Adidas AG

XETRA:ADS

Earnings Call Analysis

Adidas delivers strong Q3 growth driven by solid margins and strategic initiatives.

In Q3, Adidas achieved a currency-neutral revenue growth of 10.3%, with the core business rising 14%. The gross margin improved to 51.3%, marking a significant recovery. Operating profit reached EUR 598 million, reflecting a 50% increase year-over-year. With expectations of selling off remaining Yeezy inventory, the EBIT guidance for 2024 is EUR 1.2 billion, driven by a healthier inventory and increased marketing investment. Positive growth was noted in key markets like Europe (+18%) and Latin America (+30%), with strong upcoming product lines enhancing optimism as they target mid-term double-digit growth.

A Promising Turnaround

Adidas has shown strong growth in its Q3 2024 earnings, reporting a 10.3% increase in currency-neutral revenue and a remarkable 14% growth in its core adidas business when excluding Yeezy contributions. This positive performance indicates a significant turnaround for the company, which aims to restore consumer trust and brand strength after facing challenges in the previous years.

Healthy Margins and Operating Profit

The gross margin has bounced back to 51.3%, reflecting a 2% improvement year-over-year. This increase can be attributed to better product costs, normalized freight expenses, and a more favorable product mix. Operating profit reached EUR 598 million, a 50% year-over-year increase, while the EBIT margin stood at 9.3%. The management aims for an EBIT margin of around 10% in the midterm, supported by operational efficiency improvements.

Yeezy Divestiture and Its Impact

The Yeezy brand had been a significant contributor to Adidas's earnings, but the transition away from it has been managed strategically. The company anticipates a complete sell-off of Yeezy inventory by Q4 2024, with expected sales contributions of EUR 150 million to EUR 600 million from the Yeezy brand throughout the year. However, moving forward, no operating profit from Yeezy is expected in Q4, which necessitates a focus on core product lines for future revenue.

Regional Performance Insights

Regionally, North America showed a modest 1% growth for the adidas business, while Europe surged by an impressive 21%. Emerging Markets also reported a robust 17% increase. China, amidst market challenges, still managed an 8% growth. The company remains optimistic about future performance, particularly in North America, due to positive order book trends.

Operational Efficiency and Cost Management

Adidas is working on enhancing its operational efficiency with a clear strategy to control overhead costs. The company aims for two-thirds of profit leverage to come from net sales growth, with the remaining third derived from rightsizing initiatives. By maintaining a tight grip on inventory management—reporting a healthy operating working capital percentage of 20.6%—the company is projecting sustainable growth going into 2025.

Future Outlook and Guidance

Guidance for the full year targets a revenue of EUR 1.2 billion in operating profit, which emphasizes the management's cautious stance after experiencing challenges in past quarters. They believe robust inventory management and sales strategies will allow continued double-digit growth prospects. Overall, the company is set to achieve growth in various product categories while managing to balance profitable operations.

Investments and Brand Positioning

The leadership stresses the importance of strategic investments in marketing and innovation, particularly to enhance brand visibility and consumer connection. The plans include expanding their retail footprint with initiatives targeting new consumer segments and sports categories. This commitment reflects a strategy to solidify the adidas brand in a competitive marketplace.

Healthy Balance Sheet and Financial Stability

Adidas closed Q3 with a solid balance sheet, reporting a cash position of EUR 1.8 billion. Compliance with debt reduction targets sees a net leverage ratio below 2x, signaling improved financial health and stability. The company has received a positive outlook from credit ratings agencies, marking a recognition of its operational recovery.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the adidas AG Q3 2024 Conference Call and Live Webcast. I am Maura, the Chorus Call operator. [Operator Instructions] And 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 Steffen, Head of Investor Relations. Please go ahead, sir.

[Sebastian Steffen, executive]

Thanks very much, Maura, and hello, everyone. Welcome to our Q3 2024 results conference call with our CEO, Bjorn Gulden; and our CFO, Harm Ohlmeyer. In a second, Bjorn and Harm will take you through the puts and takes of the quarter. But before we go there, as always, I would like to ask you that during the Q&A session, you limit your initial questions to two, in order to make sure that as many people as possible can ask their questions. Thanks very much in advance for sticking to that rule.

And now before Bjorn is going to kick it off, we'll start with a video to make sure that everybody is in the right adidas mood. Here we go.

[Presentation]

[Bjorn Gulden, executive]

Yes. Hello, everybody, and welcome to our Q3 call. I hope you're all in good shape and in a good mood. We are in good mood. If you follow the news yesterday, you saw that Mrs. Bonmatí won the Ballon d'Or, and we are in a good mood because you can see that the store in Barcelona was already this morning decorated in honor of her. So it shows the speed that we have celebrating our athlete and also trying to utilize it commercially. So very happy to see that.

The weekend was also great for Running our Patrick Lange won the Ironman in Hawaii, setting the course record as you can see in our EVO shoes. And Yomif set the world record on half marathon, 57:30. And Agnes won also the women half marathon in the second best time ever 63:04. So again, I'm showing it because it shows the commitment we have to support, and that things are actually working, and that innovations in products also is working on the athletes.

Mentioning for the last time that the Summer of Sports was important for us. I hope also for you. I think both the Euro, the COPA, and also what happened in Paris was great. Of course, our team's winning is one thing, but also the way we activated it, and the mood it puts both our retailers, and I will also say, to a certain degree, our partners and consumers in was great. And I think it's also part of the reason why I can say that the Summer of Sports did what we hoped for, it fueled our growth also into the third quarter.

We did another hook you know the numbers, but just to repeat them quickly before Harm later goes through the details. Currency-neutral 10.3% growth. If you look at the underlying adidas business without Yeezy, even 14%, very healthy gross margin of 51.3%, and if you then exclude Yeezy, you will see it's even stronger. So it's the first time that the adidas business had a higher margin than what Yeezy had.

Operating overhead still heavy investment in sales and marketing and maybe not the leverage that you're hoping for, but we said all the time that the leverage will come in the future. And we feel also very comfortable that it will happen. But as you know, we will continue to invest heavily in sales and marketing. All that gives us an EBIT of EUR 598 million, which is up almost 50% to last year, and EBIT margin this time at 9.3%, which is in the area of the midterm 10% we talked about. So that also gives us confidence for the future.

I repeated this many times, but I have to do it, so you don't forget it, 2023 breakeven and a transition for the company that we promised to make 2024 a little bit better. And I think we have -- I'm proud to say that I think we delivered what we promised and a little bit more. And if you look at the regional breakdown for Q3, we see the following the big numbers are then the currency-neutral total numbers, and the underlying business is then without Yeezy. So that's the adidas business. And as you can see, the adidas business in North America growing at 1%, but you also, of course, see the impact then on the Yeezy business.

This is the second quarter in a row where we have a slight growth in the adidas business. And with the order book that we have for Q4 and Q1, I'm pretty sure I can promise you that you will see different growth numbers, and we're very optimistic about the near future in the North American market. Europe, still very strong, plus 18% and 21% for the underlying business. China, a lot of discussions around China and how difficult the market is, we grew 8% in the adidas business and feel we're taking market share. Very happy with the way the team works and also optimistic about the near future. Japan and South Korea are very strong at 17% in the underlying business Lat Am at 30%, strong as always. Emerging Markets at 17%, and that gives us the famous numbers that we grew 10% and underlying at 14%. And I think we can say that, that's actually a quarter stronger than what we had expected when we started the quarter.

If you then look quickly year-to-date, not big differences, but you see there the underlying business in the U.S. is still at minus 3%; Europe, plus 19%; China plus 8%, South Korea, Japan at 11%, Lat Am at 27%, and Emerging Markets at 20%, and that gives you then the 10% growth in total and 11% for the underlying business. And again, in line with what we have promised you.

If you then look at the channels, Wholesale business growing at 13%. And again, I want to mention here that, of course, the Wholesale business in the U.S. where we had very negative order book is now building, and for the first time, we're now looking at order books in the next quarters that are actually up and even up double digit, that is why we probably are more confident than we have been before.

Own-retail of 15%, concept stores comping very, very strong double digits, but now also slight improvement in the factory outlets, that has been flat or flattish because of lack of merchandise. So positive development in both those channels. E-com reporting minus 3%, but that is, of course, when you take Yeezy out, the underlying business is up 25%. And there shouldn't be a big surprise to you. Also, that is now full price and very little discount compared to what it used to be, so very happy also with that development.

And that gives you then the 64% Wholesale, and 36% DTC. And now you see brick-and-mortar a little bit stronger than e-com, of course, because of the minus 3% in the total. We continue to invest in retail concepts, I'm actually pretty proud of this because these are two women's stores, and when you see one is in Saudi Arabia and one is in Dubai, it shows how the world is changing. Needless to say, both stores are doing well. And I think women's stores only is a concept that we will try and test and work on also in the future. It is obvious that given that how many female consumers are buying our brand that female-only stores also could and should have a future.

We continue also to invest in what I say, flagships and image stores. Here you see some of them around the world, L.A., Seoul, Sao Paulo, Chengdu in China and also a pop-up store in Paris, an amazing lineup in Paris when we did that pop up stores we used celebrities, football players to curate in-line products and the interest was great. And I think all these stores that you see is part of continuing to build the heat and it's, of course, an investment that we will continue to do.

Maybe a little bit different, but here a sign again that we're expanding the brand into areas where we haven't had the footprint. First, on the left side, you see the future cities in China, that is the smaller cities in China, where we have then decided to go with a new format also competing against the local brands. And as you can see on the slide, we're planning to open 300 stores during '24, I think end of the quarter, we are a little bit more than 200. And again, this is then with China-developed products sourced in China and going against the local markets.

You see also franchise in markets where we haven't had a real footprint countries like Iraq, Bangladesh, Uzbekistan, Kyrgyzstan, Azerbaijan, Vietnam and Nigeria. Again, important for us to spread the brand also into those markets that can have a growth in the future. And we do that mainly with the franchise partners. And then may be interesting for you for other companies, Foot Locker opened their first store also in Saudi Arabia. And when you look at the wall, we look pretty good.

We then look at the divisions, continued strong growth in footwear at 14%, apparel at 5%, that's similar to what we had in the last quarter. And then very, very good again that the accessories is up double digit, and you see a healthy development also in the divisions. And that gives us almost 60% still footwear, 34% apparel and accessories. And I think we will continue to see that we will accelerate also apparel, when we get into the future about '25 and '26.

Important for the brand is the balance in the different categories. Performance, where people buy our product is sports, now up 10%, which is important. Sportswear, the more commercial packages at plus 4%. And then Originals, Basketball, Partnerships and Skateboarding, which has been building the heat, up 20%, and of course, important for us that we have growth in all these categories.

I think you would agree that compared to 18, 20 months ago, we have now a very strong Lifestyle portfolio. You've seen this slide many, many times the scaled franchises Terrace with Samba, Gazelle and the Spezial. Interesting to see that some of them develop different in different markets. There are stores, cities and regions where the Samba is the strongest, but other regions, the Spezial is now the strongest. And surprised, there are also markets where the Gazelle the strongest, so you see that all three franchises still very strong. And then when you add Campus to it -- for still very, very strong growing franchises.

We talked to you last time about Retro Running almost a surprise of the success of SL72. And as you can see here, we are scaling that in line with demand, and you see that spring/summer '24 is much higher, and what we did in '24 and very, very happy with that development.

We talked about Low Profile, I think, for 2 quarters. Still not scaled, but we clearly, clearly see that we have an offer that is starting to show, I would say, big interest from the consumers. Especially in Asia, where we have launched it in China, Korea, Japan. And I think I've said this to you all the time that when you get into March, April next year, I think this is going to be a commercial segment for us, and probably also for some other brands.

We took the chance to also use it as, I would say, segment by itself at the Paris Fashion Show here at the Stella McCartney show, where both the athletes and the models were walking, was using Low Profile models from us, and we actually in the fashion media. If you looked at it, it was very, very positive.

We have talked about Lifestyle Running for a long time. We need to get that going. We have told you that we have a lot of offers on the way. And here, you see, I would say, some of them, they come from the Classic side that we talked about, but also Modern and what we call [ Whizz-Tech ]. Then we have, I would say, more price aggressive thing coming out of Sportswear. And then we have also Lifestyle versions of the Adizero which you probably also saw Pharrell having at the opening of the Olympic games.

Something which is pretty cool is the Climacool. It's a 3D-printed shoe, but now in a soft version, that means that the fit and the feeling is great. We have done small launches of it already, working very well. And this is an area which we think we can start to scale slowly because it's a total new way. And again, it's soft, so it's actually not sure that only looks cool and different. It also feels great. And that's why it's also in the Climacool family because of availability.

On the right side, you see Aruku. Remember, we talked about that for a long time. The direction of the very, what should I say, thick and big exposed midsole. Aruku means walking in Japanese, and it is a very, very comfortable shoe that also especially is now catering for the wide jeans and the new look. And the initial reaction has been very positive, and you will start to see this going mainstream during the first half of '25.

And then Superstar, the biggest shoe that the brand ever had. We will launch it as a relaunch and the white black, black white during '25. We will face it first in the U.S. because that's probably where the shoe has the biggest demand, and then a little bit delayed into Europe because of the lack of need to be honest, to have another court-shoe on the wall. We are doing quite some incubation already, linking it with our designers, showing it at different fashion shows and there's a lot of activities around it. And I think all retailers that we speak to are very excited about this.

We are continuing with our takedown strategy. So for any, what should I say, franchise, we go upstairs in the higher price point with Originals, we do takedowns, not identical, of course, but with the same trend. And needless to say, in the family channel and other, I would call them, commercial channel, this has been very popular and it's starting to show also in our numbers.

Apparel, we have said all the time that we need to lead the brand in footwear, and then capitalizes on apparel. You clearly see on social media and also in the -- I will call it more fashionable environments, a lot of Three Stripes and a lot of, I would say, cool outfits with our brand. You will start to see that also more in brick-and-mortar in '25. Right now, the people that are on the e-comm, and the pure players are having a real, real nice what should I say, run with it. And of course, we will then start to scale that more and more.

But it's not only fashion. We are a sports brand. And as you know, our offering there should be as good, if not better, and we're spending a lot of time on it. I think all of us in management and in all markets agree that we need to invest even more in sports, both in the depth and in the width, and that's what we're doing. Of course, some of the visibility it take some time. But I have that feeling that every week when I watch our results and our visibility it's improving, so actually I'm very happy.

Starts with Basketball, which we know is the most difficult category to be successful in the U.S. Our signature shoes are doing better and better. And I think it's fair to say right now that demand is actually higher than supply, and that is, of course, good. We know that Performance Basketball drives a lot of street culture in the U.S., and that you can capitalize the new Classics. And with the success currently, of course, way behind Nike but still highly improved from ourselves. We feel comfortable that we are also there in the right direction.

Running, talked about it many, many times. We feel that we have the right products, the innovation on the top side. We are now trying and I would say, with certain success also to widen it into everyday running and to comfort running. And we feel that the reaction from the trade is good, and that we have products in the pipeline that commercially can be very important for us in the future.

A fun story is that the EVO 1, the EUR 500 shoe that is setting world records, has also had a huge demand in certain markets. Here, you see our Beijing store, where we launched 200 pairs for EUR 500, people were sleeping outside the store to buy it, and they were all sold out again for EUR 500 a pair, after 1 hour. And now we will launch another 200 pairs for the Shanghai Marathon, where we will do the same thing, and I will not be surprised if people would also sleep outside that store.

Football, as we said, a great year for football. I think we did a great job with the Trefoil in Footwear. Also been very happy with the launches of our jerseys. And then it's very cool, and you actually now can see also the Trefoil on the pitch with our adiClub, and how that then goes into the fashion side of the business and creating the soccer culture, which I think we have to own.

And of course, when you put the old heroes, as you can see in the back from our top clubs in a campaign, it becomes very exciting. And needless to tell all these products have sold out very, very quick.

In general, when we try to combine fashion and sports, we have this unique blend that I think we can do, you see here on the left side, we're trying to put our athletes into the fashion shows. And then we're trying with our collabs to be very despite by sports. You see that here, Kaf by Kaf, where we have soccer inspiration. And you will continue to see a lot of this going forward, both with us as adidas, but also in Y-3, and also with many of our, what should I say, collabs port on the fashion and the design side.

The one that was very successful both on and off the court was, of course, where we took Messi and Bad Bunny together, a, with the Gazelle outside the stadium, and then with the f50 in the stadium. And of course, Pharrell starting to use the EVO 1 in the opening ceremony at the Olympics, but also in his normal life, of course, extremely important for our visibility and image.

So again, I think '24, we promised you we would be a better company. I think after 3 quarters, we proudly can say that we are, and to give you a little bit more insight on the numbers for Q3. I now hand over to Harm.

[Harm Ohlmeyer, executive]

Thank you, Bjorn, and good afternoon and good morning from my side as well, and I would like to give you some more details now on the P&L but also on the working capital and the balance sheet.

So starting with the top of the P&L. First, on net sales, Bjorn mentioned already solid growth with 10% currency neutral growth in Q3 and underlying, which, of course, is more important and forward-looking 14% currency neutral growth. So definitely a good quarter on the top line.

Even better the gross profit for the first time in many quarters, we went to 51.3%, so 2 percentage points up. if I decompose it a little bit more on the next chart, you actually see that there was a benefit of product cost, better product cost partly because we're scaling tariffs and overall, our volume growth that we have, the freight has normalized.

Of course, the Originals mix is positive in the overall product mix, but most importantly, the discounting either on e-commerce or retail stores and towards the wholesalers as well to make money for them as well, that's very important is much, much better.

We had some help on inventory provisions because last year, as you remember, we still had some elevated inventories and some aged inventory. So we sold some of the products, so we have some tailwind on this one. But you shouldn't also forget that the FX was still significant. It was more than 1 percentage point negative. That is not just the U.S. dollar, but there are other currencies as well, whether it's the yen or the peso, some things went against us.

But again, and for the first time, Yeezy was negatively contributing to the gross margin. So underlying, you should look at the 51.3%. It's even slightly better if I take Yeezy out of it. So very, very happy with the gross margin development towards where we want to be also in '25 and '26.

If I go further down, and I know you're interested in the operating expenses. But before I go there, I want to be very, very clear happened in the P&L this time because, as you know, in the release, we settled with Yeezy all the claims that we had on both sides in Q3, that's why we had to release another operating income around EUR 100 million. These were accruals, given the risk that we have seen in prior periods, so either in '22 or '23 where we accrued these things. And given the settlement, we had to show that and release it in other operating income.

At the same time, you see in operating overhead expenses that we did another donation of EUR 100 million. So it's pretty much a wash of 2 of these, and I'll come to that in a second again. So it's also important to note that over the course of the last 20 or 21 months, we now have either donated already or accrued and committed to our adidas foundation around EUR 250 million from the Yeezy proceeds as donations and that is significant, of course, not all being spent, but there's still a lot of good we can give back to societies. And that will leave us with EUR 50 million profit in our operating profit from Yeezy based on what we have sold in Q3.

To be very clear on the bridge because all of you will ask, how solid is the EUR 598 million from an operating profit point of view. Again, what I just explained, if we look at the other income, the accrual release of EUR 100 million, and then the donations, it's pretty much a wash. And then, of course, we have EUR 50 million of Yeezy profit that you now can say, okay, the real underlying operating profit is closer to EUR 548 million.

But be reminded we always said, going forward to generate leverage, 2/3 of the leverage in the operating overheads will come from our net sales growth, and 1/3 will be measures into the infrastructure or personnel expenses, rightsizing it. And rest assured, every quarter, we're doing something without talking a lot about it, but also in Q3 it's definitely to the amount that is slightly bigger than what you see in the Yeezy profit. So you can make up your own numbers, whether it's now EUR 548 million or EUR 600 million, but we have some in the ballpark depending on how we look at the one-times.

Now going further down, there were some concerns on the financial expenses in the past. I also want to decompose this one on the financial income, it's pretty steady. We still get some interest given the cash on the balance sheet, not much change, Q3 last year to this year. What really has changed are the financial expenses. Last year, and remember, we had a significant impact from hyperinflation adjustments in Argentina and Turkey. That's the majority of this. Now it's more normalized with EUR 25 million. And going forward, it will not be as good as this EUR 4 million net.

But again, also going in a good direction when it comes to the net of the financial income and financial expenses, leading to a much better IBT of EUR 601 million. And we always said there was a second concern, our tax rate became pretty significant last year, sometimes even above 100%, but needed some explanation. But now in Q3, it was 22% or year-to-date, it was actually 26%, which also is a good indication for the full year, quite honestly. We are now back to a normalized tax rate. And of course, we'll try to improve that going forward even slightly.

Given these two factors on the net financial income and the taxes, we now see a net income of EUR 469 million or basic earnings per share of EUR 2.44. That is, of course, a good development in Q3 as well and with that, the earnings per share is actually 75% up. So much to the P&L, very happy with the developments and more to come.

When it comes to the balance sheet, again, inventories are very well-controlled and very disciplined in all the markets, still currency neutral 3% down. Even more importantly, when you look at the development of this, only EUR 50 million of Yeezy inventory lift by the end of the quarter, the end of September. And rest assured, that will move as we speak, definitely in Q4. It will get to 0 very quickly or pretty much as we speak.

But you also see there were some concerns do we have enough inventory because it's so low right now and so healthy that we can deliver the growth that we are expecting in Q4 and going into '25. If you really deduct the Yeezy inventory, you actually have EUR 250 million more than in Q1, and rest assured, EUR 4.5 million overall is a good inventory base and especially healthy inventory and not a lot of aged inventory in that. So I'm very happy where we are.

Of course, given the growth of the Wholesale business now, our receivables went up by 13%, pretty much in line with the growth of Wholesale. And you see an indication in accounts payable, which is an indication on what we are buying from our suppliers, 31% up, doesn't concern me because this is what you will see now, EUR 4.5 billion is probably the lowest inventory you will see for the years to come and expect that to be slightly up in Q4, but you also see that we need to buy some volume and have expectations of growth, of course, in Q4 and going into '25.

But overall, operating working capital also highlight when I go back, even back to Q3 '23, we are now at 20.6% operating working capital. When we talk about being a healthy company in '26 from a P&L point of view, I always said when we dropped below 20% of operating working capital we are very, very healthy in managing our inventories and overall balance sheet very, very well. So also very happy where we are.

Lastly, when it comes to cash and cash equivalents, despite the fact that we repaid the EUR 500 million bond that became due in September, we still have EUR 1.8 billion on the balance sheet by the end of September. That, of course, helped us, on the one hand, to increase our cash, as you just saw, but also reduce our adjusted net borrowings, and more cash, the bond being repaid, so EUR 1 billion improvement with some give and take. Also very, very healthy, and that helped us to get to our net leverage ratio significantly improved over the last 12 months and now almost at the smaller than 2x financial targets that we set ourselves.

That also led to Standard & Poor's removing the negative outlook to a now stable outlook, which is also testament of the improvement that we have done on the balance sheet. So overall, very happy with the development in Q3, both on the P&L, on the balance sheet, and then lastly also on the operating working capital.

And with that, over to Bjorn again.

[Bjorn Gulden, executive]

Thanks, Harm. Just a quick -- I mean you know the number anywhere, you remember we started the year at mid-single-digit revenue increase. Now we are at around 10%. And on the operating profit, we started around EUR 500 million, and now we are at around EUR 1.2 billion. The assumptions for this is the following.

That the remaining Yeezy inventory, which is EUR 50 million at the start of the quarter will go down to 0, but you also know that this inventory is now being sold off to retailers and to partners, and we don't expect any operating profit on it, so it's EUR 50 million in sales and 0 in profit. And to be very honest, you're very close to having done that these days. So we should be very, very clean -- very, very soon, we can promise that we are 0 when we get to the end of the quarter.

We will continue to have some FX headwind, as Harm said, and then we will continue to invest heavily in sales and marketing because that's what we feel we need to, and I think you agree to that.

I have two slides on Yeezy just to make sure that we all know what we have done. You see on the top, you see the sales effect of Yeezy, the EUR 150 million, EUR 200 million, EUR 200 million, plus the expected EUR 50 million in Q4 gives you around EUR 600 million in sales for the full year. And every quarter, 1 to 3 gave an operating profit of EUR 50 million. We expect 0 in Q4 and that gives you then the contribution of EUR 150 million and as you can see, the inventory going from EUR 200 million at the beginning of the year then to 0 at the end of the year.

If you then look at the guidance, as I said, we started at EUR 500 million. Then with all the Yeezy drops, we generated EUR 150 million of EBIT. And then the underlying business is -- will be EUR 550 million better than we started with, and that gives you then the EUR 1.2 billion, which is currently the outlook. I hope this is a simple way of looking at it.

And then internally, we say that the time is now. I think we have a quote internally that we have a generational opportunity to have a new generation of consumer hook to our brand. I think we have all the ingredients to actually achieve a business again that adidas deserves. And we do that by being a global brand with a very local mindset. We think that we need to be so close to the consumer that we need to accept that there are differences between the different regions, and that's the business model we are now looking to set up over time.

I was very happy to see how we launch Z.N.E., our new apparel collection because it's a global collection, and with the content of actually marketing it was very local, and we were able to generate or activate both our athletes and other celebrities all over the world and I think we did it in an excellent way, actually, and very proud of that.

Remember, our road map, as I said, 2024 being a better company, next year being a good company. And I think with everything that we can see, the products that we have presented both for the first half and the second half, the order book we have for Q1 and partly for the Q2 looks strong. And that's why I would almost be ready to say that we are or will be a good company in 2024, and then as you know, the goal for '26 is not only to be good but also be healthy.

And we define healthy back 2 years ago saying we need to grow double digit, achieve a gross margin between 50% and 52%, continue to invest around 12% in marketing. And then, of course, get our leverage to 30% overhead and that gives you the famous 10% EBIT. I think all of us are convinced that we can achieve that.

I have a couple of updates in the organization. You probably saw that some days ago that Arthur Hoeld will leave us in the Board. He was the Chief Commercial Officer, been with the brand for almost 25 years, done an excellent job. But then decides not to extend his contract, we together then decided that to actually do a change now. We will have Mathieu, as you see here, taking his role. Mathieu has been our GM in France. He's been the GM in Southern Europe and he's been now the GM for the European business, and you see the impressive numbers. I'm very, very happy to add him to the legal Board or have added him already.

You see also that Michelle has been on the Board for a while now taking care of Global Human Resources, People and Culture. Harm has then, in addition to Finance, Supply Chain and Tech. Mathieu, as we said, new in Global Sales, and I then take care of the brand for the time being.

And then not in the legal board, but being in all board decisions and being in every meeting is Hoa. Hoa sits in Hong Kong and she's in charge of what we call Sourcing and Product Operation, business and development. And I think this Board is a very strong Board with the competencies that we need.

One more change. Jan Runau after 33 years in our company being the face and I would say, the voice of the brand has decided to go for early retirement. A big thank you to him. He has been a very loyal and a very, very Three Stripe, Trefoil and Performance logo guy, and he will stay as a friend and a member of the family living very close to headquarters. We then decided that Sebastian, who have also been now 10 years with the brand. I think it was 5 years with the brand even earlier, now being charged of Investor Relations, but he will then also take on Corporate Communication because we think that makes sense to put that together.

And with that Sebastian, I think I hand over to you. And congratulations, and good luck.

[Sebastian Steffen, executive]

Yes. Thanks very much, Bjorn, for the kind words, for the wishes and for the opportunity to lead the combined communication functions going forward. I'm very much looking forward working with strong and very experienced teams, both on the IR and corporate comp side, to drive our internal and external communication going forward.

Before we move to the Q&A part of this call, please allow me one more comment because I also want to make sure to congratulate Jan on a fantastic career. I had the privilege of working with him for more than 15 years in different roles. And I have to say I really enjoyed working with him over many, many years during good times, but also during challenging ones, and always felt this was a great partnership between Jan and myself between his team and mine throughout all the years. So I wanted to say thanks very much, Jan, for this and all the best for the future.

And with that, I'm going to hand back to Maura to moderate our Q&A session.

[Operator]

[Operator Instructions] The first question is from Edouard Aubin from Morgan Stanley.

[Edouard Aubin, analyst]

Congratulations, Sebastian. Great news. So two questions for me. Bjorn, on, on the top line first, I know it's very premature to talk about 2025 guidance. So I'm not going to ask you for this. But if you look at out of the next 4 to 6 quarters, what's your sense in terms of your ability to more or less maintain the current underlying top line growth that you've posted in Q3. I don't know if you're willing to enable to comment on that? So that's question number one.

And then question number two is, it seems that adidas as an organization is casting a wider net, so to speak, in terms of your presence, in terms of distribution channels, in terms of sports, you talked about U.S. sports in terms of offering more SKUs, more price points with the takedown and so on. So to what -- so obviously, that's going to have a positive impact on top line, hopefully. But to what extent that could negatively impact your profitability and your ability to reach a 10% plus EBIT margin in the medium term?

[Bjorn Gulden, executive]

I think it's pretty obvious that the way we have told the story is that we expect to grow around 10% double-digit in the future, right? So we don't see any, what should I say, signs that we will go away from that. There might be differences in categories in channels, in markets, but our goal is, of course, to continue that momentum because we think that's what the brand deserves. And that's also what I would say, we think we have the resources to do, and that's what we will try to do.

I think when it gets to the visibility of the brand, meaning what categories, how many articles in different markets and what sports. Yes. I think you're right that you will see more of us because to sell more, you need to do more. But I don't think that will have an impact on our earnings negative, I think it's actually positive.

Again, we believe that there is a big difference between America, Europe and, for example, China and India and that we need them to cater for the right product and the right activities in those markets. And with our size we think SKU count and global SKU count doesn't really matter. If I produce locally for China, in China, and I produced, I don't know, internationally for Europe in different factories, it has no negative or positive impact other than I hopefully have the right products. And remember, our biggest enemy is, in my opinion, not the going in margin on having efficient SKU counts but it is of having too much inventory that no one wants to discount.

So I feel Harm showed you the inventory at EUR 4.5 billion, we've been growing with that inventory. We have a very healthy order book. We have expanded the SKU counts the way you count it. But you look at our gross margin, and I think we feel very, very good where we currently are. So the goal is not to lose profitability by being more right to the consumer. It's actually the other way around. And I think we still feel comfortable with our business model and everything we see can cater for the double-digit EBIT margin.

[Operator]

Next question is from Zuzanna Pusz from UBS.

[Zuzanna Pusz, analyst]

Congratulations to Sebastian. Just maybe, first of all, North America. You returned to growth, I think, faster than was anticipated. Any chance you could maybe share with us what has driven that? And would you say is it overall the market? Or was it more brand specific? And if so, what type of products have driven that? Any incremental color on North America would be very helpful.

And then second, I would say, question is on OpEx. So, Harm, it was very helpful, you shared with us some of the sort of drivers in some of the, let's say, moving parts within OpEX. But I think we've seen some news flow about I think you closing the Runtastic offices in Austria and in a couple of other bits. Were there perhaps any other special items, one-off maybe restructuring costs and OpEx that we haven't discussed so far?

And just a very quick follow-up, it's not a question. The double-digit growth for sales that you mentioned for next year and let's say, going forward, is it ex-Yeezy or with Yeezy? That's just a clarification.

[Bjorn Gulden, executive]

I think it was a question. It wasn't a follow-up. So you have three. I mean the North American, if you think about the story we've been telling you over the last 18 months, we clearly said that we started this period with a lot of bad inventory in the U.S., we started in, I would say, a very negative brand heat. So we said that the turnaround in North America will take longer.

What has happened now is that because of the success we've had in our own channel and with the inventory that the retailers are buying into, they have started to give us more space. And that is translating for the first time now Q4 going forward in a positive order book for North America. We haven't had that. So we've been able to achieve a flattish sales plus 1%, plus 2% in the underlying business in the last 2 quarters by actually selling more on a negative order book. And right now, of course, the retailers are always trying to find the brands and the product where they can sell more and make more product. And that's why we're seeing.

And that's across, I would say, categories and different distribution channels, both on the Performance side, but it's also on the Lifestyle and the commercial side. So it's in general that I think our offer and the brand heat of adidas in the American market is being perceived as positive. That's why we feel comfortable about the growth with the visibility that we see in the North American market.

And it had to come that way, right? Are we then at the end, what we need to do in the U.S. to become mid- and long term, a very strong brand? No, we have a lot to do. But I think we put the elements together. We have a new management driven by an American. We have our famous office in L.A. that sits on a lot of talent. We have cleared now all the Yeezy product. So we're kind of starting again on a fresh new start with an inventory, which is also much more healthy. So I think we feel a lot, lot better than we did 12 months ago and are therefore, I would say, pretty optimistic.

When it gets to the double-digit growth, I think the difference, the EUR 600 million or whatever Yeezy product is 3% kind of, right? So it's either 13% or 10%, if you do the math. And let's hope that we achieve both because we will at least be double digit. And then if it's 10% or 13%, we will see right when we go through the course.

OpEx. I hand over to you, Harm.

[Harm Ohlmeyer, executive]

Yes. Thanks, Zuzanna. And you're absolutely right. I mean Runtastic is part of what we did in Q3. And for the respect of our employees, I didn't want to mention it again, but as you question it. Yes, Runtastic part of some of the one-times in Q3, but we also did some impairments of some of the IT infrastructure, also given the digital changes that we did. We always do some balance sheet cleanup here and there. And of course, we have some element of severance as well. So if you add it all up, it's definitely more than the EUR 50 million underlying operating profit from Yeezy. But again, we don't want to talk about restructuring reserves or whatsoever there in Q3. So we just do the right thing in the right way at the right timing.

And rest assured, we will continue to do that also in Q4. And I'm not going to give an indication how big it could be, but we will continue to do these things at the right time and in the right way. And as I said earlier, all eyes on '25 and '26. I want to make sure that we use every quarter to get somewhat better. And again, 2/3 of the leverage will come out of the net sales growth and roughly 1/3 will come out of the right measures. And again, it will not be one big one, but there will be smaller ones here and there, but that's really part of it.

[Operator]

Next question is from Piral Dadhania from RBC.

[Piral Dadhania, analyst]

So my first question is just on EBIT guide. The full year EUR 1.2 billion guide implies a breakeven Q4 number. Harm, I take on board everything you've said. However, I just wanted to understand whether there is conservatism baked into that, and whether we should just straight reverse the EUR 100 million IAS 29 impact in the prior year, which becomes a straight benefit of the same amount?

My second question is also a financial one. Apologies, but the CapEx run rate for the 9-month period is EUR 300 million. However, I think you've guided on a full year basis to EUR 600 million. So could you just help us understand whether you plan to spend the remaining EUR 300 million in a single 4Q period? Or whether that CapEx number on a full year basis could land below guidance?

And just following up on Zuzanna 's question, I don't think you answered her third question on whether the 10% growth is in core ex-Yeezy.

[Harm Ohlmeyer, executive]

Yes, probably Piral starting on the CapEx, again, when I'm confident about some conservatism is definitely on the CapEx side, with the EUR 300 million, first 9 months, we're not going to spend another EUR 300 million in Q4. Again, that doesn't mean we're not going to invest, but it's part of the, I would say, discipline in the overall company that operating over leverage starts with investing more cautiously and where it really makes sense given where we are because you don't need to remodel every factory outlet every 3 years or whatever, which people like to do. So there is some level of discipline in there.

And of course, we have built an infrastructure over the last couple of years, there was probably bigger than what we needed in the short term. But we have great warehouses around the world. We have a great IT infrastructure. We have a great digital infrastructure. So again, most of the CapEx goes into some of the S/4HANA implementation and some remodeling and some new stores. But again, that's pretty much where we are.

When it comes to the EBIT guide, I get that on the operating profit. If you deliver EUR 1.28 billion in the first 9 months, it look conservative if you want to get to it for the full year at EUR 1.2 billion in the guidance. But please remember, I mean, in '22, we lost more than EUR 700 million in Q4. Last year, we lost, I believe, EUR 377 million. And yes, Q4 is not our strongest quarter. We try to get better. But as I mentioned also, we always do the right thing in the short term for the long term. And if you see some opportunities here and there, all eyes are on '25 already. And that's why I want to make sure that we deliver a solid and good quarter. And we will definitely look at that when the time is right.

[Bjorn Gulden, executive]

I'm not answering the third question. I think what we said is that the Yeezy business is about EUR 600 million, so it's 3%. So it's either 10% or 13%. If you look at it, we guide on the underlying business, but who knows we will also shoot to reach the 13%. But we haven't guided for '25 yet. That's why we answered it the way we did.

We think that the company needs to grow double digit to get the leverage, right? And we will do what is right, depending on how the world is moving in the different markets, but we will not try to, I'd say, prostitute the brand just to reach a number that we promised you on the top line. So be a little bit patient with us. We have a very strong order book for Q4 and Q1 and Q2, actually, what we have visibility of. And then let us manage that in the progress that we will guide more specific when they get there. But adidas brand needs to grow double digit in the midterm to get where we want. And as I said, I think we can achieve that.

[Operator]

Next question is from Jurgen Kolb from Kepler Cheuvreux.

[Jurgen Kolb, analyst]

Sebastian congrats, first of all, all communication now in your hands. Also Congrats to Jan, obviously, for having been for such a long time at a company, quite unusual.

Two questions from my side. First one maybe for Harm. After normalization of the tax rate, working capital doing fine, EBIT growing. So cash generation seems to really speed up. Can you remind us on your stance when it comes to share buyback and what criteria should be fulfilled to maybe revive the share buyback program?

And the second one for Bjorn, you mentioned you're seeing that adidas is gaining another generation. Maybe you can elaborate a little bit on that. Is that rather an age group? Is that more fashionable customers? Is it on a regional basis? Or what have you seen here that you can maybe provide us with additional information on what that really means.

[Bjorn Gulden, executive]

I'll start. Of course, the whole new generation is wider than only age, but we all have to see that there is a consumer group that both from a fashion and performance side has not with our brand. There's a big brand that they've been with for a long time on the lifestyle side. And there are other, I call the niche brands that have been on specific areas. If it's fitness, training or it's running. And what we clearly see now because of the heat of our Footwear is that, that consumer, especially her, is now hooking up with our brand for the first time. And if we do our job well, I think we can work with her, and of course, also with him, but especially with her for a longer period with many categories.

And I don't think the brand has seen this for a long, long time. You had, of course, a success with many different areas, but then it [indiscernible] Yeezy on the high end or it was soccer as a category. I think we now see with the consumer group that through the success of Originals footwear on the high end we are able then to take that consumer into many categories, and that's the goal. And that's why I think it's an opportunity that the brand hasn't had.

And remember, it is with a fresh inventory with a, call it, a new energized management group that says we have all the resources that we need. And actually with, I would say, demand that is going across channels and across categories and across markets. And that's very unique. It's not only China or not only B2C, but it's wider.

And I think that is kind of a very lucky situation to be and then to look into the midterm. And that's why we say internally that it's now up to this group. And of course, the people we have in different functions and different markets than to take the opportunity and not be afraid because these opportunities doesn't come that often. That's why we use the generational opportunity as a wider, what should I say, topic. And I think it's actually a very good work. Harm?

[Harm Ohlmeyer, executive]

Yes. Good question, Jurgen. And of course, I'm on record that I would like to have EUR 2 billion on the balance sheet in cash, and there's no doubt we will get there very quickly. And then I have a good problem to have what to do with this cash. But you're absolutely right. I mean the operating profit will go up. The interest or the financial expenses will go down, the tax rate will continue to improve. So we definitely pile up more cash on the balance sheet, which is a good problem to have.

So what can we do with that? And first, we invest significantly to Eintracht Frankfurt, so it needs to be financed first, of course. And then secondly, we want to be a solid dividend payer, right? And we have done this in the last couple of years, but we want to go back to our policy of 30% to 50% or let's call it an average of 40% of net income of continued operations should go back to the shareholders. And then maybe in '26, we need to talk about share buyback. But right now, it's not the problem that we try to solve, and we shouldn't forget we live in a pretty volatile world right now.

So it's good to have a strong balance sheet. I'm not worried about exceeding the EUR 2 billion. And maybe we come up with some other ideas what to do better with this one. But that's for the future. It's a good problem to have, but the first priority would be investing in the business. And then secondly, being a solid dividend payer, then we will see.

[Operator]

The next question is from Warwick Okines from BNP Paribas Exane.

[Alexander Richard Okines, analyst]

Bjorn, I just wanted to go back to the comments you made on the last conference call when you said you had pulled forward inventory and you thought you might struggle with supply. Could you just talk about how you manage this in Q3 and how you're managing it into Q4?

And then my second question is just around the progress you're making winning shelf space in Specialty Running, perhaps comment on any progress you've made in the last quarter or 2?

[Bjorn Gulden, executive]

Yes. I think what I said last year is -- that last quarter was that with the growth we were having, we were, of course, needing to use the inventory we had. And if we had orders on items that were meant to be on Q3, we actually delivered them to please the retailers. And we've been doing that all the time to be honest.

But as you can see now, the inventory has been building. So we've been very good at delivering. I hear about delivery issues in the industry, but I do really believe that we've done a tremendous job of chasing, what should I say, production. And we've had very good partners being able to fulfill whatever we have placed the orders. So I don't see any issues that we have too little inventory to actually do the business we need to do in Q4. But I don't need to tell you that when you have franchises that you see in the lifestyle area that is certainly exploring and they're exploring in different phasings, in different markets, you are short sometimes.

And we have also taken inventory that was meant to our own channels and giving it to retail partners to kind of please their need. So there is some flexibility in our system, and especially in the U.S. where we start and then have a negative order book we've been able to hit our numbers, of course, by working with all inventory and also, what should I say, rescheduling inventory, whatever is. So it's I would say, a big effort of the team to actually be able to do it, but you don't need to be afraid that inventory will be an issue not to hit our numbers. I think.

And the second was. Specialty Running is improving. But you remember 2 years ago or whatever, adidas left Specialty when it gets to actually servicing their accounts with people. It was meant to be a D2C or a digital play. We are hiring people in all the markets, both from a sales, but also from a, I would say, an expert in being in the running community, and we see actually share in Running Specialty improving, both on what is selling out and selling in.

But again, I don't need to tell you, when you look at our product and how they perform, and on the highest level, then of course, we should have a higher share. But I think this is where we need to also be a little bit patient, and not only look at the top line and chase every business, but make sure that we service the retail or the specialty retail in a way that they're happy with us and take the time to build back the relationship that we had. But I think also here in most markets, we have the tools. And definitely, we have the product.

[Operator]

Next question is from Monique Pollard from Citi.

[Monique Pollard, analyst]

Two from me, if I can. Firstly, on inventory. Obviously, you've talked about clearly your inventory being in a really good position, and Bjorn, you just mentioned being happy with the level of inventory in terms of fulfilling the future demand. I think a comment that's been mentioned this morning was that about 80% of the inventory you have on book now is the current or future season product. And I just wanted to get a sense of how that compares historically and sort of what that could mean for full price realization.

And then the second question, just a question for you, Harm, on the tax rates going forward. I think you'd made a comment when we were going through the presentation that you were suggesting that the level of the current tax rate is sort of where we should expect going forward. Is that right? Is that how I should understand that the 3Q tax rate should be the level as we go into next year?

[Harm Ohlmeyer, executive]

Yes. First on the inventory, I mean, I don't want to give you a detailed percentage. Yes, we are very happy with the current level of inventory. If one goods in transit and most of the inventories actually fall/winter '24 inventory. What we have in all the inventory spring/summer '24, if you go into '23, it's almost like -- what do you say in English, negligible? I'm not sure it's the right word.

But it has -- there has been heydays where it has been as healthy as it is right now. But if I compare it to the last, I would say, 3 years it has never been that healthy and that current. So that's why we are very happy with the aging of the inventory, probably as good as it can be. And then secondly, it's also the right amount of inventory for the growth that we want to fulfill in the future or the demand that we want to meet. So very happy with the inventory.

On the tax rate, just to be precise, when I said year-to-date, it's 26% that's an indication also for the full year '24. And of course, as we expect higher profits in '25, the tax rate will further improve. But again, don't get carried away given that we have a pretty normal tax rate with 26%, it will improve gradually, maybe the percentage point or here, but it's not jumping now from 26% to whatever. But you know what our historical rates have been. And over time, not immediately in '25, but over time, we'll get back to these rates. That's what we would expect. But again, to be precise, 26% was the indication for '24, and then it will be slightly improving going into '25.

[Operator]

The next question is from of Geoff Lowery from Redburn.

[Geoff Lowery, analyst]

Just a 2-part question, please, on North America. Firstly, I was very struck that you made more money in Lat Am on approximately half of the revenue in this quarter. Is the answer for U.S. profitability in the end, simply sales and scale? Or are there improvements in the operating model and/or gross margin that you can deliver?

And second, could you talk about the tariffs trend and where we are with it in North America specifically, please?

[Bjorn Gulden, executive]

I think the tariff trend are delayed in the U.S. about 6 months, both on the high end and also in the commercial channels. We also because of the lack of orders from the trade did not do a lot of risk buys for the U.S. market because we didn't want to get into trouble. So we haven't given away quite some top line in the U.S. in the last 6 months because we didn't have the inventory that we could have had.

In hindsight, I think that's positive because that means that there's a trend that we prolonged and it gives us time then to launch more franchises with a healthy inventory. So I don't think that has harmed us at all. And I would say also that the Superstar especially with the male consumer is probably a shoe that do excellent in the U.S. and will, I would say, strengthen the connection to what we call the U.S. street culture together with what we're doing with American sports and also on the U.S. Basketball market, which we, I think, for the first time in a long, long time, have higher demand than we supply on our signature shoe.

So I think that's -- when it gets to the profitability, I mean, there's no doubt that the U.S. market is the most difficult one to run profitable for a European company. And that's why there's quite some adjustments that we need to do compared to other markets in the business model.

And that's what we tried to tell you for a while. It's having an American management with the authority to invest in American sports, also have a dedicated supply chain on certain products and the design office in L.A. connecting to the, what should I say, the street culture. I think it's a lot easier to be successful in Lat Am for any brand than it is to be successful in the U.S. for a European brand. And I think that what you see in that EBIT number. Having said that, we are all very optimistic about the future in the U.S. given the setup and the structure that we now have in place.

[Sebastian Steffen, executive]

Thanks, Geoff. And Maura, we have time for two more questions.

[Operator]

The next question is from Adam Cochrane from Deutsche Bank.

[Adam Cochrane, analyst]

First question is in terms of your good pipeline, you've got a good inventory position. But given how much benefit you've had from better full price sell-through in the last year. Is there much more to aim for in terms of better full price sell-through into 2025? Because a lot of the other drivers of gross margin should be sort of moving into your favor as well, hopefully. And if you can do more on full price as well, it should be quite a good outlook for gross margin in 2025. Is that fair?

And then secondly, on the business model, and operational changes that you've planned and you've outlined. How far along this journey to -- I presume most of the changes will be complete by 2026. It feels like you've done more in 2024 than you originally anticipated. If you had to draw a sort of time line with percentages on, how much of the change do you think has happened in 2024 and needs to be done now in 2025 to get to your ideal business model by 2026?

[Bjorn Gulden, executive]

Your last question is a difficult one because, yes, we have done quite some changes in the attitude on how we have attacked the possibilities with the consumer, but that doesn't mean that we feel we are in the end of being a better company operationally. I think we have broken our system and the way we were supposed to work by effort instead of organizing it. So we still have some work to do in the business model of optimizing it. And it's about the philosophy, again, do you need one big supply chain? Or do you have four smaller ones within a frame? And do you dedicate your product development to China, India, U.S. and Europe in a different way?

And we are gradually moving towards that as the world is also moving. So I don't think we'll ever be finished with the changes in the business model because you will always try to optimize it. So I can't answer you. I think the attitude and the company of being consumer-centric and being product-focused and consumer-focused has happened maybe quicker than we thought. And if you have a scale from 0 to 100, maybe we are at 75, but we still have quite some things to improve the way we go to market around the world, to be honest, especially probably for the U.S. market.

And then the full price, yes, I think we need to be a little bit careful because when we talk about full price, there are markets like the Chinese that are never really full priced. If you look at e-com, there are activities all the time. If you look at e-com in general, you have to work with a certain commercial discount policy. So I'm not so sure that we can get more full price sales the way you measure it because you need to also be pretty aggressive with the market.

I think we had a luxury now that our lifestyle product has been hitting very, very high sell-throughs and have been able to, what should I say, carry the margin. And I think the addition we would have is then, of course, to sell more apparel because apparel normally carries a higher margin, and we haven't utilized that yet. So that's a positive time.

I think a year ago or 18 months ago, we said that we had to be between 50% and 52% margin without Yeezy. Now we've reported 51.3% already. So I think we have achieved that.

Do we see upside on the margin going forward here? Yes, I think there is upside. But you know us, we don't like to promise anything before we can prove it. But the price points in the market that we see for the different products together with the sourcing prices and the cost should allow you to actually have a higher margin if you do everything right.

But I don't want to promise it to you, to be honest with you. And then the more you're investing in the smaller sports and the wider you go in your offering, the less margin you might have on the edges, right? So I think the 51%, 52% margin is a good number to have as a planning number. And then we can see if we can improve it or not. And -- but yes, there is some upside.

[Operator]

Today's last question is from Aurélie Husson-Dumoutier from HSBC.

[Aurélie Husson-Dumoutier, analyst]

Yes. I have two as well. The first one is on current trading by region. And any big discrepancy to signal versus Q3 any market becoming more or less promotional, if you could give us an idea of what's going on in October, that would be great.

And my second question is on the tariff trend that has been a key growth driver in the recent quarters. Could you give us an idea of how much this category or this family of products represents in total group sales? Is it mid-single digit, high single digit, double digit? Any color on that would be very useful.

[Bjorn Gulden, executive]

We don't normally give update on trading, but October is good. Let's put it in this way. We don't see any big changes in demand for other products neither in our D2C business nor in our Wholesale business. And then again, we try to manage the demand as good as we can and are now focusing on building the right assortments for both spring and fall of '25, and we feel we are in a very good, what should I say, direction.

When it gets to the size of the tariffs, again, it depends on what you define as tariffs again. There's a lot of, what should I say, definitions of tariffs and on different price points. I don't think we will ever let a category be so big that it stages for us. And you have to remember that although it's very, very strong in creating the look of the brand on the top end, it is not necessarily where the only growth is. So we are growing in, I would say, all categories and all types of product outside tariffs as well. So I think I'll leave it by that because whatever I answer, you won't be wrong, and I wouldn't like to be wrong.

[Sebastian Steffen, executive]

Thanks, Aurélie. Thanks, everyone. I think we'll leave it by that for this call. So thanks very much to Bjorn. Thanks very much to Harm. This concludes our Q3 2024 conference call. As always, you can reach out to either Adrian, Philippe, myself or any other member of the IR team if there's any questions that you would still like to ask. We're very much looking forward to seeing and meeting many of you over the next couple of days and weeks as part of our road show activities.

And with that, thanks very much for your participation. All the best. Bye-bye. Take care.

[Operator]

Ladies and gentlemen, the conference is now over.