Adidas AG

XETRA:ADS

Q2-2025 Earnings Call

[Sebastian Steffen, executive]

Good morning, everyone, wherever you're joining us today. Welcome to our Q2 2025 results conference call here in Herzogenaurach. Our presenters today are our CEO, Bjorn Gulden; and our CFO, Harm Ohlmeyer. Before Bjorn and Harm will take you through the puts and takes of the quarter and explain our expectations for the remainder of the year, I would like to ask you once again to limit your initial questions to two during our Q&A session to allow as many people as possible to ask the questions. Thanks very much. And now without any further ado, over to you, Bjorn.

[Bjorn Gulden, executive]

Thanks, Sebastian. Before I go into the numbers and the story about adidas, we have to say it's a sad day for us here. We have lost a very good family member, Laura Dahlmeier, which you see on the picture, Olympic champion, World Champion and very, very good friend of ours has passed away in the mountains of Pakistan, and we are actually very sad. This news came in a couple of hours ago. So it puts things into perspective and at least we thought we should recognize it because the mood in the building because of this is not very good.

So -- but as the world moves on, then into the story, and we start the story with the marketing that we did for the Women's Euro, which had their final on Sunday.

[Presentation]

[Bjorn Gulden, executive]

I hope you all watched the Women's Euro, great tournament, where unfortunately, competitors team won. I hope you recognize that we had 3 of the 4 teams in the semifinal. We, as adidas had the best player, the best young player and the top scorer. And I do think you also saw that this was a great tournament. Stadiums were full, great television ratings. And even commercially, although at a different league than the men's Euro, we actually sold in and out of the trade many times what we have done before.

So another great step for women's football, and I hope you will all support it because it is a great, great sport that will continue to grow both from a participation, but also for us in the business of sports. I'm then moving into our business. And although I've seen a lot of comments being partly negative, I have a little bit problems understanding that. We feel that Q2 and H1 has been extremely strong. And I think as we wrote, we are both happy and proud of what we have delivered.

If you look at the top line, you see the adidas brand growing 12%, currency-neutral, the company grew 8%. You know the difference is about EUR 200 million plus of the Yeeze business, which we don't have this year, but we had last year. Gross margin in the high 51s, 90 basis points up, showcasing again the good sell-throughs, both in the trade and to the trade. And that gives you then the EBITDA operating profit of EUR 546 million, which is 9.2% EBIT margin and a growth of almost 60%.

If you then look at the first half, EUR 12.1 billion in sales, 14% growth for the adidas brand, double-digit, 10%, for the company, currency-neutral, and that's almost with EUR 400 million Yeeze business missing that we then had last year and not could replace this year.

Gross margin at 61.9%, very, very healthy, and also here, 90 basis points better than we had last year. And that gives you then the operating profit for the first half of EUR 1.156 billion, which is an EBIT percentage of 9.6% and up 70%. And remember that is not very far away from what we told you 2.5 years ago would be the midterm target of 10% EBIT at the end of '26. So we are actually very happy with where we are, knowing that this performance are in a very uncertain and volatile environment.

And when you see the tariffs on the screen, we will, of course, come back to that at the end of the presentation. We say that adidas is hot, meaning that the demand for our product globally are strong and are building. And again, I think I want to recognize that our marketing teams, both locally and globally have done a great job, building back the heat in the brand, and that's, of course, what we are capitalizing on globally.

If you look at the different markets, you know -- we know that America is the biggest challenge for adidas European brand. But now after a while of no growth and then at the back end of last year growth, we again grew 15% in Q2, 14% for the brand in the first half. We know we have a lot to catch up, but we are extremely happy with this development. Europe, this quarter at 7%, 11% for the first half. I have seen and heard that you are skeptical about these numbers. You have to remember that last year, there was something called the Euro, where you also, at that time, concluded that we were selling a lot of Replicas. And I would say there is at least EUR 100 million missing in that number.

And then yes, there was a very quiet June when it gets to retail in general, but it picked up in July. And we feel comfortable that we can again come back to double-digit growth also in Europe in the next quarters.

Greater China, we have seen terrible numbers from some brands. We grew again 11%, 13% for the first half. Extremely happy. We are having like-for-likes -- or like-for-like growth in all our retail concepts, both with our partners and ourselves. And extremely happy with the energy that the local team are showing.

Japan and South Korea, same thing, plus 15%, both for the second quarter and the first half. We have changed management there. We have changed a lot of stuff, and have the feeling same thing that we are back again towards leadership in both those 2 markets.

LatAm, been growing strongly for a long, long time. Same thing here, 23% and 25% in Q2 and H1. Happy to report that officially, we are now the market leader again in Mexico, which is a growing market for us and of course, extremely important next year with the World Cup coming up. And same thing here, very happy with the development of the brand in some of the markets that also has been difficult.

Emerging markets, a group of many, many markets, some of them, of course, now very difficult, growing 14% for the quarter, 19% for the first half. These are the entrepreneurs in our company and some of the markets doing extremely well and some of them being in military conflicts, of course, having some issues. But again, very strong numbers and very happy with the team.

That gives you then the 12% for the brand in Q2 and 14% for H1. And as I said, this is ahead of our plan and a number that we are actually very proud of.

Channels, wholesale business, which you know had or has the priority for us for a while, plus 14%. Our own brick-and-mortar store up 9%. Same thing here, continuing with like-for-like pluses. And I feel that we are a much better retailer now than we were a year ago.

E-comm also at plus 9%. So same thing, a very balanced growth across the channels. That gives you the 61%, 39% between wholesale and D2C, and the split between stores and e-com, the same due to the same growth.

The divisions, Footwear growing at 9%. Yes, it's the highest single-digit number you can get, but I don't think you should read anything into it. Apparel, we have told you that the goal was to start to bring the brand heat also over to Apparel, and that's what you have seen over the last 2 quarters. I think also when you now follow retail, you will see that especially for her, we have a lot of innovative designs, concepts and materials, and you see that now also in the results.

Accessories, plus 7%. Yes, we can always do better in accessories, but also there, more innovative designs on the Lifestyle side. And of course, we have a ball business that is starting to do very well, and that will continue into the '26 side because of the World Cup.

That gives you Footwear being at almost 60%, at 58%, Apparel at 34% and accessories at 8%. And again, very happy with this mix. Yes, you have to lead with Footwear, but that does not mean that Footwear in every quarter has to grow more than Apparel because in the end, then you will have 0 Apparel. So that wouldn't make any sense.

A lot of discussions also about the Performance business. I think our logic has been all the time, we create brand heat on Lifestyle, Footwear. We then roll it over to Apparel and to Performance. And as you can see here, the so-called Performance business of 12%, very strong growth in Running, Performance Basketball and Training, which are, of course, the -- what should I say, the categories that we need to grow globally.

Football, again, referring to no COPA and no Euro for the men's side, a more flattish business in the first half. And as we know, the football business will start to grow again in Q4 and then, of course, in Q1 and Q2 next year, moving into the World Cup.

Very successful launches on the unisex Footwear side with both Predator and F50 and all the updates. A new concept for Her with the Sparkfusion range, which was launched for the Women's Euro. And then on the Replica side, of course, now not such a focus on the national teams, but more on the clubs. And yes, there is a delay, I would say, in the business with the consumer if we compare it to last year, but you will see very strong sales of the A clubs and also the B clubs in the third quarter.

Running, been a challenge for us for a long time, to make sure that we are growing the Performance side. Happy to report more than 25% growth in the Running business. In addition to Adizero, which is the competitive and the fast side now also into Supernova. And we will, for the next year, have a great, great comfort concept coming, which will then give us 3 very solid pillars in the Running business going forward.

Training, what people actually buy to do sports in the gym and in different other, what should I say, facilities different setup in different markets, also different, what should I say, product. But we need to win also on the training side. So people are using our shoes and Apparel when they train. And good to see here also more than 20% growth in the second quarter.

Basketball, something that we will never stop talking about. This is Performance Basketball, not Lifestyle Basketball. And as you can see, very modern, very unique innovative designs, both for Anthony Edwards and for Harden, a lot of color rollouts. And I think when you check with the trade, you will see that the sell-through of our basketball shoes have improved dramatically and that our setup in L.A. is starting to pay out. And also here, although knowing that we have a lot of market share to try to grab, a very positive development.

And then as we have talked to you a lot of times, we want to be the adidas that we used to be, be in many, many, many sports also in the local ones to make sure that we have the credibility in those sports that gives credibility, but also, of course, move into sports that are then growing into the commercial. I think you all probably play either pickleball in the U.S. or you play paddle in Europe. And even with us, we clearly see that those 2 are sports that are also becoming commercial, which shows you that there are new sports that are turning in also to be commercial.

What's also been important for us for the last 6 months is to invest more in American athletes. This shows you recruits that the American team have done in the typical American sports, so basketball, baseball and American football, some of them also NIL players. And this again underlies the wish and the need to be an American sports brand and then get visibility all the way from college into the professional leagues. And this is then very, very, very much more investment than we've done before. And you will also see that we are going to invest in more university teams and have more adidas visibility also in the college game, again, decided by our local team because they have the knowledge.

The Lifestyle side, both originals and sportswear growing double digit, and the sum of that is 13%. I'll take you through the logic of the Footwear side. You've seen it many times, but it's changing a little bit. It started out with the success of Terrace, the Samba, Gazelle and Spezial. We added the Campus. And yes, of course, there is stagnation in some of those malls in certain markets, that we knew. That was also the reason why we added more categories, so Low Profile being one of them, talked about it now for about a year. You see an offer of many silhouettes and in a lot of materials.

And I can show you that especially She is moving into this segment at different speeds in different markets, but I'm convinced that it will continue to grow and that Low Profile will be stronger in '26 than it was in the whole sector of '25, and we feel very, very good about it.

Then we told you that the next classic would be Superstar. We are relaunching the most sold adidas shoe ever. Campaign are just being rolling out now, a lot of collabs, a lot of activations and of course, a lot of media on it. This is the visual language, and I'm now going to play one of the videos with one of our partners, so you get a little bit of the attitude. So let's see.

[Presentation]

[Bjorn Gulden, executive]

Yes, pretty cool with Samuel L. Jackson, and I hope you like it as much as we, and the feedback is, of course, also very positive. You should also not be surprised that you will see more classics on this sheet going forward. We clearly see in the trend that the Triple White look is coming back again, I guess, at the back end of '26 and into '27. So you will probably see shoes like Stan Smith showing up again in a wider distribution than you currently see it. And of course, that is a good trend for us when it comes back.

We have talked to you for a long time about Lifestyle Running, about the need to have the, what should I say, the distribution and the visibility and of course, also the sales. You know that we have invested from the classic side that you see on the left side, with shoes from the '70s, all the way through a lot of silhouettes into 3D-printed shoes like the Climacool, and happy to report that this is starting to work.

The shoe in the middle, Evo SL, is doing very well. It's a shoe coming out of Performance, but that we also placed into Lifestyle. And then on the extreme side is the Climacool 3D-printed shoe, which I think is the first real printed shoe that is comfortable to be worn, was meant to be a marketing tool that has turned into be a commercial program, and it's selling out everywhere. And of course, we are then buying more machines and running the machines faster to have more volumes, and you will see more of this coming forward.

What is new, and we haven't talked to you a lot about after Running Lifestyle is this, might be surprising for you, but it's actually the Lifestyle side coming out of football. If you move around in the fashion world, you will even see that people are wearing real soccer boots, football shoes on the street, even with studs. I don't think I will see many of you doing that, but it is actually a trend. And of course, we are playing that trend.

So we have taken a lot of soccer uppers, meaning Predator, F50s and the likes and put them on different bottoms. You see here, for example, on Vistech on Megaride, but you also see them on indoor Sala shoes, or on Low Profile. And we believe from what we can see, both in distribution and in the fashion scene and in the sell-through that this is going to grow and grow and grow into the World Cup in '26. And we also think it's a global phenomenon.

So again, being the soccer brand, this is something that we should own. We do, of course, see that competition is also loading on this. So that's good because it will get more visibility, but watch it. I think it's going to be a big category in '26 and hopefully also carried through to '27. Apparel, plus 17%. I told you over the last 18 months that we were afraid of Apparel because there was too much Apparel in the market, too much, I call them black hoodies and too much fleece. We said that we need to make sure that we bring innovation in design and material and concepts. I think when you look at this, you clearly see what we have done.

We have brought Tennis-Core back again with the Trefoil, very fashionable, very classic. We have done tons of animal prints in different materials. We even brought denim, not as a jeans brand, but denim as a material both for tops and bottoms. We took knitwear out of the Chinese line and made a lot of that. And then I do think that our color people has done a great job. So the more fashionable the retailer wanted to go, the more success that we have had with our brand, which I think is a credit to the job our people have done.

The same on Apparel is the collabs. I mean, who do you partner up with from celebrities, influencers, athletes and also brands to make it visible. I think the most successful right now is with Oasis. You know Oasis is on their comeback tour in the U.K. We did a deal with them on the merchandise. And if you go to the concerts that are all sold out and are fantastic, you will see it's almost an adidas event with the lot of Three Stripes and Trefoil. And we are very, very proud of what our U.K. team has there executed because it again shows you a local initiative that actually has gone global. And it's not only image-wise very good, it's also commercially become a big business.

And then finally, accessories. I think I said it in the beginning, we had some work to do in accessories. We feel that we have also there become fresher and more fashionable. And then you know in accessories, we also have the ball business. And every launch we have done on balls, soccer balls lately has been good. And we have a huge order book for the World Cup balls going into '26. So you will continue to see growth on that level.

So when we conclude the first half, we feel very good. We are ahead of our plan. We feel that we have done what we promised, and we have a lot of energy in the market. It's all based on what we have talked about a long time, being a global brand with a local mindset. It's to put the consumer and the athlete in the center of all we do. It is to make sure that the markets are really responsible for the business because they are closest to the retailers and the consumer, and that we in global should facilitate for that by giving them the resources, making sure we have the right people, giving them concepts and, of course, work on innovations. And therefore, we feel that we're moving in the right direction actually in all regions. And in that, it is, of course, also that we need to make decisions as close as we can to the consumer and that means strong local leadership. And I think when you look at our local leaders now, we think we have the right team, and this is going to be extremely important and maybe a competitive advantage as we go forward.

We see this in the products, a lot of local products that are being made, designed either globally or locally and some of those products then going back again into the international line because everything we do in China or the U.S. or in any other markets is visible also for the other markets. So a lot of movement across that. We see it in marketing. We have talked about the global frame. For example, you got this, which you see on the Performance side. But we feel it with local content, so the athletes that are being showcased are relevant for the market where the marketing is being done.

And then maybe a surprise to you, the same goes for the retail stores. The culture and the architecture of different stores in different parts of the world are different. And also the legal side is different. So you are allowed to do many things in certain markets that are more the adidas brand than maybe you can do in a German city. And you see that here, there's a lot of innovation. There is a lot of, I call it, cool adidas designs that are hitting the market. And therefore, we are also opening more stores. I think we have opened about 60 to 70 stores net in the first half year, more than we had last year. And since it's working, we will continue to open new and modern stores because not only does it showcase the brand in the best possible way, it is also now commercially successful.

So with that background, I hand over to Harm, who will take you through more details of the numbers.

[Harm Ohlmeyer, executive]

Thank you, Bjorn. And as always, a warm welcome from my side as well. Good morning, good afternoon, wherever you reside right now. I just want to give you some updates on the more deep dives on the financials, with the P&L and the working capital. But I want to start with the overall P&L in the second quarter. And I want to say again, yet again, we delivered a quality quarter in, of course, a much more volatile environment. And I believe and we believe there is no surprise in these numbers, and we executed as we planned and as we communicated before.

Of course, it starts with the double-digit growth on the adidas brand with 12% currency-neutral, and Bjorn talked about the 40% for the half year. More importantly, even a very healthy gross margin with 51.7%. And of course, it's worthwhile to go into some of the details there on the gross margin. First and foremost, the 90 basis points would be underlying 120 basis points if we exclude the Yeeze part in '24. Now how could we deliver this? Of course, it starts with more volume. On the product side, we have a fantastic sourcing organization that generated savings through more volume and better relationship to the suppliers. So it's a green arrow.

Yes, you all know there were still some freight spikes in '24. Also, that is a green arrow when it comes the gross margin. Bjorn already talked about the tariffs. I mean, we said it in the press release, it's a low double-digit amount already in the second quarter. We will talk about the second half later on. When we talk about business mix, you know that it's a combination of markets, channels and categories, and most probably what I want to call out there is the more we grow in the U.S. just on the gross margin, of course, that has a negative effect on the business mix. And of course, with the success and support of our wholesale partners, it also carries a lower gross margin compared to DTC, which, of course, was a channel that was carrying the lion's share of the tariffs in '24. So shouldn't look at negatively. That was actually planned as well.

What you also see it's a more quality distribution as well when it comes to the discounting, especially in China and North America, where the brand is really, really hot besides other markets as well. We are still able to do to be less promotional and that's why discounting is still a green arrow here. I don't want to talk about Yeeze a lot. Luckily that last year, when we talk about the comparisons of Yeeze, of course, is in the red here for the second quarter. And FX is also negative. I want to call out here that is actually more than a percentage point on the gross margin when we look at the second quarter. But also there, which is interesting for many of you, it's not necessarily the U.S. dollar. This is more we talk about the Argentinian peso or the Turkish currencies. So it's more of the countries where we have more inflationary environments where we got an FX impact, that hopefully is also a good indication for you in the future.

When we go further down in the P&L, of course, we are successful to spend exactly 12% on the marketing. But jokes aside, we keep investing in the brand because that's what we believe will give us in the midterm, well, here as well, to keep the top line going where it needs to be. And what you see probably for the first time, more meaningful after the first quarter as well is a significant leverage on the operating overheads with 230 basis points in the second quarter. And I want to call out here as well, this is not impacted by onetime last year in the second quarter because some of the onetimes then came in the third and primarily in the fourth quarter. So this is very much like-for-like, and it really shows you the discipline that we put in place and what we always said, leveraging the top line with double-digit growth to the bottom line, which is EUR 546 million is up by almost 60%.

That absolute number is even more remarkable when we remind all of ourselves that we lost EUR 300 million in translation on the top line and still delivered in absolute terms, EUR 546 million or 9.2% in operating profit. So definitely speaks for the quality of the quarter. When we go further down on the operating profit, also no further surprises, slight increase on currencies on the financial expenses, but even more importantly, also income taxes. As we said all along, with the right top line and the right profitability, we get the income taxes normalized here with 23.3% and you should or can update your financial models for the full year around the 24% of a tax rate. That's probably a good assumption for the full year as well, which results in the net income growing even faster than the operating profit with 77% over the prior year.

When it comes to inventories, I know there were some concerns on inventories being 22% up. I also want to give you some more details on this one on the next chart. You might remember, I said even in '24 with EUR 4.5 billion is probably the lowest inventory you will see hopefully forever because we will continue to have a growing business and a growing brand. So we probably -- we were overshooting a little bit with the reduction of inventory. That's what you do when you focus on it, and that's why you should see the increase in light of where we are coming from with the EUR 4.5 billion, but also understanding that it's an inventory for future growth. It's also an inventory that is impacted by some of the tariff discussions that we have. It's an inventory that's impacted by the Red Sea, and we have some goods and trends that are longer on the sea on the container ships to make sure that we are a reliable partner to our wholesale partners as well.

We have it available when it's needed. And that's why I'm absolutely no concerns on the inventory. And even more importantly, the aging is healthier than ever. So 80% of that is current season inventory. And hopefully, we have still enough inventory left to do some clearance in our factory outlets or whatever opportunities will be out there. So very, very healthy inventory also when we look at the EUR 5.3 billion here. When I go further down the line of working capital, accounts receivable, of course, being up with our focus on our wholesale partners growing nicely, growing faster than D2C, that will also enable us to cash in a little better in the second half, which we will come to in a second. And you also see the accounts payable being up, which is an indication of what we are paying to our suppliers around the world.

So overall, working capital up by 28%, but also that the percentage is one thing, but the percentage of our net sales is probably more relevant for all of you and of course, for us internally. Similar to the inventory, I was -- when I finished '24, in Q1, I said, if we get below 20%, we are already a healthy company from a working capital point of view. That's why I said we probably went too quickly too healthy. That's why I'm very, very happy still where we are. And you can count on me whenever we are between 20% to 21%, we're actually a good company. And yes, in midterm, everything is normal and not as volatile anymore, we want to be a healthy company below 20%. But that's also an indication where we are.

That, of course, has an impact on our cash. At this point in time, we reduced the cash by EUR 800 million. That also is not a surprise because we invested in the inventory. We know that we need to place these orders early. So no concerns on this one, which also shows you on the next chart. You see it's going down by EUR 900 million. But you can also model in your sheets depending on whether we pay down our bond that becomes due in November, you can probably play around with EUR 2 billion of cash at year-end, depending whether we pay down the bond or not in November. That's something we go to decide in the next couple of weeks and months. But also there, it's a timing effect, and we plan to generate probably EUR 1.2 billion to EUR 1.4 billion in cash in the second half.

When we talk about adjusted net borrowings, also there, the better indicator is probably what we discussed with our rating agencies. And you see here where we are coming from, from Q2 '23, Q2 '24 and now having a 1.7 multiple of the adjusted net debt over EBITDA. That is a very, very strong number and also that gives us some flexibility on the balance sheet, whether we have it right on the cash or overall, a very healthy balance sheet, that also delivered an uptick in the rating from S&P from A- to A. So also a good start if you decide to refinance a bond in November, then we would do that coming from the strength on the balance sheet. But again, that call is still out. But with that, I would like to hand over to Bjorn again.

[Bjorn Gulden, executive]

Thanks, Harm. As we have said many times, we are halfway into the third year. So we are a little bit further than the half time since we started together as a new team. We promised you the numbers that you see on the screen that gives you 10% EBIT. If you then put the H1 of '25 next to it, I think we have actually delivered what we told you almost, we're growing double digit. We have a gross margin at the high end of the 50% to 52%, with 51.9%. Marketing expenses is at 12%, which we said all the time.

Operating overhead is a little bit higher than the 30%, and 9.6% is a little bit lower than the 10%. So again, we promised you that the adidas brand with the current business model in the market that we saw in '23 could deliver 10%. And I think there we are right now with, of course, certain uncertainties, which I know you don't like. But of course, we don't like it either, but we have to work through it.

You remember, we started the year with the following outlook, double-digit growth if you take Yeeze out, high single digit, if you include it, and an operating profit of EUR 1.7 billion to EUR 1.8 billion. And then we did flag some issues that we saw, but we did not flag the tariff issue because we didn't see that coming. I have a slide, and I will explain you what the tariff situation is for us. It's a little bit complicated, but I'll try to take you through it.

If you start on the left side, it is Vietnam, which is the biggest country or region for our U.S. business. The blue box, 30% means that 30% of our imports into the U.S. comes from Vietnam. All that means the duties that were before the tariff discussion started. So basically, 14% was the Footwear duty, 26% was Apparel and 8% was then the accessory duty. Then that changed with 10% in the first indication from the American authorities, so then to 24%, 36% and 18%. And then in the second round, it went to 20%, so it's 34%, 46% and 28%. So there's an increase of 20% on all duties in the assumption.

Then you go to the second biggest country, which is Indonesia, exactly the same logic. But there, the difference is not 20%, but it's 19%. And then you can go on like this, Pakistan, 30%; Cambodia, 36%; and Jordan, 20. You will ask where is China? Well, here it is. But if you see in the blue box, China is almost irrelevant for us because we have reduced the amount of China imports into the U.S. to only 2%. But here, you can see it started out with an old duty rate of 21%, 32% and 20%. And then during 3 increases, it went up to 166%, 177% and 165%. And then it came down again to the 30% more, which is then 51%, 62% and 50%. But again, for us, midterm, not really relevant.

I can then add the other 4 countries, which is Thailand, Honduras, India and El Salvador. And there, you can see the full picture. If you take the planned volumes that we have in the second half, not what we're buying because that will be more, but what we expect to sell, the impact of these duties, if they are the way we have calculated them here, an increase in cost of goods sold of about EUR 200 million. Again, there are uncertainties on this.

There is not even a certainty by many people if these additional duties are in addition, maybe they're only replacing. We have made an assumption based on all the advice that it is actually in addition, and that's why we get to these numbers. If you then look at what we have done, I talked about China. We didn't go out of China. What we did is that we transferred the Chinese capacities to be mostly China for China, and you see the growth we have in China. So I would say close to 90% of the production in China now made in China. And then we took some of the additional capacities and then use them for other non-U.S. markets.

We work with our suppliers who are mostly multi-country, and are then, of course, depending on the FOB plus the duty for the country origin, trying to optimize this based on the tariffs that we think will come. And hopefully, when we have them final, we can optimize it correctly. We have been very close to the local governments to understand where they are, although we also understand that our impact, which of course, not that great, but we feel we have worked well with them.

And you have to remember that since there are no shoe factories in the U.S. that can take these volumes and also no Apparel, then, of course, local production is not the alternative. And I think that is important for all of you to understand, which might be different in other sectors. And then, of course, all suppliers know that when we have the truth, we will then work with the suppliers to see how we can then take this cost as much as we can down by sharing then the burden in different forms, and as I said, also reallocate production then where the duties plus the FOBs are then the lowest for the U.S.

And then finally, of course, we will -- and believe me, we have modeled thousands of different programs, what kind of price increases could we take depending on the different, what should I say, duties, but there's no decision on that. And I think you all know, we've said it also from beginning, we are not the price leader, but we, of course, follow, a, what the market is doing, our competitor is doing and also, of course, look very closely what the consumer is accepting because in the end, it's to keep the balance between all these factors.

So knowing that, we confirm our outlook. So the growth in double digit, excluding Yeeze, the high single digit when you include Yeeze and still, we can deliver an operating profit of EUR 1.7 billion to EUR 1.8 billion. Many companies have, I've seen, removed the outlook totally and some have reduced it dramatically. We thought that we were very prudent the way we're doing it. We do acknowledge that there is an upside to this should these duties be lower. But again, with the uncertainty both on what they're going to be and with the uncertainty of what the consumer demand will be, we felt this was the most prudent way of doing it like we always do. And again, you shouldn't have a lot of fantasy to think that if we didn't have the duties, the guidance will probably be at least EUR 200 million higher. That is an easy math for you to do.

The reason for that we would have been more bullish is, of course, that the first half has been stronger than what we thought it would be when we started the year. We still have a very strong order book for Q3 and Q4 despite these uncertainties. And I think you also can measure it that the attitude towards the brand, both from retailers and consumers are actually strengthening in all markets.

And then the negatives in addition to conflicts and uncertainty in many markets is, of course, the direct and the indirect impact on the tariffs, which no one knows. And when we don't know, we always go on the conservative side. So I think that kind of tells you the story, hopefully, gives you a perspective of what we have done and how we think. We feel that we have a great pipeline of products and great marketing and have momentum. And of course, the time from now up to the World Cup in the U.S. is important for us. But believe me, we are also working on things after that, which, of course, is the way adidas should work. So with that, I hope we gave you some confidence, and I'm handing over to Sebastian to do whatever you want to do.

[Sebastian Steffen, executive]

I assume there's going to be some questions, so I would suggest that we move to the Q&A session. So Maura, if you could lead us into that part.

[Operator]

[Operator Instructions] The first question comes from the line of Grace Smalley from Morgan Stanley.

[Grace Smalley, analyst]

My first question would be on the order book. I think you commented on strong order books for the remainder of 2025. Could you also just touch on the initial reads on order books going into spring/summer 2026 and therefore, your confidence level on continued double-digit growth for the adidas brand going into next year, perhaps particularly in light of changes in the competitive landscape? And then my second question, you mentioned the excitement around the World Cup and that we should start to see tailwinds from that in Q4 and then building in the front half of next year. Could you just comment on how we should think about the magnitude of those tailwinds and how big that benefit could be?

[Bjorn Gulden, executive]

Yes. The order book, when you look at it, is as solid as it's been all the time. The order book according to the normal time lines are full for the rest of the year, meaning Q3 and Q4, and then it's currently building for Q1. But there's no indication from the way people are placing the orders that there is a change in the order book. So same confidence on that. What we all know, though, and that's the only, what should I say, disclaimer is that should the sales in the U.S. go down because of inflation, you don't know what's happening to the order book because as you know, better than me, orders can be canceled and moved depending on what is happening in the market. We have not seen cancellations, and we have not canceled anything with the factories. So currently, it's all on green. But I think we all know should we get mega inflation in the U.S., things will happen on the demand side, then of course, volumes will go down.

I think when you look at the import, I think the last official month that we have of Footwear imports to the U.S. is May. And I think you already there saw that imports of Footwear are down double digits. So again, it's an indicator that you can look upon, but we haven't changed anything right now in our planning based on neither order book nor what we have seen on consumer demand. But again, we're only a week away from having the tariffs final, hopefully, and then we will see what that means.

The World Cup this time has a big impact because I think it's the first time, at least that I'm around, where we believe that soccer will have a cultural impact that is bigger than the fan, meaning there are Lifestyle trends on both Apparel and Footwear that we haven't seen before. And it looks to me from the demand that they are global. So you're probably looking at the business that are in the EUR 1 billion and more that you've never seen before in the soccer side. But again, we will see. I think we have shown you over the last 6 months that the culture wear around soccer has increased. You see it everywhere, and that we now also are bringing Footwear to the street that comes from soccer, that has never happened before. So it might be we're sitting on something that is even much bigger than that. But currently, I would say it's EUR 1 billion or more that is connected to World Cup that we currently see.

[Operator]

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

[Jurgen Kolb, analyst]

Indeed, 2 questions. First of all, on all the product initiatives that you showed, Bjorn. Is there a chance for you to increase average selling prices? Or is there an intention to do so with all these new products that are coming in? And secondly, specifically on the Running side, you mentioned very strong performance here, specifically on the specialty Running channel, have you made inroads there? Is that now also moving into growth? Or do you still think this needs a little bit of more time?

[Bjorn Gulden, executive]

I mean, Jurgen, we always need more time. It's obvious that we have improved our Running business, I think, from a product and also from a Performance. And now from a sales, it's growing 25% and more, and it's across all the channels. We feel with Adizero, which is the fast side. Also, shoes with carbon plates and are made to run races and run fast. I think we are in very good shape. We added Evo SL underneath, which is EUR 150 shoe that has been accepted tremendously well in the industry and maybe it's one of the best-selling shoes at all. I think the area where we've not been happy is on the comfort side that other brands have done a better job than us. But that's where we next year with a new concept, which I think you would love, feel very comfortable that we get another leg to stand on, that will actually be both in specialty, but also have the legs to go into, I would call it, normal sports distribution and the concept itself even into Lifestyle.

So if there is a category right now that we feel comfortable with what we have in the pipeline, it's actually probably the Running side right now. That doesn't mean that we feel we are close to being saturated. There's many, many markets where our market shares in specialty is a joke. But again, if we continue doing what we're doing and we have some time, then you will see very good progress. In general, with all the product initiatives, of course, there are new products where you can raise prices. But important is that you cover each category with the right price points. So I think the price points in general will not change, but we might be able then to fulfill some of the higher price points with more volumes, which is, of course, always, I would say, a goal.

But I think you also have to be careful with the uncertainty in the trade right now. And I would say also a little bit depressed consumer in many areas. I think it is very, very important that you don't run away from the lower price points and believe you can just raise prices and do less volumes. So you will see our pipeline being targeting everything from, I would call, the Deichmann consumer and all the way up to specialty and even higher than that when it gets to fashion. So we have all the product we need in all price points, and the go-to-market process market by market is important that we fill it. You also have to remember that the price increases that might come in the U.S. because of the tariffs should not have any impact on prices in any of the market. We will not try to take the tariffs in the U.S. and then put them on the prices in Germany. We will not do that.

[Operator]

The next question comes from the line of Anne-Laure Bismuth from HSBC.

[Anne-Laure Jamain, analyst]

My first question is about the FX. So can you explain how you see FX tailwinds help you in H2 this year, and in 2026, and how much this can mitigate the potential tariff pressure? And my second question is about the Lifestyle. What is the balance between Terrace and Low Profile? And also, you mentioned to the press that you might relaunch the Stan Smith late 2026. What would prompt you to do or not?

[Bjorn Gulden, executive]

Yes, I'll hand over to Harm afterwards for the FX. I mean, Terrace, if you look at the models, it's, of course, still much bigger than Low Profile. But you start to see Low Profile growing week by week, month by month in most markets. But of course, none of the Low Profile models have replaced some yet, and they shouldn't, to be honest. And then you have to remember, it's not only Low Profile, but it's also then what we are doing with Superstar.

And then the Stan Smith issue is we -- there was a time where every fashion item from other brands with Triple White, and then Triple White was replaced also, I think, because of us into more color. And then trends normally go like this. Triple White always comes back. And we feel knowing that the soles have to come lower and the fashion has become sleeker, that Stan Smith will be our answer. If we then need to scale it at the back end of '26, maybe, maybe not. But we are at least cleaning the market. So you will see very little Stan Smith now on sale anywhere. And then we will start also there to incubate and hold it. And it might be '27, it might be the back end of '26, but we feel that we have it in the pipeline. And then I think, Harm, FX?

[Harm Ohlmeyer, executive]

Yes, Anne-Laure, on the FX, of course, it's an interesting topic. And yes, there will be light at the end of the tunnel for us looking forward. But very concretely for the second half, as I indicated for the first half, the currency impact was primarily from countries like Argentina and Turkey. So the first thing is Argentina has definitely stabilized. So it should be more neutral in the second half. Turkey is a slightly different story. There's still some volatility in that one. So it means that it's neutral to tailwind when it comes to these 2 currencies.

When it comes to the U.S. dollar, of course, we are hedging earlier. And all the weakness of the dollar that we have seen, we have probably seen in the last 4, 5 months, where a lot of hedges have been done for Fall/Winter '25 already. Yes, there are slight benefits, but there were not a lot of headwinds in the first half either. So dollar is probably more neutral. But of course, going into '26, it will become a tailwind. Very clearly, we are more favorably hedged on the dollar going into '26. We actually started early looking into '27. So it's definitely a tailwind in '26, and it will probably accelerate going into '27.

What we should not forget, however, there's always a translation impact as well when you have a weak dollar or weak RMB or whatever, as you have seen in Q2. But we are better able to mitigate these things because these are local things. If we lose something on the RMB or the dollar, we lose something on the cost side in these markets as well. So as you saw in Q2, we are more likely to compensate for the translation impact when it comes to the absolute number, potentially even leading to a percentage better profitability. But in sum, don't expect too much in the second half of this year, but it will not be a headwind anymore. Secondly, yes, there will be a tailwind going into '26, especially when you talk about the dollar, probably ignore to some degree the translation because that can change very quickly and even more so going into '27.

So as I said previously, I was always praying for [ $1.15 ]. My prayers have been heard. But again, this is a short-term thing. The last thing that you asked, can we compensate for the tariffs in the U.S.? It's a mathematical question. The key thing for us is that we want to be profitable in the U.S. So yes, it might help in the short term, but we want to make sure that we are profitable in the midterm in the U.S. And that's why what Bjorn said, we look at selective price increases, we look at mitigation with our suppliers. But first and foremost, if there's certainty what the tariffs will be, and then we take actions as always with calm hands.

[Operator]

Next question comes from Thierry Cota from Bank of America.

[Thierry Cota, analyst]

I have two of them. First, could you restate the one-offs that hit the EBIT margin last year in Q3 and Q4? I think this was mentioned earlier so that we are sure to get the clean base, notably removing donations and restructuring costs on the assumptions I have, I think I have a cumulative EUR 150 million in Q3 and EUR 200 million in Q4. Just wanted to make sure this was correct. And secondly, Bjorn, on the discussion on the mitigation action on the tariffs in the U.S., you did not mention sharing the pain with retailers. So I was wondering if anything was discussed there. And you did mention on price -- the question of price, the issue potential of price elasticity, and you sounded a little cautious. So I was wondering what has been your experience across the companies where you worked on price hikes in the U.S. and the response you've seen from the U.S. consumer?

[Bjorn Gulden, executive]

Yes, I'll take the last one. The pricing in a circumstance like this, no one has the formula because, again, first of all, there is the uncertainty of what the tariff is going to be. And then, of course, there is a brand that is much bigger than us that probably will lead, in my opinion, the price increases. So what we are doing is that we are, of course, playing different scenarios on how we price different products. And to be honest with you, totally new products that hasn't existed before, people wouldn't know what the price would have been, right? So you're free to price it the way you want. So of course, there are possibilities to mitigate this cost compared to what it would have been if you didn't have the price increases. So I think you just have to wait and see what the markets are doing. There has -- so far in the U.S., if you look at prices in retail, not been any price increases because the discounts have been going up.

You've also seen that, I think, in the import statistics, that imports have gone down. So it's going to be interesting to see how the next couple of months as soon as we know what the real tariffs are. And then don't forget if you look at the whole chain, then it's obvious that the suppliers will take part of it, we will take part of it, and then, of course, also the retailers will take part of it. So in all those discussions, I think it's very important to keep the transparency and try to help each other and not try to optimize your own situation. We have seen, and I'm sure when you talk to the factories, they will tell you that there has been a lot of cancellations. We have not canceled one order. We have not seen any cancellations yet from any retailers. That might, of course, change depending on what happens in 5, 6 days. But we have the clear, clear, meaning that we need to manage this very balanced, try short term to be fair, both to our retail partners and our suppliers and then, of course, try the midterm and going into next year and to have the recipe.

The EUR 200 million cost of goods sold will, of course, not stand there by itself as a reduction in our EBIT. We will, of course, mitigate. But we think it is important that you know what the cost would and could be just because of the increases in tariffs, and that's what we flagged to you. We already had a double-digit hit when it gets to cost of goods sold already in Q2 in the U.S., which we, of course, followed in the results that you saw. So again, I do understand that you would rather have us increase our guidance as you always like to and then be very confident, but I hope you understand that regardless of what you read, we don't even know what the duties will be.

There are still a lot of discussions based on, for example, the European duty to the U.S., which the 15% replaced the 10%. It was not on top. And here, of course, we made the assumption that all the duties we talk about are stacked on top of the old duties. We don't get any real confirmation that this is true enough because there are no, what should I say, written confirmation of this. So still a lot of uncertainty. And you know us, when we have uncertainty, we always go the conservative way.

[Thierry Cota, analyst]

Maybe just as a follow-up. So EUR 200 million, is mitigation action an effect already in H2 as much as in the following year, you think? Or it's really a ramping up, of the negotiations are still ongoing with suppliers and retailers, so impact moderate H2 and more visible next year? Is that the same?

[Bjorn Gulden, executive]

Well, it's obvious that your mitigation will be stronger in '26 than it will be in '25. It's kind of obvious. But what I'm saying is that the cost of goods sold increasing EUR 200 million. And remember, that's not on all your buys because you don't sell everything you buy. So there is quite some volumes that are then sitting on your balance sheet at the end of the year. And of course, we will mitigate some of it. But again, I think it is important first to say, okay, these increases have that kind of impact. So tariffs is nothing else than a cost. And regardless what people are saying, you can't -- you just throw a cost away. It's there.

And secondly is, of course, that the time it takes then to mitigate for it are depending also on how the consumer reacts. And don't forget that these tariffs are not only targeting Footwear and Apparel, it's everything. So it's like -- we feel, to be very honest with you, that could we have produced in the U.S., we will understand it because then you could move some of the production in the U.S., but let's face it in Footwear, where you're going to move it. So there is a slight hope maybe that later, there will be an exemption for Footwear, for example, or a reduced one. But at least this is just hope. So we have to work with the worst case, and we have told you the worst case. Harm?

[Harm Ohlmeyer, executive]

Yes, you raised a very good question, Thierry, on the third quarter and fourth quarter, what kind of one-off costs we have. And I'm pretty sure when we announce our third quarter results, we will pull out the chart from last year. And just to repeat again what we said last year and what we will repeat in 3 months from now. So first, of course, we had an accrual release linked to Yeeze as well, which was roughly EUR 100 million we said in other operating income. So it's really important that we get the line items right, and that is definitely something for the road show and for our Investor Relations team, for Adrian and Sebastian to explain that in more detail. So EUR 100 million positive in other operating income last year, that will not repeat again this year. Of course, we offset that one with a donation of around EUR 100 million, and I'm talking about rounding numbers here -- of around EUR 100 million that did hit in operating overheads last year, which will not be repeated this year.

And then we had 2 more items. There was, of course, the profit contribution from the remaining sales of the Yeeze, which was around EUR 50 million and primarily the gross margin. And of course, that was offset with some restructuring and one-off costs of around EUR 50 million as well, which hit operating overheads again. So you have kind of EUR 150 million operating overheads negative last year one-off, EUR 100 million other operating income positive and EUR 50 million Yeeze contribution in the gross margin positive. That's kind of from last year.

When we look at Q4 again, then there was another restructuring of around EUR 150 million that we accrued for the voluntary leave program that we had here at our headquarter. So these are kind of the numbers. I know it's tricky sometimes to get the line items right, but I appreciate the question because that's something that will keep us busy on the next call in Q3, and we try to be as transparent as possible. And of course, these are rough numbers, and we try to keep it simple last year, and we will try our utmost to keep it simple again during the next quarter and when we communicate it.

[Operator]

Next question comes from the line of Aneesha Sherman from Bernstein Societe Generale.

[Aneesha Sherman, analyst]

The first one is on the Lifestyle Footwear percent of the mix. Lifestyle slightly outgrew Performance this quarter, and it seems you're broadening the mix with a lot of new launches. Of the 58% that's Footwear, can you talk about how much of that is Lifestyle Footwear? And do you expect the mix to continue to skew towards Lifestyle? And any commentary on how that might impact margins over the next year or so? And then my second question is just a clarification on your tariff guidance. Of the EUR 200 million, is that fully going to hit the second half? Tariffs were a headwind in Q2 already. Is some of that EUR 200 million already embedded in Q2?

[Bjorn Gulden, executive]

You know the definition of Lifestyle and Performance is a very difficult one. If I put one shoe on the table, 5 would say it's a Performance, 5 would say it's a Lifestyle shoe. So when we start to talk about this, it is extremely difficult because if you take a running shoe and walk in it for the street or you take a tennis shoe and use it as a fashion shoe, it's up to the consumer. So it's very, very difficult to give you an answer for that, that gives you any, what should I say, truth to it. What we have seen is, of course, that we turned around the brand by selling more shoes that the consumer classified as Lifestyle. And we believe, and I think it's proven that the consumer that buys us because they like the brand has a bigger probability to also buy us in Performance.

So if you bought 3 pairs of Samba, and you're now using the knitwear because you like the Three Stripe and the Trefoil and you start running, the probability that you will then pick up a running shoe that looks good and our advice as being a good running shoe is bigger than if you have no connection to the brand on the Lifestyle side. You also know that there are so-called running brands that most of the product that they actually sell are not being used for running, but for comfort and actually walking and being, what should I say, stylish. So I don't want to go into those mixes because it gets very complicated.

If you look at the margin on what we're selling on Footwear, we think we are at a stage where our markdown rate is very, very low, meaning that the offer is very good. And then that we then have to engineer the product and the supply in a way that we can continue to improve the margins. But you know 52% margin in our business with a 60-40 wholesale retail is a very good, I would say, gross margin. We can work on improving that, but we also feel very happy with where we are. To your tariff thing, the things we have told you is that there was a double-digit million taken care of already in Q2 because we bought products with higher duties that we sold. And then the EUR 200 million is what we expect would be the product that we have imported or will import with higher duties that will be sold. The number of what we're importing is, of course, higher, meaning that this will then have an impact in Q1, Q2 of '26.

So worst-case scenario, the way it is today is that you have another EUR 200 million of increased cost of goods sold in the second half that has an impact on second half of EUR 200 million before we mitigate anything. But then, of course, we will mitigate. And I'm sure when we get to the Q3 release, we will start to tell you how much we could mitigate and what the impact is. What I'm mostly worried about, to be honest, is not only the cost, but it's what is going to be the consumer reaction in the market when all these price increases that I think will come, not only in our sector, but in general in the U.S., what will then happen. And that uncertainty, I think everybody, what should I say, sees. And I think that's why many companies doesn't even give you an outlook. We think that we are very fair because we confirm our outlook after a strong first half. And then hopefully, we can even deliver you better results than that. But as prudent as we are, we like to be conservative.

[Operator]

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

[Alexander Richard Okines, analyst]

Two questions from me, please. Firstly, you've talked about this a bit, but what would you say the main reasons are for why you're outperforming by so much in China? And secondly, another question for Harm on costs. Harm, on the Q1 call, you said that flat or negative cost was sort of too ambitious for the year. But given what you've already set out about the one-offs in the other operating overheads, isn't that a reasonable assumption for the second half of the year after delivering plus 1% on costs in the first half?

[Bjorn Gulden, executive]

I think on China, when you look at sellout data, I will agree with you that we are outperforming all the other brands, which I think has to do with that our Chinese team after a very difficult time, the BCI conflict, the lack of possibilities in marketing and also the lack of flexibility in doing local product has gotten the freedom and the energy of it. So when you look at it now, we have a design center in Shanghai that works on tweaking global concept or even designing from scratch. All apparel have been changed to Chinese spec. So the sizing and, what should I say, the patterns are made for Chinese consumers and not for Germans. And I think the sum of that in a market where we now are also doing marketing, meaning that we have signed both athletes, federations teams, celebrities and we're doing a lot of activations are causing a brand heat that was not there.

And suddenly, you have like-for-like growth, both with our retail partners and in our own stores. And that, of course, again, causes energy. I think when you look at Pou Chen, for example, and I'm sure you talk to them, they had negative numbers reporting, but with us, the numbers are positive. And of course, it's a great situation to be in. When the team feels that what they're doing is right, that gives them the hope and the belief that we can actually continue this in a positive way. And don't forget, China, regardless what issues are, is a huge market, and we see great potential in it. And don't forget, it's also very profitable. So we are very, very happy with the local team and the way we globally actually work with them right now.

[Harm Ohlmeyer, executive]

Yes, it's a good question on the operating overheads. And of course, we made good progress in the first half. And just talking about the onetime cost that we had last year. It's a fair question. It just confirms again, we are very prudent on what we are saying, and we want to over-deliver. But the honest answer is also that we got some tailwind through the FX as well and the comparability on operating overhead, we don't show you the currency neutral.

So there's definitely some benefit on the FX on the operating overheads as well. But again, what's more important for us, Warwick, is that we have a clear plan, which, of course, we have to get below the 30% in '26 to get to our formula right and to get to double-digit EBIT in '26. That's what we are focusing on. It's more the percentage. And then secondly, implementing around the world, the right cost-consciousness and the right culture, that we understand that we are not done with all the efficiency that we need to do. So there needs to be the right culture to question things that are not helping the brand, that are not helping to accelerate the top line. And that's still some work to be done. We still see some opportunities here and there, and that's what we're really focusing on. And then we will see in the results. And yes, it's a fair question. And hopefully, the results will lead to what you expect.

[Operator]

Next question comes from Robert Krankowski from UBS.

[Robert Krankowski, analyst]

Two for me, please. I had one on Terrace and [ Jennie ], the new franchises. I think you mentioned a couple of times that Terrace is now maturing in some of the markets. When you look at your low-profile Adizero, Superstar, the progress that you've been making so far, do you think it's enough to offset this kind of slowdown from Terrace somewhere towards the end of the year and maybe early in 2026? Or do you need to see this sustainable acceleration in Apparel to offset the slowdown in Terrace? And the second one, as usual, the same question, like could you talk a bit about the start to the quarter? I think you mentioned in Europe, you saw the acceleration, but what about the other regions? Is it double digit? Maybe that would be the most helpful.

[Bjorn Gulden, executive]

Your first question is a clear yes. We believe we have the franchises and products to continue to grow in Footwear. And you have to be careful when you talk about Terrace. Terrace is not over. There are many, many retailers who still have Terrace models as the best-selling items. And when we heat it up with collabs and new materials and stuff, there is no indication that, that trend is over. But of course, we need to manage it market by market, so we don't overheat it. When I then look at the pipeline that I showed you in Lifestyle product, we are not worried that we cannot replace that business or actually add to the business in a way that we get an even bigger share in the Lifestyle side. I think you also probably have seen that we're very successful with Her and that the momentum on Him are lagging behind. So of course, a lot of the initiatives that we're now taking and also what you've seen in Running Lifestyle. And I would also put probably a Superstar in there is also more target to Him to also get a bigger share on the male consumer on that side.

I'm not worried that based on what we have seen from the reaction in July and what we can see on the order book that we shouldn't, at least outside the U.S. grow double digit. The U.S. side, again, I don't dare to say because I don't know because as soon as the price increases hit, the consumer might react differently. I think outside the U.S., we feel very comfortable about growing double digit. And we haven't seen the demand in the U.S. going down yet, but the price increases haven't been there yet either. So I think the 2nd of August when the duties are hopefully being communicated, the reaction then, not only in our industry, but in general, when people start to talk about price, I think we will tell you what is going to happen in the U.S. But outside of the U.S., the 80%, very comfortable.

[Operator]

The next question comes from Andreas Riemann from ODDO BHF.

[Andreas Riemann, analyst]

Two topics. One would be Europe. Here, my question is on sponsorship deals. In Q3, the deal with Liverpool will start, also Eintracht, of course. So the effect from more sponsorship deals in soccer, isn't it quite meaningful for Q3 so that this should allow for an acceleration of growth in Europe? And linked to that, Bjorn, I think this morning in the press call, didn't you say that the growth in Europe should return to the double digits in the coming quarters? So this would be topic number one. Number two, on wholesale, if I'm not mistaken, the number of wholesale partners visiting your showrooms is still growing nicely. So where are new partners coming from? Can you provide any insight what region or what category are you able to win new wholesale accounts?

[Bjorn Gulden, executive]

Yes, I did say that I expect Europe to be double digit. That is correct. I think adding Eintracht Frankfurt and Liverpool will, of course, add business. That is true. But you have to remember, you're coming last year against the euro sales, and I don't know if you remember, but the Euro last year generated this unbelievable German trend, where we were selling 5x what people have expected. So need to be careful. But yes, soccer in general, when we look at both replicas of existing partners, new partners and all the things that are leading into World Cup should have a strong Q3, Q4. That is correct.

But Frankfurt alone doesn't replace, what should I say, everything else that is happening in the market. I do also -- we see a strange thing. We actually -- and that might help us in Q3 that soccer replicas, meaning what the fans were buying started later this year. I don't know if that has to do with maybe the soccer fan has been saturated by too many things and are waiting closer to the season. And then, of course, Liverpool, to be honest, are playing, as we speak, the late last game in Nike. So the next game will be in Three Stripes. So of course, that's culturally also relevant. And when you then see the whole Oasis thing, I don't know if you follow that, but it's the Firebird Tracksuit, Three Stripe, Trefoil. It's very, very soccer inspired. And of course, seeing the tremendous success of that is, of course, also making us very, I would say, positive on the whole soccer culture lifestyle thing. So what did I forget?

[Andreas Riemann, analyst]

Wholesale.

[Bjorn Gulden, executive]

Wholesale partner. Yes, the wholesale partners that are coming from Germany doesn't mean that they're new. What is new with that is that we have opened up our podium here where we have 35,000, 40,000 samples for more regions to take more customers, but that doesn't mean they're new customers. And we do that because seeing the whole brand is, of course, very inspiring also for retailers that are far, far away. So that's growing continuously, and it starts again, I think, in a couple of weeks. And to be honest, we could have even more. The request to come here is huge. But that doesn't mean that there are new partners. It means just that we are giving the old partners in smaller markets, they're allowing us also to come and see the whole global range.

[Andreas Riemann, analyst]

I thought maybe there are new partners in the Running category or something like that. So...

[Bjorn Gulden, executive]

Specialty, yes. That's true. Specialty is true, but that is like specialty in general is that we were gone, and we have a lot of activations with specialty right now, also have hired sales forces and are taking care of them in a different way. But that doesn't necessarily mean that they're all coming to Herzo. But they all welcome, but it also means more that we are in the Running culture and that we have people visiting the stores and are part of the running clubs and are active in running. So that's much more than actually just inviting them to Herzo.

[Operator]

The next question comes from the line of Adam Cochrane from Deutsche Bank.

[Adam Cochrane, analyst]

First question, when you're looking at your gross margin being almost at 52% this year, with the FX gains that you've got coming through in 2026, can the gross margin go beyond your 50% to 52% corridor? Or if it goes above that 52%, is that something where you would choose to reinvest the gains in something else to drive higher sales? And with the commitment to go to the 30% of OpEx sales looking well on track, is there any chance the EBIT margin could be higher than 10% as we look at 2026? And the second question for Harm. You mentioned, just a clarification, on the cash improvement in the second half, did you say EUR 1.2 billion to EUR 1.4 billion cash generation in the second half or for the year as a whole? And if it is the second half, how do we reconcile the difference between EUR 500 million to EUR 600 million of EBIT delivery in the second half versus a much higher cash number?

[Bjorn Gulden, executive]

Well, you're trying to get me on thin ice, by putting the components to be higher than 10% EBIT, right? Of course, there's an upside on margin depending on what we do in different markets. But I think when we started 2.5 years ago, we felt that this 50% to 52% with a 60-40 split between wholesale and retail was a fair one. Then you also know that there's big differences between the gross margin in a market like China or the U.S. So of course, the country mix, the channel mix and the category mix has an influence on this. We feel, again, that we have brought the margin to 52% or almost 52% earlier than people expected. So I think we've done a good job. We're not planning with it higher, but it might go higher depending on many things. I think right now, the tariff discussion is, of course, putting in opposite direction on it. So we will have to work against that first.

And the same is on the leverage. We were coming from 34%, 35%, and now we're down at below 31%. And I do think it's the same thing if you compare apples by apples and you have a global setup, then around 30% is a fair point. Is it possible to leverage it more over time? Yes. But I think we should deliver now first what we have said in those kind of corridors. And then hopefully, the world stabilizes a little bit, so we can start to talk about a higher target. But don't forget, we were coming from a very, very low target and are now at 9.6%. And give us a little bit more time, give the American side the time to decide on what the tariffs are, let us all watch what that causes in the marketplace with the consumer. And then let's see what options we have. We don't have any, what should I say, secondary EBIT target yet in our head. But of course, we are discussing it, as you can imagine. But right now, we are focused on getting through this volatile uncertainty kind of crisis mode because of the tariffs, and then we'll see further. Harm?

[Harm Ohlmeyer, executive]

Yes, you listened correctly, Adam. I mean, I said EUR 1.2 billion to EUR 1.4 billion in the second half, not for the full year, it's actually in the second half. And again, normally in the normal course of business, we should convert our net income before dividend payments into cash, but that didn't work in the first half given the buildup in the inventory that we planned for. But as we are collecting on the receivables and the growth in wholesale and as we keep -- keeping the inventory where it needs to be going forward, that's where we generate the EUR 1.2 billion to EUR 1.4 billion operational cash flow, which should lead then still pending whether we pay back the bond in November to around EUR 2 billion on the balance sheet and cash.

[Adam Cochrane, analyst]

That's great. One more, if I can. Just could you say with regards to tariffs trend and still being in growth, is it higher -- is it a lower proportion of the sales growth in 2Q than it was in 1Q, if you're prepared to answer?

[Bjorn Gulden, executive]

Yes. The answer is yes.

[Sebastian Steffen, executive]

Maura, we have time for one more question.

[Operator]

Today's last question comes from the line of Cristina Fernández from Telsey Advisory Group.

[Cristina Fernandez, analyst]

I wanted to go back to inventory. Does the inventory increase reflect any sort of like pull forward because of tariffs? And is inventory balance across regions? Or are inventories higher in the U.S. because of the tariff situation?

[Harm Ohlmeyer, executive]

No, it doesn't. It's rounding what we have probably shipped earlier to the U.S. or put earlier on the ship. I mean, we know that we need to pay the right duty, right, when we put the product on the ship. So we accelerated some, but not a meaningful number. And it's pretty much balanced around the markets. It's probably a little lighter in China because we have a more verticalized supply chain in China. So we actually get the benefits of lower inventories in China over time as we have more China-for-China sourcing right now and then you have a shorter period of lead times as well. So -- but overall, it's very, very balanced around the world. No outlier.

[Cristina Fernandez, analyst]

And then my second question is on prior calls, you have talked about taking down some of the fashion from the high end to more commercial styles. How is that performing? And are you pleased with their performance across price points for the adidas brand?

[Bjorn Gulden, executive]

Well, the strategy for us has always been to give the consumer at different price points, the same design directions as you do upstairs because the trends are the same. And we feel that we have actually been better upstairs than downstairs. We haven't exploited the takedowns maybe as much as we could do, but we will continue that strategy. And we also measure our share in the lower end of the distribution. And as long as the share is higher in the high end than in the lower end, we feel very healthy. And it's a strategy that I think not only we, but everybody is going after. And I think actually, we have even more potential there when you think at the commercial side in many markets than we have exploited, but that will continue.

[Sebastian Steffen, executive]

All right. Thanks very much, Bjorn. Thanks very much, Harm, and thanks very much, Maura. And of course, also thanks very much to all of you for participating in our call today. This concludes our Q2 2025 results conference call. As always, if you have follow-up questions, and I could imagine that there is still a few, please feel free to reach out to Adrian, Philip or myself or any other member of the IR team. We're very much looking forward to chatting with you and meeting with you over the next couple of weeks and months. And with that, thanks very much again for your participation. Enjoy a well-deserved summer break. And as I said, speak soon. All the best. Bye-bye.