Call Start: 07:00
Call End: 08:29
adidas AG ADR (OTCQX:ADDYY)
Q2 2016 Earnings Conference Call
August 04, 2016 07:00 AM ET
Sebastian Steffen - VP, IR
Herbert Hainer - CEO
Robin Stalker - CFO
Antoine Belge - HSBC
Adrian Rott - Deutsche Bank
John Guy - MainFirst
Omar Saad - Evercore
Fred Speirs - UBS
Jurgen Kolb - Kepler Cheuvreux
Chiara Battistini - JPMorgan
Zuzanna Pusz - Berenberg
Jamie Bajwa - Goldman Sachs
Andreas Inderst - Macquarie
[Call Starts Abruptly]
Thank you very much, Julia, and good afternoon, ladies and gentlemen, and welcome to our first-half 2016 financial results conference call. Our presenters today are Herbert Hainer, our adidas Group CEO; and Robin Stalker, Group CFO.
Today's call is actually without a doubt a very special one; first of all, because it's Herbert's last one after more than 15 years at the helm of our Group. It is also special because we don't have Herbert here with us in the room in Herzo, but dialing indirectly from Rio de Janeiro, where he is currently visiting the 2016 Olympic Games. And last but not least, it is also unique for all of us, as Kasper Rorsted, who joined our Executive Board on 1 of August, is here in the room in Herzo with us joining this conference call.
And while I know that you would have lots of questions for him, I would like to make it very clear that Kasper will not be answering any questions today. I'm sure you will understand this, as today is his only fourth day in the office. So I would like to ask you to refrain from asking him any questions. I can, of course, promise you that we will find an appropriate opportunity over the next couple of months to introduce Kasper to all of you and vice versa.
So before we get started, as always, let me remind you that all revenue related growth rates will be discussed on a currency neutral basis and that all figures will refer to our continuing activities and be discussed, excluding goodwill impairments. And now let's get started, and over to you, Herbert.
Thanks very much, Sebastian, and good afternoon from Rio, ladies and gentlemen. As you will have seen from our communication last week, we continue to enjoy tremendous momentum in the marketplace as the Group delivered another set of record quarterly results. The stellar financial performance in the second quarter is proof positive that we are a true growth company that is winning in the marketplace across all categories, countries, and channels.
So let's take a closer look at the highlights of the quarter. As I just mentioned, we achieved record second quarter sales of €4.4 billion, up 21%, representing our highest organic second quarter growth rate in more than a decade. This means that excluding all the exchange rate developments, we have added more than €750 million to our top line in just one quarter. In particular, the adidas brand continues to experience unparalleled brand heat, as revenues increased a strong 25%, driven by key performance in lifestyle categories, which all grew at double-digit rates.
The development was particularly strong in key regions such as North America, Greater China and Western Europe, where sales increased by an impressive 30% in Greater China and 30% in Western Europe, respectively. With a 7% topline increase, sales growth at Reebok saw a further acceleration compared to the previous quarter. The brand now looks back on 13 consecutive quarters of growth, reflecting double-digit improvements outside of the U.S. in each and every quarter, and this shows how our consumers around the globe are responding to Reebok's new value proposition.
Despite the ongoing severe headwinds from negative currency effects, the Group's gross margin climbed 50 basis points to 48.8%, underlying the high desirability of our brands around the globe. The Group's operating margin improved a strong 3.4 percentage points to 9.4%, supported by the increase in gross margin, significant operating expense leverage, as well as an extraordinary gain related to the early termination of the Chelsea F.C. contract. Consequently, net income from continuing operations almost doubled, reaching an all-time high during the second quarter of €291 million.
What pleases me even more than the pure numbers is their composition. It is both our core performance categories, football training and running, as well as our key lifestyle sub-brands, adidas Originals and adidas neo that continue to report strong double-digit growth rates across our focus markets. This underlines that we are focused on those business areas where we can have the biggest impact on the consumer and that offer the greatest opportunities for our Group.
And with brand leadership where we are putting the consumer at the heart of everything we do, now in full swing across the entire company, there is no doubt that we will continue to be laser focused when it comes to how we will be tackling all of these major categories in their respective markets going forward. We will ensure that we inspire consumers with unique experiences and we will continue to engage with them through marketing initiatives unheard of before. And we're going to excite them again and again with the most innovative and stylish products.
But let me now do a deep dive into each of those categories, starting with football, the heart of the adidas brand, which clearly took center stage so far this year. And there is no doubt that we have hit the mark again in 2016, be it through brand visibility, product sales, or simply by confirming our status as the most innovative brand in this sport.
Sales in the second quarter increased 17% with double-digit increases in most markets. This strong performance prompted us to lift our focus for the category in June to a new record of over €2.5 billion for the year. Even before the first whistle was blown at the UEFA, Europa 2016, we were already champions of Europe, crowned by the winner of UEFA Champions League, adidas sponsored team Real Madrid.
Later, during this year's summer football, which also included the Copa America, adidas claimed the title of the Most Shareable Brand on the various social media channels. And this is particularly important as it speaks to the quality of our interaction with the consumers, as shares are the most relevant form of consumer interaction on social media. adidas was by far the Number 1 brand in terms of shareability, as it dominated the daily share volume for 27 of 30 days from the Euro's first game on June 10, up to the final on July 10. And one particular highlight for adidas was that its share of voice, in terms of hashtag usage was seven times higher than the next best brand.
In order to connect with the consumer, we focused our efforts on the strong relationships the adidas brand has with its partners, leveraging short films and images relating to federations such as Germany, Wales, Belgium and Spain, as well as with our key players like Paul Pogba, Mesut Ozil and Gareth Bale, just to name a few.
But our strong second quarter growth rate at adidas was not just all about football. Momentum in our running category accelerated strongly, up 30% in Q2, fuelled by strong double-digit sales growth in all major markets and reflecting the unrivalled strength in our innovative product pipeline. In particular, our footwear business, which grew 35% in the second quarter, has seen the next wave of the industry's most successful product launches.
A particular highlight in this regard was certainly the highly anticipated launch of UltraBOOST Uncaged, which is a prime example of our new open source mindset, as the idea of the Uncaged was born out of consumer insights. The shoe, which combines the performance and innovation of the original UltraBOOST, was a full adidas branded upper, featuring an internal support system has caused huge queues in front of stores all over the world. In the U.S. alone, we sold over 16,000 pairs of UltraBOOST Uncaged within 24 hours, and through e-commerce we sold 7,000 pairs within 15 minutes.
While BOOST is without doubt increasingly dominating the global running market, Q2 has also seen the official launch of another powerful running franchise, AlphaBounce. AlphaBounce offers an adaptive fit and feel for both runners and versatile athletes. Focused on the all-important North American market specifically, the launch of this franchise has clearly beaten our own expectations with record sell-through rates. Within less than 12 hours, men pairs in the United States were completely sold out.
Our training business also continued to enjoy great momentum during the quarter, as sales increased 11% globally, with double-digit growth rates in all major markets. Growth was particularly strong in apparel, where revenues grew at a double-digit rate, supported by key concepts such as Climachill and Techfit.
While we continue to see robust growth in both men's and women's apparel business, it is especially our strength and focus on women's training which is clearly starting to pay off and gain traction. In this context, we saw strong double-digit growth in women's training during the quarter. We saw our Workout collection resonating extremely well with the female consumer. With updated silhouettes, fabrics, colors and print, we have put a special focus in our tights and bra offer, as they represent anchor products for female athletes, to get them hooked to the brand.
Moving over to our lifestyle business, where we see unstoppable momentum and brand desire for our Trefoil labeled shoes and apparel collections. Revenues at adidas Originals grew 50% in the second quarter, with strong double-digit increases in all markets except Russia, where sales grew at a high-single-digit rate. Our latest product drops around the NMD and Yeezy Boost have once again seen huge demand throughout the quarter with outstanding sell-through rates at full price.
In addition, our key franchises around Stan Smith, Superstar and ZX Flux continue to experience excellent momentum at the point of sale. In Western Europe and North America, two key markets for adidas Originals, we witnessed tremendous sell-out successes for the Superstar at major key accounts. And while we remain absolutely encouraged by the longevity of those franchises, our Originals product pipeline has seen the next big wave of footwear launches during the second quarter.
So firstly, we have successfully re-launched our iconic Gazelle silhouette. With this silhouette that was first introduced in the 1960s, adidas Originals continues to define a contemporary street look for the future, teased and supported by broad-based social media activations and an integrated marketing campaign. The launch of the Gazelle was absolutely encouraging and first reactions to the global campaign are very positive.
Secondly, during the quarter we announced that we would bring our long-term partnership with Kanye West to the next level. Recognizing the influence, success and global brand power that began almost two years ago with the birth of YEEZY, the unprecedented new alliance makes history as the most significant partnership ever created between a non-athlete and an athletic brand.
Going forward, the partnership will extend beyond its current lifestyle focus, with the introduction of performance-intended designs, consequently offering options for both sport and street.
With this being said, let me quickly turn to adidas neo, where sales increased 31% in Q2, reflecting strong double-digit increases in all markets except Japan. The second quarter has seen the launch of adidas neo’s latest comfort footwear concept, Cloudfoam, leading to strong double-digit increases in footwear across all key distribution channels. This new comfort concept is resonating extremely well with girls, adidas neo’s clear target consumer group, which was achieved through girls-specific footwear models in terms of material and color choice.
Moving over to Reebok, where the positive trends from the previous quarters continued during the second quarter. With a 7% sales increase in Q2, Reebok saw a further acceleration in top line growth. More importantly, with the exception of North America, where Reebok continues to streamline its U.S. business, the brand is growing at double-digit rates in most of its key markets, including Western Europe, Greater China, Russia and Japan.
From a category perspective, Reebok is more and more considered as a true fitness brand, as reflected by strong growth rates posted in the all-important running and training categories. On the latter, Reebok together with three-time Defensive Player of the Year J. J. Watt announced the release of the ultimate training shoe, which was developed in close collaboration with the American football star.
In Classics, another focus category of Reebok, the brand is successfully capitalizing on the strong underlying lifestyle trends in the marketplace. Reebok’s strong heritage in casual sports together with its unique partnership around Kendrick Lamar is not only translating into double-digit growth for the category, but more importantly enabling the brand to win back shelf-space at important key accounts, including in its home market, North America.
The turnaround of Reebok’s U.S. business will without doubt be key for the brand, both in own retail, where we will further rationalize the fleet and improve overall profitability, as well as at the various wholesale accounts. So far we have seen a huge step-up in mall presence year-to-date, including permanent displays at Finish Line, dedicated windows at Champs and branded space at Footaction. And the feedback we are getting from retailers for the upcoming Spring/Summer 2017 season is clearly indicating that they are excited to further engage with the Reebok brand.
To conclude on the brands and categories, let me spend a minute on our golf business. I am very pleased that the various initiatives we have brought to life over the past twelve months are bearing fruit. This became highly visible during the second quarter, as revenues at TaylorMade-adidas Golf turned positive again, up 7%. And this development was the result of a 24% increase at TaylorMade, reflecting strong double-digit growth in metalwoods, where our M1 and M2 product families are seeing strong sell-through rates in the marketplace, in particular in the key market North America. Consequently, TaylorMade remains the undisputed number 1 golf brand in metalwoods, with strong market share gains year-to-date June.
These operational improvements are also reflected in the financials. Driven by a significantly more favorable pricing and product mix, TaylorMade-adidas Golf has seen major gross margin improvements during the second quarter. In combination with a considerable reduction in operating expenses, TaylorMade-adidas Golf turned profitable again at the end of Q2.
And with this, ladies and gentlemen let me now hand over to Robin, who will guide you through the financials of the second quarter in detail before I conclude our conference call by taking a look into our near future.
Great, thank you very much, Herbert and good afternoon, ladies and gentlemen. When we last spoke about our segments during the first quarter discussion in May this year, I had told you that I didn’t know where to begin and where to end regarding the encouraging business developments worldwide. In the second quarter, the dilemma is quite similar as we once again recorded strong growth in each and every market, in most cases at double-digit rates each.
As Herbert has already mentioned, we are especially excited to see our four focus markets perform extremely well. Let me therefore dive deeper into each of those markets.
In Western Europe, we were able to accelerate momentum and increase revenues by 29%. And although this development was also supported by additional revenues generated around the UEFA EURO 2016, it was by far not the exclusive driver of this positive development. Both adidas and Reebok showed an impressive upwards trend in the second quarter throughout all key categories. While adidas sales increased a strong 30%, Reebok generated revenue growth of 23%.
At brand adidas, we saw far-ranging double-digit growth in all key performance and lifestyle categories. While football naturally took the lead within our core performance categories with regard to growth rates, it was the running and training categories which showed a tremendous acceleration in revenues during Q2 and even Originals was again able to gain further traction in the second quarter. At Reebok, growth was driven by double-digit increases in training and in Classics.
From a market perspective, the main contributors to the sales development were the UK, Germany, Italy, Poland, France and Spain, where revenues grew at double-digit rates each. Similar to the first quarter, the second quarter gross margin largely suffered from severe pressure resulting from the strengthening of the U.S. dollar and ended the quarter 3.2 percentage points below the previous year at 44.0%. However, despite a further increase in expenditure for marketing investments related to the UEFA EURO 2016, Western Europe enjoyed strong operating leverage, decreasing other operating expenses as a percentage of sales by 1.7 percentage points. Consequently, we were able to limit the decline of the segment’s operating margin to 1.5 percentage points and ended the quarter at 17.3%.
In North America, our growth trajectory from the first quarter persisted, as reflected in the accelerating momentum the Group witnessed in the second quarter. Revenues increased at a phenomenal rate of 26%, driven by energetic growth at brand adidas, where sales went up 32%. This development was driven by strong double-digit growth in the running, training and basketball categories as well as at adidas Originals and adidas neo. The strongest growth rates were generated in the running category and at Originals, both achieving growth rates of above 60%.
Driven by this enormous heat around our performance and lifestyle products, we significantly gained market share with leading U.S. retailers. In the second quarter, the brand’s wholesale business in North America actually outperformed the growth of our own-retail business by more than five percentage points. And this ladies and gentlemen, is proof positive that adidas is without doubt becoming a viable sports brand in the world’s most relevant sporting goods market.
At Reebok, as Herbert has already elaborated, we continue to press ahead with streamlining the business and rebuilding brand reputation in North America. A limited decline of 3% in the second quarter as well as encouraging backlogs for the second half of 2016 can be regarded as a clear sign that we are on the right track to turn Reebok around in its home market, just as we did in the rest of the world. Equally encouraging in North America is the fact that the accelerated top line growth feeds right through to margins.
Gross margin in the second quarter increased 2.1 percentage points, driven by an improved pricing, product and channel mix. In combination with strong operating leverage, this translates into an increase in operating margin of a very strong 6.8 percentage points to 9.4%, a margin we haven’t seen in North America in years and proof positive that brand strength and scale matter most.
Let’s move over to Greater China, where we carried out our incredibly strong momentum of 30% top line growth from the first to the second quarter. At brand adidas, revenues increased by another 30%, while at Reebok momentum accelerated further, with sales up 38%. Growth at both brands was driven by double-digit increases in all key performance categories as well as in the lifestyle business. Profitability in Greater China remained at high levels during the second quarter. The segment’s operating margin expanded further, up a strong 0.7 percentage points to 37.2%. This development reflects a 1.4 percentage point increase in gross margin, which was only partly offset by higher operating expenses as a percentage of sales.
Now given our already strong brand perception in China, in connection with the persistent trends around a healthier and more sports-oriented lifestyle, we have every confidence that China will continue to be a major growth market going forward. And with our new strategic partner, Chinese real estate and sports business giant, Wanda Group, we have a new ally who shares our enthusiasm for this market.
Let’s continue with Latin America, where revenues increased 8% in the second quarter, a somewhat softer development compared to the strong double-digit growth in the first quarter this year. However, there is no need to become concerned about this development, ladies and gentlemen. While there is no reason to deny the declining the purchasing power in Argentina as a result of the strong inflation of the peso, rest assured that this is nothing we haven’t already anticipated in our planning for 2016. Furthermore, shifts in timing as a result of strategic restructuring in some markets somewhat distorted the sales performance within the first half of the year.
Year-to-date, segmental revenues increased a strong 13%, with double-digit growth in all major markets and we expect this sort of trend to continue throughout the remainder of this year, also with the additional support of the Olympic Games in Brazil. Impacted by major currency headwinds, the gross margin in Latin America declined 1.5 percentage points to 41.1% in Q2. In combination with higher operating expenses as a percentage of sales, the segmental operating margin declined 4.6 percentage points to 10.5%.
Let’s finish the discussion about our operating segments by having a closer look at Other Businesses, where revenues grew 6% in the second quarter. Sales in Other centrally managed businesses sustained their strong momentum, growing 30% in the second quarter, and revenues at TaylorMade-adidas Golf increased 7%, driven by double-digit growth at TaylorMade, as Herbert has already mentioned. CCM Hockey sales were down 18%, mainly as a result of declines in the licensed apparel and equipment business. This development reflects the challenging environment in the U.S. hockey market, with excess inventory at retail and two major customers having filed for bankruptcy. Nevertheless, we expect the business to normalize in the second half of the year.
Supported by stronger product margins at TaylorMade-adidas Golf, gross margin in Other Businesses showed a substantial increase of 8.5 percentage points to 39.4%. This more than offset the increase in other operating expenses as a percentage of sales, allowing for the segment’s operating margin to expand by 5.9 percentage points. This limits the operating loss of the segment in the second quarter to €19 million, compared to €40 million in the prior year. This, ladies and gentlemen, concludes our segmental discussion for the second quarter.
Let me turn to the major P&L items of the adidas Group. The Group’s gross margin increased 50 basis points to 48.8% in the second quarter, driven by the positive effects from a more favorable pricing, product and channel mix as well as improved product margins at TaylorMade-adidas Golf, which enabled us to compensate the negative currency effects of around 400 basis points in the quarter. This leaves us with an improvement of 40 basis points to a 49.1% gross margin in the first half of 2016.
Now while our several mitigation initiatives certainly were more effective than initially anticipated during the first half, reflecting the strong brand momentum worldwide, please also keep in mind that the second half of 2016 will become a lot more challenging as it compares to a very strong 2015 base and, in addition, hedging rates will become even more of a headwind.
Another positive effect from the accelerating brand heat is the high operating leverage our Group is able to generate in 2016. In the second quarter, operating expenses increased 12% to €1.9 billion or, as a percentage of sales, declined 30 basis points to 43.8%. This sums up to an increase of 13% to €3.9 billion for the first half, translating into an even more pronounced decline in operating expenses as a percentage of sales, down 80 basis points to 42.0%.
While the positive effects from the improvement in gross margin as well as substantial operating leverage would already lead to significant operating profit and margin expansion, the Group also generated two extraordinary gains during the second quarter related to the early termination of the Chelsea F.C. contract as well as the divestiture of the Mitchell & Ness business, which are the major drivers of the €126 million increase in other operating income.
While the early termination of the Chelsea F.C. contract lifted both other operating income and operating profit by a mid to high double-digit million euro amount, the divestiture of Mitchell & Ness did not have an impact on the Group’s profitability in the second quarter since the proceeds, we’ve as previously announced, were fully re-invested to accelerate initiatives that are part of the Group's ‘Creating the New’ strategic business plan.
In total, operating profit in Q2 increased 77% to €414 million, representing an operating margin increase of 3.4 percentage points to 9.4%. And let me point out, ladies and gentlemen, that more than half of this profit and margin improvement is driven by our strong operational performance. From a half year perspective, this converts into an increase in operating profit of 52% to €905 million, and operating margin expansion of 2.4 percentage points to 9.8%.
Net financial expenses for the second quarter declined to €4 million, compared to €9 million in the prior year period. This gives us net financial income of €2 million for the first half of 2016, compared to net financial expenses of €9 million in the prior year period.
The Group’s effective tax rate again declined substantially and returned to a more normalized level of 29.1% in the second quarter compared to 35.1% in the prior year. For the first half of 2016 this translates into an effective tax rate of 29.3%. The materially improved operating performance and the extraordinary gain in Q2, together with the positive developments in the Group’s non-operating KPI, translated into a substantial improvement in net income from continuing operations. While in the second quarter net income from continuing operations almost doubled to €291 million, net income from continuing operations in the first half increased a stellar 60% to €641 million.
As a result, diluted earnings per share from continuing operations reached €1.42 in the second quarter and €3.13 in the first half of 2016, representing a strong increase of 97% and 59%, respectively.
Now let’s briefly discuss the most relevant items of the Group’s balance sheet, starting with operating working capital, where inventories grew 24%. This increase purely reflects our strong confidence in the Group’s future top line growth. We do not see elevated inventory levels across any of our markets. Instead, the ageing of our inventory is absolutely healthy.
With accounts receivable up 8% and accounts payable up 10%, this translates into a decrease in average operating working capital as a percentage of sales of 1.2 percentage points to 20.4% at the end of June 2016. Net borrowings amounted to €1 billion, representing an increase of €71 million compared to the prior year, mainly as a result of the utilization of cash for the purchase of fixed assets and the acquisition of Runtastic last year. However, due to the robust operating performance, the ratio of net debt-to-EBITDA remained unchanged at 0.6 times. Last but not least, the Group’s equity ratio decreased to 41.3% from 43.5% in 2015.
This ladies and gentlemen, concludes my operational and financial review for the second quarter and the first half of 2016. Let me now hand back to Herbert, who will share some of the many upcoming initiatives for the remainder of the year and our improved outlook for 2016 with you.
Thanks very much, Robin. So let’s now have a look at what you can expect from us during the second half of 2016.
I’ll begin with the Rio 2016 Olympic Games, that are starting as we speak. The Olympics have, from a brand and emotional perspective, always been the biggest event and platform for our brand. They go back to the origins of sport and they are therefore an important part of our DNA. They are core to showcase our products and our ability to make athletes better. Similar to the past, we will therefore make sure we use this year’s Olympic Games and the involvement of people and sports fans around the globe to deliver our key brand messages in the most impactful way.
It is exactly these key brand messages that are also at the forefront of this year’s second burst of our global ‘Sport 16’ brand campaign, which was released in July and celebrates key assets such as Damian Lillard. Under the motto of ‘Here to Create’, the campaign continues to strengthen adidas’ creator positioning and its Open Source mindset.
With a strong focus on social media and our digital platforms, the campaign celebrates creators -- those that lead and innovate, those that make their own rules and shape the future of sport together with us. Activations will also be highly visible on adidas.com, inspiring consumers when they shop online and ultimately driving the commercial success of our e-commerce business.
Looking into the various categories and starting with football, where we will use the momentum we created during the big tournaments of this summer to enter the back half of 2016. Ahead of the start of the 2016/2017 football season, we have launched our Speed of Light pack, the most dynamic range of football boots adidas has ever brought to market. The cleats are designed to help players stand out and lead on the pitch. We can’t wait to see our new footwear offering be integral to deciding some of the biggest games this season between the world’s best players.
The Speed of Light boots will be our key priority for the upcoming Fall/Winter 2016 season with premium retail presence and window executions in our own-retail stores as well as at key customers around the globe. Our latest footwear pack will see strong support from several integrated PR and social media activities, such as our Back to Club campaign, which was just launched a couple of days ago.
In addition, we have introduced the new soccer season in Europe with a colorful star-studded film featuring players from across the adidas brand's six largest clubs; Real Madrid, Bayern Munich, Manchester United, Chelsea, Juventus and AC Milan, as they defy media gossip and get on with the game. They include star players like Paul Pogba, Manuel Neuer, Gareth Bale, Hermes Rodrigues, Diego Costa and Miralem Pjanic, as well as managers such as Zinedine Zidane and new Manchester United Manager, Jose Mourinho.
It centers around the words, Blah, blah, blah which float around the screen in bright animation as players and managers appear to ignore the talk about them and focus on the action. It's a playful approach to the constant transfer rumors concerning many of these players, and soccer fans will instantly recognize the references, for instance the film opens with Pogba telling viewers Don't believe everything you read in the papers. The initial response to the campaign has been tremendous and shows that we are hitting the nerve of football consumers around the world. After only four days, more than half a million viewers have watched the videos on YouTube, and this is just the beginning.
Underlining our commitment towards innovation and towards Creating the New, adidas football has for the first time taken an on-pitch boot and reinvented it as a lifestyle shoe with the ACE 16+ PURECONTROL. The shoe brings together the unique adidas Primeknit upper and the industry-leading BOOST technology, to meet players’ off-pitch needs. The shoe, which was launched at the beginning of July, marks the beginning of a new focus which will see future football products followed by similar off-pitch alternatives.
Turning to running, where our commitment to own and drive our positioning in energy running is stronger than ever before. And the momentum we are currently enjoying is proof positive that with our relentless focus on innovation we are pulling the right levers to conquer the running market. Through existing franchises around UltraBOOST, PureBOOST and AlphaBounce, we have already shown our ability to create the best product for our consumers at all relevant price points. And we are determined to continue to listen to our running consumers as consumer insights will propel our momentum going forward.
A prime example of how we continue to identify and understand what our consumers want is the introduction of ColorBOOST, providing our iconic BOOST midsole with a completely new look. The new colorways will make their debut alongside the iconic white BOOST midsole in Triple Red, Black and White versions of UltraBOOST Uncaged offering runners a completely new aesthetic the world has never seen before.
In training, we will continue to leverage the strong performance of our TechFit and ClimaChill apparel franchises. In this context, we will continue to put high emphasis on the women’s business and propel the momentum we have started to enjoy around our Spring/Summer 2016 collection. To do so, we have just announced a partnership with supermodel and athlete, Karlie Kloss, who will be the new face of our Stella McCartney Fall/Winter collection and campaign, encouraging the female consumer to break the barrier and get the most out of their workout.
In addition, Q3 will see the launch of a new, exciting training apparel offering, which will also be supported by a meaningful marketing campaign. All-in-all, looking at our current momentum and considering our upcoming product initiatives, we have every confidence that training, and our women’s business in particular, will continue its stellar growth trajectory also in the second half of 2016 and going forward.
Turning briefly to basketball, where the third quarter has already seen the successful launch of the Crazy Explosive franchise, built for players with explosive moves. Crazy Explosives will be the key story for Back-To-School, backed up with a strong product seeding plan to gain hype and traction in the marketplace. The introduction of Crazy Explosive is part of the brand’s new design and collaboration approach that combines unique style elements that stand out from the crowd. The shoe, featuring full-length BOOST, will be worn by players such as Andrew Wiggins.
And although it is still early days, we definitely believe that our investments into basketball footwear are starting to pay off, with more to come in the coming weeks and months. We also see that our asset activations and initiatives are resonating with fans and consumers around the globe as our Instagram follower base is growing rapidly. This definitely also reflects our new approach when it comes to collaborations with key assets, such as James Harden. Since the beginning of the partnership last fall, adidas and James have worked hand in hand to create the next wave of basketball style on and off the court. This is a new dimension of co-creation and we feel that more and more consumers, especially in the U.S., notice and value that.
Moving over to lifestyle, where the fantastic momentum at adidas Originals is the direct consequence of great product introductions together with strong collaborations, creating un-experienced hype around the Trefoil logo. And this is exactly how we have started to go into the second half of 2016: We made our star footwear franchise NMD meet our real life superstar Pharrell Williams with the HU NMD limited edition. The HU NMD stands for the superstar’s vision to bring people together through a shared understanding of values such as love, passion and enthusiasm.
While the shoe will drive further brand heat for our NMD franchise, Q3 will also see a stronger focus on our Tubular and Gazelle silhouettes. And not to forget the ZX Flux ADV, which is set to drive our commercial success in the lifestyle running market further, and once again, especially in the U.S.
At adidas neo, we will continue to build upon and strengthen our Cloudfoam concept, which has already proven to be the right product at the right time, introduced to the market with the exact right marketing support to win our lifestyle consumers at commercially attractive price points.
Today, Reebok is the leading provider of CrossFit apparel and footwear, and the brand is determined to drive its current momentum and leverage the credibility it has earned in CrossFit boxes around the globe in the months to come. In July, Reebok therefore amplified its presence at the 2016 Reebok CrossFit Games, which are now in their 10th year with an ever-growing fan base and community and definitely be the best platform to showcase the brand’s strong CrossFit offer and outstanding range of fitness products.
Reebok will also put an even stronger emphasis on the combat training side of its business, as the brand has just launched a campaign with Ronda Rousey, one of the most popular and biggest mixed martial arts icons in the U.S. The brand will also continue to drive its collection and collaboration with the Ultimate Fighting Championships in the upcoming months.
And this is also true for the lifestyle part of Reebok’s business, where the brand is expanding its network of global talent with the appointment of international style pioneer and music artist Future. The partnership was revealed on Future’s Snapchat and Instagram accounts, where he also unveiled the Instapump Fury Overbranded, launching in fall 2016.
So as you can see, ladies and gentlemen, the product pipeline for the second half of 2016 is just as full as it has been for the first half. As a result and as proof of our firm confidence in the Group`s operating strength as well as upcoming initiatives, and against the backdrop of our strong performance in the first half, we have increased our full year 2016 top- and bottom-line outlook accordingly. We now expect to grow Group revenues at a rate in the high teens, supported by double-digit growth in all our markets except Russia/CIS, where revenues are now forecasted to grow at a mid-single-digit rate.
Following the improvements in our Group’s gross margin in the first half, we now expect to be able to compensate almost all of the severe headwinds we will be facing this year from negative currency effects as well as further labor cost increases in our sourcing countries. As a result, we are now confident we will be able to achieve a gross margin of 48.0 to 48.3%. This, together with leverage on our operating expenses and the positive impact from the Chelsea payment, will lead to an operating margin improvement of up to 100 basis points to a level of up to 7.5%.
As a result of the stronger than expected top-line development and further operating leverage, net income from continuing operations is now forecasted to increase at a rate between 35% and 39% to a new level between €975 million and €1.0 billion in 2016. With this, ladies and gentlemen we finished our presentation now. And Robin and I are happy to answer all your questions.
Thank you very much Herbert, thank you very much Robin. And, Julia, we are now ready to take questions.
[Operator Instructions] And we will now take our first question from Antoine Belge from HSBC. Please go ahead. Your line is open.
Hi, good afternoon. It's Antoine Belge of HSBC. Three questions. First of all, regarding your outlook in terms of top line for the full year. So increased guidance, which implied sort of a mid-teen growth in the second half. Could you maybe comment Q3 versus Q4 and so which areas of growth are you expecting to mostly provide the strong performance on a total basis of comparison? My second question relates to pricing. I think you expect to offset the significant FX headwinds, mostly by pricing. So could you maybe comment on pricing, with making a distinction between the three buckets; one, the sort of pure pricing on a like-for-like basis, then trading up from consumers and then increasing your sales at full price?
And finally regarding the Euro 2016, looking at your 17% growth in football, which was actually a bit below the overall average, could you try maybe to give a sense of how much Euro 2016 sales will be boosting your sales this year? According to my estimate, it could be less than 2%. Thank you.
Okay, Antoine. Thank you very much for the questions. So yes, your estimate is correct for the topline growth. Remember, of course that Q3 is always with us the most significant quarter. So in terms of the rates between Q3 and Q4 you'll see obviously more significant development for our business is Q3. But you'll see high rates in Q4, because obviously we had a lower performance last year in Q4. And at the moment -- we enjoy, the moment is good. It's coming from all the same sort of areas that you would have seen in the first half of the year also. So there's no particular call out for Q3, Q4 that I would suggest.
In terms of pricing, yes, the majority is definitely coming from our ability to increase our prices. In aggregate, with the development in the product and the attractiveness of this product, we're also being able to avoid more clearance. We're getting more full price sell through. But I'd estimate from the items of pricing and product mix and country mix and what have you that almost 70% will be coming from pricing.
In terms of your third question about the Euro, we don't give specific figures for the Euro. Obviously, it was the factor for this year and obviously overall for our ambition with football, you'll be aware we have the goal of achieving over €2.5 billion in sales in football this year, which we will definitely achieve.
In terms of the split between footwear and apparel, if you're looking at some of the footwear development in this period under review, please remember that last year we had significant footwear sales when we sold in the new three franchises for football last year. Okay?
Thank you. We will now take our next question from Adrian Rott from Deutsche Bank. Please go ahead. Your line is open.
Hi, everyone. I've got three questions too. Firstly on the gross margin move, it looks like the gross margin ex Golf is down some 30 bps in H1. Is that reflective of what's been happening at brand adidas, or has Reebok been a drag gross margin wise? And then within your increased gross margin guidance, what is roughly the contribution from Golf that you're expecting in the second half?
Then secondly, can you share some details on the retail performance, Q2 retail like-for-like, as well as the retail gross and operating margin for the quarter would be very helpful.
And then thirdly, on CapEx, you're still guiding for €750 million full-year, of which the majority into fixed assets I suppose. But PP&E CapEx was only €180 million in the first half, just wondering what's the plan for H2, and just how that squares with your net store opening guidance, which is now for 50 versus the 100 plus you've been planning for previously. So how does all that fit together?
Okay, I think [indiscernible]. So gross margin, firstly remember please that we were guiding in last year and the beginning of this year that our gross margin decline for this year could be as much as up to one percentage point. In our guidance, we were anticipating an improvement in the TaylorMade gross margin overall profitability, because remember the last year we had a significant decline in the gross margin because of the discounting in the TaylorMade business.
So a lot of what we're seeing now is improvement in the underlying profitability and gross margin profitability of the adidas and Reebok brands. But I think it's fair to say that we are experiencing some decline in the adidas and Reebok brand gross margin, and particularly, we would expect that in the second half of the year as the total hedging rights for the second half are obviously a little bit worse than the first half. But, fundamentally gross margins are positive for us, because it's underlying from Reebok and adidas a better development than what we'd initially anticipated.
In terms of the retail comps, our retail comp store development this second quarter was 12% and that's coming pretty much across the board also, so good underlying growth in the retail business. And then in terms of CapEx, yes it's tracking a little bit below the run rate that's correct, but bear in mind here that a lot of this has to do with the retail locations and there is more heavy loading at the back end of this year. You'd be aware we are also opening the flagship adidas Brand Center in New York later in the year, that's the main reason.
Okay, great. Thank you. However I'm sure you've got other plans. All the best and enjoy the games in Rio.
Yeah, thanks. [indiscernible].
Thank you. Our next question comes from John Guy from MainFirst. Please go ahead.
Yes, good afternoon. I have three questions please. Following on from the gross margin question there, banking out the second quarter retail, wholesale, aggregated gross margin, it looks like that fell 60 basis points, just wanted to confirm that that's what you were seeing in the second quarter. I appreciate that you just flagged up the underlying performance of the adidas and Reebok gross margin, but just wanted to check that.
With regards to the inventory position that was up 24% at constant currency on sales growth of 21%, when we think about how confident you may be in terms of sustained sales growth in the third quarter, and the fact that you are going to have to invest more into the third quarter, one of your biggest competitors highlighted incremental cost growth going into the mid-teens from a high-single digit rate from their fourth quarter. So, can you talk about how you are going to deal with the incremental investments, the sales and marketing into the back to school period please?
And finally, just with regards to the plans, notably the retail store network in North America. I mean there are some stores that are pretty dilapidated compared to other brands, and I was just wondering what your plans are particularly in North America with regards to the retail network. And of course wishing Herbert all the best and welcome to Kasper. Thanks very much.
I'll let Herbert comment about retail perhaps. But taking the first two questions on the gross margin, no that's definitely not a negative here. Your estimate for second quarter, it might be 20 basis points or something like that.
In terms of the inventory, look, the 24% increase, I said in my prepared comments, the agings it's all current, this does reflect anticipated business in the near term, but obviously we don't hold inventories for the full six months. So just in the third quarter, as I mentioned in the earlier question is the largest part of our business in the second half of the year.
The MWB comment in terms of spend, yes, that's right, we will be increasing our MWB year-over-year and about 60% of our marketing spend for the year is in any case planned to be in the second half of the year.
And Herbert did you want to comment about development of retail?
So, first and foremost, let me say that we are extremely happy with our own retail business in the U.S., and I obviously speak about the adidas, because I do believe this has been in the last 12 to 18 months a spread of recovery in the U.S., with a lot of other measures as well. As you have heard John, we are opening a new flagship store on the Fifth Avenue in New York later, and we further expand our own retail base in U.S.
But we also heavily invest in shop-in-shop systems with our key retail partners and this is not just the sporting goods world. Of course we put a lot of our performance products, in over 700 displays now for football or soccer, as you call it, but also with the likes of Foot Locker or Finish Line, and therefore when we talk about retail, we talk about controlled space, because it's our own retail and the retail, which we are running by ourselves within the wholesale part. So we plan to extend our retail doors by 55 in 2017 and obviously this will give us an even better grip on the market and exposure for the future.
And as I said, John, just an addition to what Herbert said, we are accelerating our remodeling, if you think back to Adrian's question about CapEx, also that in the second half of the year.
That's fantastic. Thanks very much.
You are welcome.
Thank you. We will now take our next question from Omar Saad from Evercore. Please go ahead.
Thank you. Thanks for taking my question. Congratulations on the great results. My first question, and I will do one at a time. My first question is a follow-up on the gross margin, if it's okay. I understand gross margins would be -- the FX impact in the second half, but maybe you could give us a sense for how gross margins are developing ex the currency effect, what's the kind of true underlying gross margin has been in the second quarter, or the first half, just to give us a sense, what's going on outside of brand, adidas.
Yes, very definitely, that's a good question. This is what I was trying to say earlier. There is a very positive development here that is helping us compensate for those currency headwinds, this is in adidas brand, but also in the Reebok brand in certain parts of their product offering, but particularly under adidas we're seeing the ability to sell higher priced product, we are getting better sell-throughs of this product and therefore less clearance, so underlying operational business is a positive for our gross margin.
Robin, are you willing to put in kind of a number around it for the first half, what gross margins would have been up year-over-year excluding the currency?
We did mention the currency impact from the hedging or the appreciation of the dollar was about 400 basis points in the first half of the year.
My next question is on the Originals; obviously incredible momentum in that business. I think you set up 50%. Maybe help us understand how you're managing the distribution with such explosive growth? Are you constraining supply with certain types of products within the Originals business, how you think about segmenting the marketplace to ensure that business grows strong but also remains healthy?
Herbert would you like to take that one?
Yes, thanks Robin. Okay, Omar, very well questioned and I think this is one of the key learnings out of Route 2015 plan which we had that we are handling our Originals business in a much, much more sophisticated way today. First and foremost, let me start that I think our guys do an excellent job in refining and bringing new models on Originals on to the market. It's not just the Superstar, the Stan Smith. It is the NMD, it is the ZX FLUX, it is the Tubular, it is equipment, and it is, as I said in my speech before, now is the Gazelle. And as you know, Omar, we have quite an archive where we can permanently bring new products out. This is point number one.
Point number two is that we have a clear segmentation in our distribution strategy. Where and to which retailers we give our Originals, and you might have heard just latest news a few months ago that we even take out the adilette, the original adilette, we take it out of the traditional sports stores, because this is -- we have defined it as an Original product and therefore it is only access to certain amount of retail partners.
Next point is that we are controlling the quantities which we give into the market very strictly with our key partners and within our own stores. We have a sophisticated system now to measure what we do believe is the demand and the amount of products which we can give to the market and which we should give to the market, to not overcrowd the market and secondly to guarantee full price sell-through, which obviously helps the margin for the retail partners but also for us obviously.
The next point is that as I just told in my speech that we will in the future, not only on the Originals side, but also on the performance side, bring more lifestyle products to the market, as I have said with our ACE 16+ football boot, which is a clearly on-pitch model, which we now redesign, putting a BOOST midsole to the product and re-launched for off-pitch.
And the last point which I want to make is that when you look to our Originals business and to a lot of products which we include into Originals, these are with our main competitors in their running categories. And so therefore these are seen by the consumer and I think this is the beauty of adidas that all the Originals product have a clear history in sport and are seen as former sports product from the consumer.
So long answer, sorry for that, but what I want to say is that don't worry about the growth in Originals. First and foremost, there is still a huge potential out, but it is a very controlled activity by our side what we're doing.
Thank you. That's really helpful. And then maybe one last question, as we see the momentum in the business, the operating leverage, the underlying gross margin improvement, I think cash flows should really start to become significant in the coming years. How do you think about deploying cash flow, any changes versus previous history and how you think about what to do with the cash flow, beyond investing in the business, of course?
Omar there is no change in our view in here. We've got a good and consistent policy on shareholder returns. We're not in the market for any particular reason [ph]. Our priority is to continue investing in the business.
Thank you. Best of luck.
Thank you. Our next question comes from Fred Speirs from UBS. Please go ahead. Your line is open.
Hi, good afternoon. It's Fred Speirs from UBS. Three questions please. First on North America. Herbert, in early 2015 you laid out a 5-year plan for the adidas brand in North America. You obviously made a lot of good progress to-date. But I wonder from this point if you could just talk to what you think the next main execution challenges are to get right for you in the U.S?
The second question was on Russia. You've raised your organic sales growth guidance to mid-single digits from flat previously, just interested to hear what's behind the improved view. Are you seeing an underlying improvement in volume demand or is that mainly price-mix led?
And then lastly one on Golf. Could you update us on how the disposal process is going? Could you comment on whether Nike's decision to dispose of golf equipment will have any bearing on the Group's decision to sell and would you anticipate realizing higher value for your golf business now? Thank you.
So first five year plan in North America, as you rightly said, we have spelled it out, last year, beginning of 2015 we also told you that for three years in a row, 2015, 2016, 2017 we will invest more in the U.S. market, which we do, but this investment is not only in communication and advertising, it's also in ambassadors for our brands, as we have started with James Harden, with Von Miller and so on and so forth, but it's also in the retail presence with our wholesale partners and large retail presence, and as I said also, in further rolling out our own stores. What I'm really pleased to see is that our growth in America is not only coming from the lifestyle side, but it's also really driven also by the performance side.
Just in running we had in the second quarter 60% growth. And the UltraBOOST and the UltraBOOST Uncaged are one of the hottest products on the planet I can say. But not only the -- how should I say -- the high premium products, we specifically designed the AlphaBounce, which is mid-price running shoe for the North American market. And I told you already before that within 48 hours we were completely sold out. I think there is no doubt that the momentum is there in North America, the willingness from the retailers to give us much more shelf space is there and the most important thing is the consumer demand is there.
So now we have to execute and we have to execute in the most professional and best way, but I don't have any doubt that this momentum which we have will continue in the next years, because all the metrics and the measurements which we do, be it NPS, be it market research et cetera is telling us that.
Coming back to Russia, in Russia it's a mix of what you said. It's price mix, yes, obviously. With the depreciation of the ruble we also raised prices in Russia several times in the last several years. But there is no doubt that also our products are resonating still very well with the Russian consumer, even the times are tough and the market is tough in Russia, we see immediately when we bring new products to the market that the demand is there and therefore we are quite optimistic for our business in Russia, according to the circumstances. Of course, five years ago, it was in a better shape, but we are, by far, market leader in Russia, Russia is a big market for us and this is also very profitable.
Last but not least is was on TaylorMade. Let me use the opportunity also to say first and foremost that I'm very pleased with the development of TaylorMade, because obviously we had two tough years in 2014 and 2015 and we did a lot of hard work. I said it in the transformation 210 projects which we launched on all the different fronts and this is obviously paying off, not only that we are bringing great innovative products to the market, which made us again the undisputed leader in metalwoods, number one with 32% market share, but also on the cost side, you can see that there is really operating leverage.
In terms of the process, there isn't anything new. We have a few very interested parties, which we have selected and with which we continue the dialog. They do all the due diligence, they do the management talks with our management and as soon as there is anything new, we will of course will report. And that Nike has dropped off the equipment business doesn't have any influence in our decisions.
Great, thanks. And all the best for the future, Herbert.
Yes, thanks very much, Fred.
Thank you. We will now take our next question from Jurgen Kolb from Kepler Cheuvreux. Please go ahead. Your line is open.
Thanks very much. Two questions from my side. Herbert, first of all, enjoy Rio. Obviously it's a nice spot to be, I guess. But in terms of the Capital Markets Day last year in March, you or the presentation was about longer-term growth outlook with a high single-digit topline growth and I think a 15% or so net profit growth. Now this year, you're starting off extremely strong, say, topline 17% to 19% and 35% to 39% bottom line. Is that something -- should we maybe look at the longer-term outlook with a little bit more optimism as you're indicating that the momentum continues here? That's the first one.
And the second one, pretty much on Reebok again, just to double check. With all the momentum that you're seeing, especially in the North American market, do you think you can move Reebok into a positive growth territory already in 2016 within the North American market? Thank you.
Concerning your first question, of course, this question has to come off the results in 2016 and this long momentum which we are enjoying and the result which we had forecasted for 2016. Yeah, I understand that the guidance for 2020, which we gave in May did look conservative. You can be assured that we are looking into that and working on it already, but I definitely would leave this to Kasper and the executive team to draw their conclusions out of that.
Second question on Reebok, yeah, we definitely do expect already positive growth in the second half of 2016 for Reebok in North America, and as I have said already also in my speech, without North America we would have grown in all the quarters, double-digit already with Reebok. So, we are definitely pleased with the positioning and with the development of the Reebok brand. And as I said, I think we have done now the right steps in U.S. as well by cleaning up distribution to a certain extent, bringing new innovative products to the market with the support from our communication bid, by advertising bid by our partners, which I've said before, J.J. Watt, Kendrick Lamar, CrossFit, UFC et cetera. Definitely optimistic and as I said we will see growth in the second half already.
Okay, thanks very much and a great set of numbers to say goodbye. Thanks and all the best for you. And Kasper, we're looking forward to the conclusion regarding how you see 2020. Thanks very much guys, bye.
Thank you. We will now take our next question from Chiara Battistini from JPMorgan. Please go ahead.
Hello, hi. Thank you for taking my questions. I have just a couple, please, First of all on North America, very well done on the margins expansion. I was just wondering, I see that OpEx were up just 5% in quarter two, which is quite [indiscernible] versus the run rate where we were coming from, and given that this is an execution market, an investment market, I was wondering whether it's just the timing impact or there are more savings coming through?
And the second question will be on TaylorMade, and that was great to see back to growth in quarter two, but the guidance is still for down for the full year, which implies it will be down in H2. So I was wondering why this slowdown coming in the next few quarters, please? Thank you.
Chiara, you're going to see continued -- as Herbert just explained, continued investment in America, and I don't think there's anything to be concerned about seeing the increase in OpEx there. This is a market we are investing and we invested heavily last year also.
In terms of TaylorMade, I think you just have to be aware of the cycle and the business. I mean the bigger part of businesses in the first half of the year would be with the seasonality of the business. So, we stick to our guidance with TaylorMade and as Herbert has already commented, we are very happy with the performance of TaylorMade this year.
And just a clarification. My question on the OpEx, it was a slowdown of the OpEx growth in quarter two, so should we expect this now to be the new run rate or are we going to see a pickup of OpEx growth in Q3, Q4 for North America?
My point there is that we'll continue to invest. I mean, don't expect any sort of continued slowdown. We are expecting to get leverage of this obviously, but it's still a small base. And last year we invested a lot heavier than this year, but this is too small of a difference to extrapolate that out. And just bear in mind, as we've said many times, America is an important strategic market, we're investing in it and we will continue to invest in it.
Great, thank you.
Thank you. Our next question comes from Zuzanna Pusz from Berenberg Asset Management. Please go ahead.
Good afternoon, everyone. Zuzanna Pusz from Berenberg. I just have two questions, first on retail. So you have achieved very strong 14% like-for-like growth at the Group level. But I was just wondering whether you could disclose like-for-likes by brand? I think it's something you used to give out in the past, unless I missed it during the presentation. And also maybe a bit more color by region. I think you've also mentioned plus 15% in Europe. But I would appreciate if you could give more color on other regions, especially North America please.
And then secondly on the Originals business, can you tell us what where the volumes of Stan Smith and Superstar held in H1? And also you're re-launching the Gazelle now. So I was just wondering whether you could tell us what is your expectation for this franchise? How big do you think it could be? Thank you very much.
Okay Zuzanna, I will take the first question, and Herbert you might like to talk about the growth of the franchises. In terms of our comp stores, we have the adidas brand retail comped at 13%., the Reebok brand at 6%, and then we had a comp store development in Western Europe of 15%, North America 9%, Latin America 8%, Greater China 17%, Japan 11%, Russia/CIS 11%, and MEAA 17%, all-in total 12%.
Perfect, thank you.
And Zuzanna on your second question, obviously you will understand that we don't give numbers out for individual articles for quarters, Stan Smith and Superstar, but let me answer to Gazelle. With Gazelle, we will do the same what we did with the other franchises. We'll build it up slowly but surely, giving it firstly into the right distribution channels, selective distribution that the real key influences are getting it, but finally we want to build it up as a franchise as the others. This would mean double-digit million volume at its peak.
And this is our clear strategy to have five to ten franchises within the Originals business, in not only Superstar and Stan Smith, but I have mentioned all the others before and so no need to repeat. And Gazelle has a potential definitely to be the next one.
Okay, perfect. Thank you very much.
You are welcome.
Thank you. We will now take our next question from Jamie Bajwa from Goldman Sachs. Please go ahead.
Good afternoon, everyone. Just a few quick questions from me. First of all, just in terms of the pricing environment at the moment. Given the momentum of the business, are you seeing any change in terms of your ability to pass through pricing to retailers and consumer in any particular region?
And the second on is just on your e-commerce business. I noticed that you had a pretty significant acceleration in 2Q. I don't know if you could give us a bit more detail in terms of what's driving that, in terms of is that sports performance product, is that sport-style product and has there been any change to kind of the seasonality of your discounting?
And then we touched upon CapEx earlier for this year. I don't know if you could give us a little bit more detail in terms of how you're thinking about CapEx over the next three to four years. Thank you.
Okay, so I'll take CapEx and maybe Herbert you talk about the pricing environment and e-Com.
Just the CapEx one, Jamie, I mean we are not a really big CapEx spenders industry obviously, but our CapEx has increased over the last few years, as you heard from one of the earlier question, around €700 million, €750 million is our expectation for this year.
Over a third of this is obviously in terms of our managed space, and we have about 2,700 shops at the moment and they clearly over time they need to also be refurbished, and that is something that as our footprint grows that obviously will become a bigger figure in the future. But actually, we are very confident that because this year we've also got various CapEx that is not related to managed space that we would be able to keep our CapEx as a percent of sales in the corridor between 3.5% and 4.5% over the next few years.
Concerning your first question on pricing, yes, you are absolutely right, we try to push prices through not to retail, but to consumers obviously. And I think if you see on a lot of different fronts with our momentum which we have, I will give you few examples. The Uncaged UltraBOOST in the U.S., $180, we never had a shoe before, at least I don't remember, where we could sell for $180 in that quantity.
So when you just look to the normal Stan Smith, we sell it now for €90, on ACE and the X football boots for €200 in Western Europe. Of course, as I said already, I think in the last call we have a sophisticated pricing system, which we have developed with an outside agency and of course we want to get out the maximum of it. This, by the way, definitely helps us to mitigate the margin headwind which we had from currencies, as Robin has said before, or labor cost et cetera.
The last question on e-Com, the simple answer is this is a brand heat, and our brand is -- we have so much positive momentum all over the world and obviously this pays off in our e-Com business as well.
The more detailed answer is that we have built out a lot of capabilities on our e-Com business in the last several years and we just have announced with our brand leadership activation, which is part of creating the new strategy that we brought both sides to same side, and the marketing side of digital together into the digital brand commerce department, that we not only bring attractive offers to the consumers on the product side, but also on the content side and excite them for the brand and therefore once again enlarge the sale of the product.
And this combination on the one hand, the professional skills which we have built up in the last several years on e-Commerce, plus the brands heat are giving us the results, which you have seen already.
Great, and thank you very much.
Julia, we have time for one more question now.
Okay, we will now take our final question from Andreas Inderst from Macquarie. Please go ahead.
Yes, thank you. A question to Herbert, a big picture, what are you most proud of in having achieved with the company over the last 16 years? Where have you made the biggest progress and in which areas have you've been most disappointed with, and the Group should have done, in hindsight, much better? That's my first question. The second one, maybe a sneak preview in terms of product launches for 2017. Can we expect a reiteration of existing strong BOOST platform product or any new major technologies planned?
And then question to Robin, a minor one, are there any one-offs related to the hockey business, given this was loss-making in the second quarter, particularly I think about the insolvencies in the U.S? Thank you.
Andreas, your first question definitely gives me something to think. I have so many positive memories in these 15 years and I think there is a lot to be proud, just look to the market capitalization. When I started it was €3 billion, now we are close to €30 billion. But one thing which I really be proud of together with my team is the turnaround in the last 18 months, because with all fairness I think in the year 2014 a lot of people from the media, maybe also from the investors side, the analyst side has made me on the wall, and is Hainer too old, has he run out of ideas et cetera.
And together with my management team, we are sitting together and I think in all fairness and please raise your opinion if you don't think that way. I think this is an incredible turnaround, which we have made in the last 18 months where hardly nobody would have believed in it I must say. I am really proud of that, and especially together with the team as we all have worked so closely together.
In terms of what's the worse, I mean then there are a lot of things which haven't gone the way I wanted and I think this is quite normal in the business life. In hindsight I would say we should have earlier reacted to Reebok and repositioned Reebok as we have done it today. This has taken too long and therefore we started too long to turn it around, and give it a clear positioning where it should be and what the consumer can expect from us. This in hindsight I would do much fast and much more radical as we have done it.
In terms of product innovation for 2017, Andreas, I think you will be surprised, as it will outgrow your expectations, what we have in the pipeline of innovative products, not only for 2017, also going forward. And we definitely, I said it already 18 months ago. We want to make BOOST the new EVA and we won't completely obsolete, make EVA obsolete and we are in the best way to do that. And I think this of course will be our main technological platform going forward on the mid and outsole side.
On the upper Primeknit, as you see, we bring the first products with Primeknit and now colored running shoes and of course we will further roll out. You can also expect some spectacular new things on the football boot side. So I must say I'm quite excited and I'm sure Kasper and the team will present it to you guys when the time is right for 2017 and beyond. But we are definitely not short of new innovations which we bring to the market.
Andreas, your minor point CCM Hockey, yes, there is bad debt and also some loss of sales obviously, which we anticipate would have a mid to high single-digit million euro effect this year.
Thank you very much Herbert, thank you very much Robin. Ladies and gentlemen, this actually completes our conference call.
Sebastian sorry, don't be too fast. Ladies and gentlemen, let me take the opportunity. As you all know, this will be my last call with you. Within the last 15 years I think we had a lot of good critical discussions and I enjoyed it a lot I must say. Even I wasn't always on the forefront when it comes to road shows and Robin and they guys did it, but I had met several guys, a few in person and I must say, I always like critical, but always constructive and supportive approach which you took.
And I want to thank you all for accompanying me and our company for the last 15 years and I would like to ask you to give the same support to Kasper and the team, because the company and the brands are definitely worthwhile and I think as I said several times, the best is just ahead. So thanks very much and all the best for you.
Thank you very much Herbert. Sorry for rushing here. This now actually completes our conference call for today. Our next reporting date for our Q3 results will be November 3. I'm sure we're going to catch up with many of you over the next couple of days, weeks and months during our road shows in Europe and also the U.S. As always, if you have any questions please don't hesitate to reach out to any member of the IR team. Thanks from our end here for participating. Have a great day and have a great summer. Bye-bye.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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