It's because when we look at the distribution we have in the categories, we think that's a safe place to be. And then there's some upside to it as soon as currencies goes in a different direction. I think that's fair to say. When you look at the wholesale retail mix, you have to remember that when we want to be the best partner of the retailers, we also have to make sure that we give them conditions and sell-throughs that makes them happy.

And we do not prioritize our own D2C just because we could have a higher margin. What we're doing now is that we make sure that our retail partner gets the product at the same time. And in this quarter, we even gave them more of the good stuff to please them. If not, we would not have been able to grow them 17%.

When it gets to the takedowns of Terrace. And Terrace, yes, they both have high margins. There's no doubt about it. But I think any takedown that we do also on the retro running will have the same issue because I think we're pretty good at engineering takedowns of what is hot upstairs. So I don't think that has any negative impact, to be honest. It is true that when we start to grow certain performance categories overproportionally, that could have a negative impact on margin. But right now -- and I'm looking at Harm, I don't really see any reason why we should have big negative variances on gross margin going into next year unless there are things happening in the markets where it gets to inflation and FX that Harm is a better expert to talk about than me.

[Harm Ohlmeyer, executive]

Yes, the good news is I can confirm what Bjorn said. He didn't say anything wrong. So we have good margins also on the takedown version. There is no reason to structurally have any changes going to next year as well. But you're absolutely right, Aneesha. In the fourth quarter, we have commercial moments. We have Singles Day, Doubles Day, we have Black Friday and all these events have been extended in the past. So it's not just one day. It's actually a week or 2 weeks now. We want to participate in that. That's why the margin is always slightly lower in the fourth quarter, but that's factored into our guidance.

What you need to be aware of is that we need to differentiate between year-over-year improvement [indiscernible] quarter-over-quarter improvements. And I think the year-over-year improvements will get smaller as we get better every quarter. And of course, quarter-over-quarter, we want to stabilize where we are, and of course, build on that margin over time, but we are not too worried about quarter-by-quarter, but we are getting prepared for what we want to do in '25 and '26. But you are right, on Q4, it will be slightly lower. But overall, it's going in the right direction. And structurally, nothing is really fundamentally changing and also where the main currencies are going and how we are hedged going into '25, at least on the dollar, we don't see a headwind going into '25. So that's also an important news.

[Operator]

The next question comes from the line of Piral Dadhania, RBC.

[Piral Dadhania, analyst]

So two from me as well, please. The first is, could you just comment on current trading, if possible, in July and whether you've seen any negative impact from the SL72 marketing campaign where, as you alluded to, a few mistakes were made in terms of brand momentum or sell-through rates? And secondly, just in terms of the channel dynamics, you have touched on it already, but could you just help us understand whether we should expect wholesale and DTC growth rates to maintain a similar trajectory as we've seen in Q2, just given the way that you're allocating product to both channels and perhaps within the second quarter, just any comment on the DTC growth rate and whether full price was outperforming outlets.

[Bjorn Gulden, executive]

I think that was three questions. The easy one, the first one, current trading is good. The mistake we did on SL72. SL72 has had no impact on current trading, neither in general nor on the model itself. When it gets to the channel dynamics going forward between wholesale and retail, you need to know, and I'm sure you do, is that when you have an order book that have orders and you can deliver, that's a fixed number that you can deliver in. And as long as it sells through, there is no cancellations and take backs, and I feel very comfortable that we will fulfill the order book, and we will have, I'd say, a solid development in our wholesale business.

When it gets to the retail business, that depends on your like-for-like development. And the like-for-like development that we've had in the first 6 months has been unbelievable. I don't think I've seen such like-for-like numbers in our concept stores at any time. They've been very, very high. And of course, you can never promise or plan for that. You supply the products into the store, you hope they sell and then depending on how good or bad it is, you replenish or you adjust your inventory. So I'm certain about the wholesale business and then on the retail business, it depends on how the consumer and our supply continues.

When it gets to the DTC business in the second quarter, our concept stores were much, much higher than our factory outlets, and that is very, very logic. We have new and fresh merchandise going into our concept stores. And the factory outlets, we have basically cleared all the inventory. I have not made any buys for the outlets. So a much, much higher performance on concept stores than on outlets, which is a great place to be in. There has been times where it's been different, but very happy with that.

[Operator]

The next question comes from the line of Monique Pollard, Citi.

[Monique Pollard, analyst]

Two questions for me, if I can. The first one, Bjorn, was just -- I feel like some people will be incoming I'm getting to you -- some people misunderstood potentially your comment on the growth rates for the rest of the year. And they're not sure whether the double-digit growth in the second half was -- that was supposed to come in the second half if you were saying that some of it actually came in the first half. So If you could just confirm that you're still confident in the double-digit growth rate for the second half, if you are, that would be helpful. And the second question I had was just whether you can give any understanding or insight into whether you had to put on extra shipments presumably in the second quarter given that surprising strength in the wholesale performance and the impact that had on your gross margin with you having to pay potentially spot rates rather than contracted rates?

[Bjorn Gulden, executive]

Yes. So there shouldn't be any misunderstanding, I'm confident on double-digit growth in the second half as we promised you. What I said that some of the orders that were meant for Q3 was actually delivered in Q2 because our retail partner was screaming for product. That's what I tried to say. But the demand will be double digit in the second half, 100%. And I think also that we will fulfill it. When it gets to the shipment cost, yes, of course, there has been extra cost and extra work to fulfill the demand with our supply. So that is correct, but the impact on the margin is -- I don't think we should start to calculate it because when you grow, there is always higher supply costs, and we've had them. You know we have them also because of the Red Sea issue. And there are currently a combination of contractual rates and spot rates, just that's a normal part of our life. So we also calculate it that way. I hope we will one day be in a supply chain situation that we will only use contractual rates. But let's face it, we haven't been there for the last 4 years. So I don't know when that will happen. But yes, there has been some extra costs given high demand and given the situation in the Red Sea, that is correct.

[Sebastian Steffen, executive]

Alice, we have time for two more questions.

[Operator]

The next question comes from the line of Jonathan Komp with Baird.

[Jonathan Komp, analyst]

Two questions for me. First, can you talk a little bit more about your expectations for growth in North America even better than the second half and how we should think about the key drivers in the North America market? And then separately, just given the discussion about faster top line acceleration, could you comment on whether you're thinking about the achievement of your midterm EBIT margin target, if the time line for that has changed at all? Or how you're thinking about the rate of reinvestment given the strong top line performance?

[Bjorn Gulden, executive]

I think what we have said and what we feel comfortable is to grow 10% and have a controlled growth because that's easier than suddenly growing 16% or 20% and lose the control. So think about 10% as what we're going to grow in the midterm because that's what we are planning to do. And then we will have to see if certain categories are taking off, we shouldn't willing to take the extra sales by actually taking the risk of oversupplying at the end. But we're shooting for 10%. That also means that the midterm goal is the same. We haven't changed that? Should it come earlier or should it be a quarter later? I don't think it's really important. Important is that you believe that we are a 10% EBIT brand over time and that we will stay there, not that we reach it for 1 year and then what happens afterwards, no one cares about.

So I think adidas, with the business model and the brand and the strength we have, should always be a double-digit EBIT company and we have all the tools to do that. But important is that when we do it, we stay on that level and not overinventory ourselves or whatever, so that we're falling down again. When it gets to North America, important is to stop the downfall, important is to clear the inventory, important is to build a relationship with the retailers, important is to be visible in American sports and that's all the things we are doing. When the growth is then coming at double digit, I think it would be wrong to tell you, and I don't want to put our organization into the pressure of hitting a growth target at a certain week or month, because I think the same thing is irrelevant. Important is that we're changing all the things that brought us into that problem. And that means, again, showing up in American Sports. It means working very closely with American retailers as a partner. That means that having a pipeline of product that is meant to sell in the U.S. and not a product that was decided in Germany that you should sell. And all these things are strong enough that I'm very, very confident that we can take market share with our brand in the American market short term and especially over mid and long term. And that must be the goal. It's obvious that we have a history in America both in sports and sports culture, but also in street culture when you go back, that is very strong. And if we play to that, both the lifestyle, the comfort and the performance side, I think we can be a very, very strong brand in the American market, knowing that, of course, our strongest competitor has a market position that is very, very strong and full respect to what they have done. But we are confident that we have tools to be much stronger in the U.S. than we currently are.

[Operator]

We'll take the next question coming from the line of Cedric Lecasble with Stifel.

[Cedric Lecasble, analyst]

I just have one as most of the questions have been answered. So in the interest of time also. It is on Europe. We've kept being quite surprised on the strong rates in Europe, and you've had another very strong quarter. I'd be interested in any color in how you improve penetration with key accounts. What's your road map in Europe and how you see the region growing even after the football event?

[Bjorn Gulden, executive]

Well, I think what we did 18 months ago was to invite all the key retailers on Campus. They hadn't been there for a long period of time and we committed to them that we will be a supporter of their business and not the competitor and that the DTC focus, we're not there anymore. I think there was a lot of skepticism among many of them. And of course, they didn't jumped the first weeks and ordered. But then what happened, and this is what I mean by luck and timing, is that suddenly the brand, with everything that has happened, started to be hot in certain categories. And you know a retail partner that, a, is skeptical to you, but c, that you are, what should I say, in certain categories, very, very hot and will start to move towards you. And I think we utilized that brand heat and the hotness of certain products to build the relationship again, and now they trust us. The same retailers are almost here now monthly. We have them at the Euro. We have them at Olympics. We work very, very closely on looking at their inventory and sell-throughs. They're part of discussing the longevity of the different franchises. We are very, very, very conscious about talking about Samba and Terrace in general and are measuring traffic sell-through conversion, social search on their channels to see when we should slow down supply. They support us currently on the introduction of new franchises like the Campus, like the SL and even building plans for low profile. They have seen all our investment in innovation in running lifestyle. So they have full visibility over the next 18 months. And we all know that we are having the Superstar in the back pocket.

On the lifestyle side, I would say fantastic. All retailers that I can name in Europe, a very good relationship. When it gets to the performance side, which we know takes a longer time. On soccer, I mean football, I mean, it's on fire, same thing. On running, of course, a slower development in the sense that they have had success with other brands, and we have to accept that we are a little bit further down in queue, but same thing here. They work with our product team. We are very, very close in monitoring the success or non-success. We are giving them exclusivity, and we are building SMUs. So it's the same partnerships that is happening. I think training, the same thing, especially on her. When the brand is hot, she also wants to buy you for her sports. We see a positive trend.

Outdoor, I would say, a lot of adjustments in the way we go to market. Footwear strong, but a lot of work to do in apparel, but same thing, working closer with the retailer. Basketball, I mean they basically follow what happens in the U.S. If we're successful with franchises in the U.S., they will buy and sell the same. So it's a one-to-one relationship. And then on everything that is takedowns, and I would call it, non-originals which we do in sportswear, it's been a negative trend for a long time as we try to sell it at this own label. And the interest in that now is very, very strong.

On apparel, we're launching the [indiscernible] as we speak. Of course, the weather for a fleece range is far too high, but big interest, and we will have great visibility when we get to September. And all the takedowns we're doing, I don't need to tell you that they are in the same demand right now as what the Originals are. So I would say in Europe, relationship, the way we go to market and the current results, both from a sell-in and sell-out and the way we look in retail, I have never seen such a quick change, and that's what I mean by luck. That's not something that you can plan and believe in. You can plan it, but hope it happens, but I think the success for them and for us has been higher than what we could hope for. Also in your country. I hope you see it.

[Sebastian Steffen, executive]

All right. Thanks very much, Cedric. Thanks very much, Alice. Thanks very much, Bjorn and Harm and also thanks very much to all of you for participating in our call today. This concludes our call for the Q2 2024 results. As always, if there's any open questions, please feel free to reach out to Adrian, Philippe, myself or any other member of the IR team. And with that, thank you very much again. Enjoy the summer of sports. Enjoy the Olympics. If you happen to be in Paris, you heard it from Bjorn, your first stop should be our new Champs-Elysées store. And of course, we're also happy to invite you to our adidas house if you happen to have some time. And now enjoy your well-deserved summer break. All the best. Bye-bye. Take care.