Adidas AG - ADR - Level I

Strong Q1 performance (growth + profitability) - Net sales: +14% currency-neutral (reported +7% nominal), with management highlighting “quality” of growth (not just FX / pricing). - Operating profit: EUR 705m (operating margin 10.7%), ~EUR +100m vs. prior year quarter. - Gross margin: 51.1% (down 100 bps), but underlying gross margin improving—headwinds from FX and tariffs partially offset operational strength.

Margin bridge: what hurt vs. what helped - Improving underlying business: pricing “slightly up”, discounting under control. - Costs mostly stable: product cost + freight “pretty much flat/normalized”. - Main negative drivers: FX/tariffs (net ~EUR 50m each; ~EUR 100m impact total), driving the gross margin decline by ~100 bps.

Balance sheet / working capital: intentional inventory build - Inventory: +13% (or +17% currency-neutral). - Management explicitly framed this as a strategic decision to invest cash into working capital primarily inventory to secure availability and early deliveries, supporting Q1 growth and D2C +22%. - Guidance on stabilization: inventory ratio expected to stabilize in coming quarters and then decline in H2 as World Cup demand works through. - Working capital investment: “healthy company” intent; ratio expected to return toward ~<23% over time (and around ~21% for next year).