Good afternoon, ladies and gentlemen. A warm welcome also from my side to our Q3 2018 results conference call. Our presenters today are our CEO, Kasper Rorsted, and our CFO, Harm Ohlmeyer. Before I will hand over to Kasper and Harm, I would like to ask you to limit your questions during the Q&A session to two. In addition, please keep in mind that all figures that we will be talking about will be stated on a currency-neutral basis and will be discussed for our continued activities unless otherwise stated. With that, over to you, Kasper.
Thank you, Sebastian. As always, I will take you through the business highlights. Harm will take you through the financial highlights and the appropriate details. We will subsequently have the outlook for the remainder of the year. Then Harm and I will be happy to take your questions. It was a strong third quarter for adidas. We continued to make progress across all our strategic growth areas: North America, Greater China, and e-commerce, all growing double digits. We saw a significant growth in our Sport Performance with double-digit increases in training and running, and we had a better-than-expected gross margin, which really is a consequence of the focus of quality top line and not chasing revenue for the sake of chasing revenue. Eventually, we saw strong profitability improvement despite severe FX headwinds. However, there is also areas that we were not as happy.
We continue to see challenges in Western Europe, which is weighing in on the company's top line. As you can see, the 8% instead of the guided 10%. When it comes to operate leverage, we're masked by a number of investments. We continue to invest into our brands and the scalability of our business, which masks some of the leverage that we're actually generating. In the meantime, consider the headcount development as a proxy for how much more efficient we're becoming. Our headcount is down 2% since the end of last year, while we, of course, continued to grow the business in the first nine months more than 9%. Our Originals normalized after a period of extraordinary growth in the last couple of years. The Sport Inspired was supported by an exceptional Yeezy launch in the third quarter.
What we're doing, what we said more than three years ago, approximately three years ago, democratizing Yeezy. The retail comp trend was mixed. You'll not be surprised to hear that the comps, both overall and for concept stores, have softened in Western Europe this ways and our global comps. At the same time, Latin America, particularly with Argentina and emerging markets, are suffering from difficult macro conditions under which factory outlets tend to outperform concept stores as consumers are trading down. That said, we continue to record healthy comps in our focus markets, North America and China, where comps accelerated sequentially. A look upon the major developments from a P&L standpoint in the third quarter. Our revenue increased 8% currency neutral and 3% in EUR terms to EUR 5.9 billion.
The delta of five points between nominal and currency neutral is also what you expect for the remainder of the year. Gross margin is up 140 basis points to 51.8% despite severe FX headwinds. Operating margin up 130 basis points to 15.3% despite higher marketing investment. Net income from continued operations increased 19% to EUR 656 million, and basic EPS from continued operations up 21% to EUR 3.26. We saw double-digit increases in our strategic growth areas in the third quarter. adidas North America continues its strong track, 18% up, Greater China, 26% up, and e-commerce growth of 76% in the third quarter, a stellar performance of our digital business. adidas brand continued its strong growth. Double-digit increase in North America and Asia Pacific led to an overall 10% growth of the adidas brand.
Sport Performance grew 8%, driven by double-digit growth in training and running. Sport Inspired grows 11%, reflecting also an exceptional Yeezy growth in the quarter. We saw a balance growth between footwear and apparel, both growing double digits. That means both growing 10%, not surprisingly when we overall grow 10%, but a very strong balance between footwear and apparel. When it comes to Reebok, we saw a robust profitability improvement at Reebok and making further progress on our Creating the New initiatives. We saw a gross margin up 4.4 percentage points up to 45.3%, so you can see we are continuing to make progress when it comes to profitability. We saw revenue decreases of 5% due to sales decreases in all markets. U.S.A. as a standalone market was up. North America was down due to Canada.
We saw double-digit growth in classics offset by declines in training and running. In essence, what we're seeing is we're making strong progress on the profitability side. We still have to bring Reebok back to growth, one step at a time. Coming back to our digital business, we saw exceptional growth in e-com of 76%, driven by double-digit growth across all regions. We saw a set of strong hype releases and the launch of our Creators Club. Creators Club is a global membership program that will reward consumers' loyalty to the brand with access to a set of specials, including exclusive product offers and events. Consumers in the U.S. are the first who can sign up for the program in our stores through adidas.com and through the adidas app.
Additional markets will follow throughout the coming months. Like our hype releases, this will help us drive traffic and engagement rates with the consumer. Also with the adidas app, we continue to make progress. We're now live in 17 countries, we have close to 5 million downloads by the end of the third quarter. With this, I'd like to hand over to Harm, who will take you through the financial highlights also more in detail. Harm, over to you.
Thank you, Kasper, and good afternoon, ladies and gentlemen. When we go into the regions, I would like to state again, North America and Asia Pacific with double-digit sales increases. To reiterate again, adidas in North America was 18% up in the third quarter. I think in Asia Pacific, double-digit growth was also driven by China, with 26% up. When I look at Russia, despite ongoing closures of stores in 2018, it is also comping the closed stores in 2017, was a 7% growth in the third quarter. Still, to some degree, impacted by July World Cup effect. They did a fantastic job on the ground. That's what we're seeing in the numbers here. I will talk about Western Europe in more detail later, it is also according to what we mentioned after Q1 and Q2.
We are more in a flat environment in Western Europe, with minus one on that chart. When it comes to Latin America and emerging markets, it's reflecting the macroeconomic challenges that we have in these markets. I would like to go a little more detail into Latin America, and specifically Argentina, where for the first time, we applied hyperinflation accounting. On the IAS 29, the Argentinian accounts are now translated into EUR using period end rather than period average exchange rates. Given the continued devaluation of the peso, reported revenues were hence negatively impacted by a high double-digit million EUR amount. That is what you see in the nominal net sales. That's why you also see in Q3 a five percentage points gap of 8% currency neutral for the overall company, whereas a 3% nominal for the overall company.
That is slightly impacted by the Argentinian hyperinflation. There was a slight positive element, to be neglected on the currency neutral number as well. Rest assured, going forward, the impact of hyperinflation accounting in Argentina should be small on a quarterly basis, given that from here on, it's just the respective quarter that is subject to the accounting rather than the entire period from January 1, because we had now nine months reflected in one quarter, and going forward it will be a minor impact. Against the background of the overall volatility in global FX markets, the impact of hyperinflation accounting on our profitability is negligible. When it comes to North America, again, very strong, 16% currency neutral growth. The adidas brand revenues up is 18%, driven by double-digit growth in training, running, football, and Sport Inspired. Reebok brand revenues flat.
We actually grew with a high single digit in the U.S., which was then offset by a decline in Canada. Again, especially the high single-digit increase in the U.S., is despite the closure of the retail stores in 2017 that we are still comping. As we said after Q2, we are largely done with the retail closures, and it's about growing in that marketplace now again. You also see the quality growth that we have contributing by both brands, that the gross margin is up by 220 basis points to now 42%. Several positive drivers, including favorable channel and category mix. Also, what we talked about almost every quarter, we had the hangover of inventories from last year, warehouse challenges that we cleared in the first half.
We said after second quarter as well, you should see a positive development of the gross margin in the North American market, specifically on the adidas side. With that, the operating margin increases 6.8 percentage points to now 18.1% on the back of the gross margin expansion as well as operating leverage. When it comes to Asia Pacific, we are up 15%. Again, this is driven by Greater China with 26% up. The adidas brand sales increased 16%, double-digit growth in training, running, heartbeat sports, and Sport Inspired. Just for clarity, Heartbeat Sports also includes outdoor. The Reebok brand revenues decrease 1%, a decline in training, largely compensated by growth in classics and running. Also in Asia, the gross margin is up 180 basis points to now 57.2%. There again, better pricing, channel and category mix compensating FX headwinds in Asia.
With that, the operating margin also up 90 basis points to now 35.5%. Again, investments partially offset gross margin expansion and investments here also primarily into the brand. When it comes to Western Europe, again, the top-line development in line with expectations that we alluded to after Q1 and then after Q2, again. With that, currency neutral sales decreased by 1%. The adidas brand revenues decreases by 1% as well as the overall market. There were moderate gains in Sport Performance, offset by moderate decline in Sport Inspired. The Reebok brand sales decreases 5%, reflecting, on the one hand, tough prior year comps and also more selective distribution. I come back to that when it's about future marketplace, when we come to the margin bridge. Overall, a positive development of the gross margin with 340 basis points to now 48.8%, despite negative FX impacts.
It shows again, the focus on the quality of growth is really paying off in the gross margin. With that, the operating margin in Western Europe was up 110 basis points to now 24.4% in the third quarter. Gross margin improvements partly offset again with significant brand investments in Europe. Let me allude also on the balance between growth and margin. While it is great to record another profitability improvement in Europe of that magnitude, we are not quite happy with the balance between the recent top line and margin trends in Europe. Might have been a little too ambitious in terms of pricing in some areas, which is, of course, to the detriment of growth in a highly mature and competitive market like Europe.
Rest assured, we will reinvest into pricing and product, which means that going forward should not expect the gross margin to expand further. Should not expect expanding at the rate that we have seen in Q3. We are more cautious on this one, and we keep investing into the growth engine in offset market. I also want to go a little deeper into Western Europe about the challenges and the countermeasures that we on the front end have identified and that we now put in place. On the one hand, we clearly had an overreliance on Originals. Originals was leading the way during the extraordinarily successful three years between 2015 and 2017, when we actually grew our business in Europe by 15% on an annual average.
As a result, the dependency on Sport Inspired has increased while we haven't leveraged the Sport Performance enough. For upcoming seasons, we have implemented a much more holistic segmentation approach for Europe to give us a healthier growth in that marketplace. Stan Smith and Superstar have been managed very diligently and continue to be healthy franchises, not just in Europe but also globally. In Europe, the planned management of the Stan and Superstar declines have not been fully compensated by new franchises to the extent that we had expected due to some mixed launches, especially in the beginning of the year. In the first half, we had a Prophere and to some degree also Deerupt that didn't grow to our expectation. On the other end, in the second half, we also see good successes with products like Continental 80 and also Falcon or Yung-1.
It's very balanced, but they are not at the level that we would have expected, and we are still incubating these products towards the future. We also clearly admit that it was a slow reaction in the run-up to some recent launches and campaigns. We haven't been as close to the consumer as we used to be and need to be. Therefore, the new team in Europe is simplifying structures. It's making sure that on-the-ground execution towards consumers and key accounts is being stepped up again. That is one of the initiatives they put in place. As you all know, we have a new management team on the ground that is relentlessly executing what I'm verbally updating you on today. Finally, of course, there's aggressive competition.
That shouldn't be a surprise, as mentioned earlier, we might have been a little too ambitious in terms of our pricing in some areas, which we are addressing now. I also want to be clear, besides reinvesting into price and product, we have come up with a tailored investment plan for key accounts so as to win back any shelf space that we might have lost in the past months. Please also be very clear, we will do some selective pricing adjustments. We will not do an overall adjustment of pricing in Europe. It will be selective by some products. We have thousands of products in the marketplace that we keep launching every quarter and every season. It will be selectively to again go back to what our Creating the New strategy is to gain market share. The good thing is we are reflecting on it.
This is homemade and not market-made, we're not using the weather as an excuse. These are internal things that we're acting on right now, this is what we are preparing for 2019. Moving on beyond Western Europe, I want to give you some full picture on the P&L. Again, as a CFO, as I said, many quarters, I'm pretty happy with the development. We have a healthy top-line growth with 8% currency neutral and 3% nominal. We have a tremendous success on the gross margin, now with 140 basis points up to 51.8%.
Despite the significant investment in the marketing working budget with +7% and the leverage in operating overheads, we expanded our operating profit by 13% to now EUR 901 million and an operating margin of 15.3%, 130 basis points up, resulting to a net income from continuing operations of EUR 656 million, and then basic earnings per share from continuing operations of EUR 3.26. Just give you some more clarity on the gross margin expansion. Again, it's up 140 basis points, and we calculated also, want to be transparent, the headwind was around 130 basis points, and it was compensated through the underlying improvements by 270 basis points to then result in 140 basis points up. Where is it coming from? I talked a lot about the future marketplace that we put in place already end of 2016.
Again, we looked at every channel, whether it's retail concept stores, factory outlets, it's e-commerce, how we run e-commerce, how we run our wholesale channel, with whom do we have a good relationship, with whom do we make money. We look at it end to end, and we made some decisions to have quality growth. That's what you see in the underlying improvements. As I mentioned earlier, maybe we went a little bit too far in that market, and that's what we are course correcting. That's not something that we can do in one quarter. We are very happy where we are going with the margin development. Overall, it's also a much cleaner inventory situation that we had. We had some challenges in emerging markets in Latin America last year. I talked about the challenge in North America. We have a much cleaner inventory today.
That's something with fewer provisions you're seeing in the gross margin being reflected. Credit to our operations team, who did a really good job on the sourcing side as well to mitigate some of the labor increases in our sourcing markets and had a significant FOB mitigation in place as well that helped us to overcompensate the FX headwinds that we had in the third quarter, but also clearly year to date. All of this was also possible with strict working capital management, as I mentioned on the cleaner inventory, and this, as I mentioned after Q2, maybe 2018 will be the year we have one quarter where we will be below 20% operating working capital as a percent of net sales.
Q3 2018 actually is a quarter where for the first time, we see 19.7% being disciplined on the inventories, having receivables largely aligned with our net sales growth, and definitely putting some measures in place for payables as well. The biggest one I want to call out, so our non-trade procurement as part of ONE adidas initiative, we have extended our payment terms also to non-trade procurement suppliers and vendors that is being reflected here. The strong P&L and the diligent management on working capital led to a pretty solid net cash position of EUR 535 million at the end of Q3 2018. Again, our equity position increased by EUR 456 million, and the overall equity ratio is around 41.6%, and it's pretty stable as well.
That put us into the position to execute our share buyback plan that we announced in March 22nd, 2018, and it's ending in May 11th, 2021. We always said we want to be up to EUR 3 billion share buyback, up to EUR 1 billion in 2018. We actually have purchased 3.8 million shares until the end of the third quarter, which amounts to EUR 733 million. We actually have actively canceled also 8.8 million shares already in the third quarter, so it will reduce our overall share base. With that, I would like to hand over to Kasper again before we come back for Q&A.
Harm, thank you very much. Before I go into the outlook, let me just reiterate the way we're managing our business in 2018, which has been very consistent throughout the entire year. I think it's really under the headlines of balancing market share growth and market improvement, that we need to do both at the same time and getting the balance right, which I believe we have done throughout the nine months of 2018. We're seeing a high-quality revenue growth, which means with a, in the first nine months, a growth of more than 9%, we are growing the market and gaining market share. We've had a product pipeline to support the planned top-line expansion across the board, which you're seeing in the numbers. We are overly proportionally investing in brands and products, and we'll continue to do so.
We want to make certain that we remain in the business for the long term and build strong equity into our brand and make sure that we invest to ensure the right set of products also in the future. We continue to implement our scalable business model. Harm gave you an example of where you find it when we looked upon non-trade procurement. These are investments, many of those that we're doing that are dilutive to our earnings for this year and the next two years coming, but we know it's fundamental for our future success. We allow that through the strong gross margin expansion to ensure that we do the right thing for the company in the long term.
We are seeing a margin expansion and overproportional net income growth as a consequence of what we're doing, that with a nominal growth of approximately 3%-3.5% for the first nine months, we're growing the bottom line by 19%. We are seeing the scaling coming in, and at the same time, overly investing in our brands for the long term. As we explained to you in March, our powerful engine to drive brand desirability as well as growth is based on six pillars, and we continue to play many great stories across those pillars. Let me just highlight a few. Our Ultra Boost franchise that we're striving to growing towards a EUR 1 billion franchise continues to be strong.
We are reactivating the Ultra Boost collective and are having a series of special editions in collaborative Ultra Boost releases throughout the year and also in the third quarter. The Ultra Boost franchise continues to grow in the strong double-digit even before the launch of the next generation Ultra Boost in early 2019. So we're four years into this franchise, and we continue to see very strong growth also in 2018. From an archive standpoint, the first ever release of the Country AT, a classic trainer from our archives of the late 1980s, continues to be a great success. Sell-out metrics are great, and we are having significant commercial transaction with this one.
The Yung-1 and Falcon are bulky silhouettes from the '90s, are also strong performers in the terms of sell-through as we keep releasing new colorways and play the bulky trend in commercially meaningful ways like no other brand can do due to the heritage we have. Futurecraft 4D, which is our carbon 4D printed shoes, are game changers, and we now start to bring this innovation to many more consumers as we're increasing volumes at retail by a factor of 10. We have lined outside stores for the recent 4D releases like the Alphaedge. The 4D will scale and the future be featured in our pinnacle product across several categories in the future.
An exciting example of how we're driving the business is the flawless execution of our biggest digital release in the history of the company, the Yeezy Boost 350 V2 Triple White that we have planned for the third quarter. It's a large-scale activation executing perfectly in sync across all functions across the globe. It was a digital-only launch across the globe, except in China, where we also worked with our two key partners, Belle International and YY. We took over social media, we saw the media mentions and search interest surpassing any past Yeezy launch. It was driving high levels of e-commerce traffic, launching, generating millions of adidas.com site visits. It was a major commercial success. The sell-through rates and the margin metrics was above any expectation we had, and it's really sticking to the brand.
Let me just spend a second here is, as we're moving new Yeezy products into the market, we will do what we've done also in the past, create scarcity around the new products we're launching, make certain we have the hype, and over a given period of time, of course, drive volume into that market when that product has been into the market for several years. The Yeezy 350 has been in the market now for three years, and that's why what we is calling democratizing the Yeezy with the 350 in the context of also bringing new cool products into the marketplace.
We're also moving fast in order to win the physical retail, because while digital is immensely important, we still need to make certain that we have the coolest stores in the world. That means in the context of our physical stores, our new brand center on the East Nanjing Road is an example of that. We remain committed to creating a lasting experience for our consumers, and physical store places to play a major role in that. While we closed 327 stores in year to date, we also opened 137 stores in the areas where opportunities have emerged. It means that this year we closed 190 stores despite the revenue number or the revenue growth that we've had. We continue to reduce the amount of stores we have and continue to increase the quality of the stores that we have.
Our new Shanghai brand center on the East Nanjing Road is the latest addition to our retail network. Not only we built one of the most impressive retail locations, we did it in just six months from concept to opening, which we've done in no other place in the world. That's where China knows what speed means when you act with agility. In the first days of trading, we had more than 10,000 visitors per day. We already had a number of lineups for limited releases and offer 8 different classes of workouts for consumers, which are fully booked for the weeks ahead. You can see, we do bring the brand to life also in our physical retail through focused investments.
Right now, the new store in Shanghai is the new measurement of success, overtaking the one store that we opened in New York approximately two years ago. Of course, the next new store that we'll open, we will continue to focus on making that experience even better. This brings us to the outlook of 2018, which we increased with a stronger bottom-line improvement than expected. The net sale will be coming in at the lower end between an 8%-9% increase instead of the 10%, and the delta between the 10% growth and the now 8%-9% full-year growth is the communicated flattish development in Western Europe. Bear in mind that Western Europe was up approximately 17% in Q4 2017, the drag from this market being flattish will be felt in Q4 2018 in particular.
As a result, expect growth for the company in Q4 to be slower than in Q3 this year. Our gross margin, we initially guided an increase of up to 30 basis points to 50.7%. Now we've taken an increase in the guidance up to 100 basis points to 51.4%. The operating profit was supposed to grow initially between 9% and 13%. Now we're guiding between 12% and 16%. The operating margin, we expect an increase to between 10.3% and 10.5%. Now we expect an increase to around 10.8%. The net income, we expect an increase between 13% and 17%. Now we're expecting between 16% and 20%. In nominal terms, between EUR 16.15 and EUR 16.75. Now we expect between EUR 16.60 to EUR 17.20. From an EPS standpoint, an increase between original 12% to 16%, and now 15% to 19%.
All of this in the context of a much higher margin working budget spend also. When you look upon the overall numbers and taking the translation impact into consideration, as it looks right now, currency translation will eat away more than five percentage points of our growth for the full year as headwinds are persisting. Nevertheless, the bottom-line improvement for the full year is going to be stronger than initially expected, which speaks to our ability to mitigate our external pressures. What you saw in the third quarter with a delta of approximately three, no, five full points between currency neutral and nominal is what you expect also for the full year, and we will continue to deliver on the bottom line as communicated. In summary, 2018 ahead of plan, full year outlook increased, progress against our strategic growth areas.
We're acting upon the situation in Western Europe as communicated. We continue to drive higher margin investment to support brand and product. We see strong profitability improvement despite investment into the brand and into the business, and we focus on executing the second half of Creating the New to ensure that we reach our already communicated long-term targets for 2020. With this, I'd like to thank you for listening so far, and Harm and I will now be happy to take any questions you might have. Thank you.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We can take our first question from Antoine Belge from HSBC. Please go ahead.
Yes. Hi, it's Antoine Belge at HSBC. Two questions. First of all, you mentioned that your Q4, in terms of top line, should be a bit weaker than Q3, and you highlighted Western Europe. What about China? I think quarter after quarter, you indicate that at some stage, just because of the rule of big numbers, China should moderate. It didn't in Q3. Having said that, there seems to be some promotional activity going on in China, maybe a bit of another sticking situation for some of your product. How do you see China in Q4? Is it also a reason why top line growth overall should be a bit weaker? Second question, you mentioned that you had fantastic gross margin gain this year, ahead of your own expectations, and that you're taking this opportunity to invest in marketing on also the scalability of the business.
Could you give a bit of example of what exactly scalability of the business means? I think you mentioned the supply chain, for instance, and also, in terms of the higher marketing ratios, any particular region or product category. Thank you.
Antoine, thank you very much for your question. Of course, take, first of all, the fourth quarter into account, which was a 17% growth year-over-year. Coming back to China, you could see that despite certain promotional activities, you can see a strong evolution in the margin in Asia. It is not impacting the overall margin situation. We are expecting a slight slowdown also in China, which we've indicated on previous occasions. Not a dramatic one, but we expect a slowdown also in China in the fourth quarter. We are very committed to exiting the year in an appropriate, diligent way and not pushing revenue for the sake of revenue. Overall, I think that the China business, you need to see in the third quarter, in the context also of the margin evolution, and which is a fairly clean business.
Expect a slow Q4 also, which of course leads to the guidance we're giving you for Q4. On the gross margin and the margin spend, I'll hand over to Harm.
Yeah, just on the gross margin, real quick. Indeed, it was better than we even internally expected to some degree. We definitely guided that we will flatten the gross margin. It was much better. There's some elements of it. There's a market mix, where Europe is not growing as quickly as we expected. It's definitely having some impact. Also what Kasper mentioned, when we democratized the Yeezy brand, and there were some ideas how we do that, but it was fully executed digital, and that definitely had a significant positive benefit on the margin as well. Again, we continue to be disciplined on the inventory. It's one of the situations where everything went perfectly well on the gross margin in Q3, and that we'll be seeing in the numbers. When it comes to the scalable business model, you indicate already the supply chain.
We keep investing it also, especially in the U.S., to get faster to the consumer in the digital side on the e-commerce. We keep investing into warehouse infrastructure, and we have the financial strengths to do so and accelerating these things. It's also investing into Global Business Services that we are centralizing in two locations for almost all the markets in the world, where we are transitioning existing organization out of the market and headquarter function into these locations. They are one-time cost that we are accelerating as well and moving the right positions, as we feel appropriate into these markets. I also mentioned about non-trade procurement, where we build a professional centralized organization that is going after the addressable spend in non-trade procurement. It needs to be built, and we have benefits, but we're also reinvesting these benefits right now into the brand.
That's where you see the marketing investment. The last one is also, we mentioned many times, we used to run this company like 20 small companies. We want to run it as one company, we're accelerating our ERP rollout. With the ERP rollout, we are also standardizing some of the business process. Primarily in Asia, we are building One Asia, as you know, we put all the hands on deck for Asia to accelerate as much of these things into 2018 to then get more scale in the years to come.
Thank you. Maybe more specifically on marketing, any region or maybe product line that you're supporting, maybe Western Europe or?
No, it's really across the board. There's no specific region. We stay committed to what our Creating the New strategy is as an over proportional investment into North America, of course, as a priority market. It's also in China, we are committed to Europe. It's really across the board, in every market where we're investing and in every category. You can call out football, you can call out running. It's definitely going into the Sport Inspired areas, it's even over proportional going into Reebok. We shouldn't forget about this.
Thank you.
Thank you. We can now take our next question from Fred Speirs from UBS. Please go ahead.
Hi, good afternoon. Two questions from me, please. The first would be on e-commerce. Very strong acceleration, clearly a big impact from the Yeezy drop. Had you seen an acceleration in e-commerce before that drop took place? Also, how should we be thinking about the cadence of e-commerce growth ahead? The second question would be on the other businesses operating unit. The gross margin there was up 22 percentage points. Just interested, what were the reasons behind that? Thank you.
Sorry, Fred, this is Kasper. I'll do the e-commerce one. The e-commerce overall is high, depending on which hype drops you make in which month, irrespective of Yeezy and non-Yeezy, and that will continue to be so. That, of course, is how we're also looking upon when we do new launches. If you were to go back in the second quarter, it was impacted by the positive impact by the fact that we launched exclusively, both in the first and the second quarter, some of the jerseys to the World Cup. In the first six months, we had a growth rate of roughly 30% on e-com. It's clear that Yeezy had a positive impact on our e-com growth of the 76% in the third quarter. We also did a number of other launches, like the Yung-1 and the Falcon.
It was just not only down to Yeezy. We don't guide on how you think about the growth rate for e-com on a quarterly basis. What we have guided you towards is that we expect the business in the 2 and the EUR 4 billion by 2020, and that's how we look upon the business. Some quarters will be more, some quarters will be less. It depends on how many hype launches do we make, and also in certain hype launch, how much volume do we have behind it. We're doing it in the long term and saying the 2020 is the target of the roughly EUR 4 billion.
On the other business, Fred, we have several businesses being aggregated in the other business. There's, of course, Runtastic in there. There's adidas Golf in there after the divesture of TaylorMade. There's also the Y-3 business in there, including distribution. We have a centralized fashion business. Everything that is not run in the markets are being in other businesses, and what you have there is all the fashion accounts around the world that is being sub-aggregated there. Of course, it has been to some degree being impacted by some of the Yeezy launches as well, but also by other hype products that are going into these fashion accounts. That's where I would say the lion's share of that growth is coming from.
It's coming out of the fashion accounts around the world, maybe of hype drops, and one of these drops have also been the Yeezy products.
Great. Thank you.
Thank you. We can now take our next question from Erinn Murphy from Piper Jaffray. Please go ahead.
Great. Thanks. Good morning or good afternoon to you guys. Two questions for me. First question is on North America. Still very solid teens growth there. Can you just speak to what you're seeing between the family channel mid-tier versus the sporting goods channel and obviously your own DTC? My second question is related to the new Boost launch in 2019. Just as you think about the launch, will you be making any price adjustments or major price adjustments, just given your commentary on maybe being priced a little bit too aggressively in select markets like Europe? Thank you.
Thank you for your question. What we've seen is we've seen a balanced growth in the U.S. between the family channel and the rest of the market. Of course, Kohl's has been very positive to us because we are still in rollout mode. I was up and visiting Michelle, the CEO from Kohl's, only three weeks ago, and we still see rollout opportunity. At the same time, we see other channels. Dick's Sporting Goods has been exceptionally strong. E-commerce has been exceptionally strong. I wouldn't rule it in and say there's one category that has been much stronger than the other ones because Dick's is in rollout, Kohl's is in rollout, and e-commerce, as we said, also the North American business had a very high contribution to overall e-commerce growth.
When it comes to our new UB19, the UltraBOOST 19, actually, it's not been the Boost that's been overpriced. I think that would be the wrong. We need to continue to have a pinnacle product. The UltraBOOST is the pinnacle running product that we have, has been, will continue to be. That's actually not where the price sensitivity been. I think it's important to have a high-end product that really drives the brand value and the innovation that we bring into the marketplace at a high-end price, which also is an inspire product for many of our other products. We don't expect any great changes to how we price overall the UltraBOOST 19.
We, of course, thinking through how we'll price for a temporary period of time when we have a newer product in the market and a quote-unquote, "older" product in the market. You should expect a differentiated pricing of those two products.
Thank you.
Thank you. We can now take our next question from Jürgen Kolb from Kepler Cheuvreux. Please go ahead.
Thank you very much. On this strategy to become maybe a little bit more democratic on the pricing, when will that start? Is there any ranking in terms of regions when you want to start first? Within Europe, any core region that you will start, and when will we actually see the impact here on also the growth rates?
Jürgen, this is Kasper. Maybe we were not clear enough. Let me try to articulate it, what apparently we did not do well enough. Being more democratic was meant in the context of Yeezy, because when we put Yeezy into the market three years ago, the plan was that after a longer period of time, take a scarce product and make it more in volume. That is what we did with one drop in the third quarter of the 350. We will also in the future look upon doing that with the 350. For Yeezy, we will continue to introduce new Yeezy products, but they will be in high scarcity. That is for the Yeezy. We believe in the overall European marketplace, I think that which Harm explained very well, that in certain areas, not across the board, we might have overpriced certain products.
We are now looking upon very selectively and saying we probably should look upon the pricing in certain pricing categories. This is particularly as it pertains to Western Europe, not the rest of the world. In Western Europe, you saw also a margin increase of approximately 350 basis points or more. That is how we look upon it. We just want to be clear on the Yeezy position and the overall pricing policy in Western Europe. To make sure that we get the right balance between margin expansion and market share expansion, which is really how we manage the business, getting that balance right. We got that balance right as a company. In Western Europe we probably did not in the last set of quarters, and that is what we are really looking upon now. I hope that answered your question.
Absolutely. If I may follow up here. When do you expect to see the first impact from that selective repricing?
Of course, we will give you guidance on the new year, but it is clear that having a Western Europe, which is our home turf, that does not grow, is a non-acceptable position. You should expect that we are working diligently on that. We have also said, both Harm and I, and Sebastian, that we want to build a sustainable plan for Western Europe and not do something for the sake of doing something. Of course, we expect a return to growth for Western Europe sometime during 2019. We will give more color on that when we meet in March.
Also, Jürgen, to add to this what Kasper said, based on our business model, we have sold in the products for Fall/Winter 2018. There are limited opportunities to adjust the pricing. You might see the one or the other, but it's not meaningful for an overall P&L, neither in Europe nor globally, but you will see it with Spring/Summer 2019 going into 2019. We will probably see it on the one or the other product, and that's what we're executing.
Fantastic. Thank you very much.
Thanks, Jürgen.
Thank you. We can now take our next question from John Guy from MainFirst. Please go ahead.
Yes. Good afternoon, Kasper, Harm, and Sebastian. Thanks for taking my two questions. First question, please, Kasper, just on Reebok. I appreciate that the sales declined, but there was a pretty sharp negative impact around store closures. I think there are, year on year, about 68 closures made. We clearly saw a significant improvement within the gross margin. How far away are you from breaking even within the Reebok brand? One question for Harm, just on the gross margin. We're thinking about that revised guidance up to 100 basis points in fiscal 2018. If you were to take 150, push it out just a little bit more, that only applies 70 basis points in the fourth quarter.
I'm trying to understand with a relatively similar comp base, effectively, what the delta is in terms of FOB sourcing, labor costs, FX, or price mix that we should expect to see in the fourth quarter to make that gross margin effectively come down a little bit. Thanks very much.
John, thank you for your question. Of course, to break even, we're doing two things with Reebok as we've been saying. One is fixing the profitability of Reebok, and the other one, getting the brand attractiveness up to a level which is acceptable, and acceptable means we start growing the business again. The current plan is to break even no later than 2020. Should we break even earlier, we would inform you immediately about it, but we want to do it in the right way. We expect to break even no later than 2020.
Just on the gross margin, of course, it's a complicated figure. There's definitely first and foremost, John, there's a higher comp from Q4 2017, where we had the highest margins in the full year last year. It's higher comps. We're not going to repeat the same level of impact we had in Q3 with the digital Yeezy launch. We have been very disciplined on the inventory as we are getting prepared for 2019. Most of the comparison to last year from an inventory provision point of view has been dealt with as well. This is what I would say explain 70, 80% of what we expect in the fourth quarter. The rest is give and take here and there, country mix and where we are growing and what we want to sell in and sell through on the fourth quarter.
That's great. Thank you very much.
Thanks.
Thank you. We will now take our next question from Jaina Mistry from Deutsche Bank. Please go ahead.
Hi. It's Jaina Mistry from Deutsche Bank. I've got two questions. Firstly, could you quantify the effect of hyperinflation accounting on the constant currency growth in Q3? My second question is around medium-term sales targets. You target EUR 25 billion-EUR 27 billion by 2020, which implies a pickup in constant currency growth rates from this year's guidance. Can you give us some more color about how you plan to accelerate sales growth over the next two years? Thank you.
I'll take the last one. You take the first one. I take the last one.
On the first question on the hyperinflation, Jaina. The impact, what I mentioned earlier, there's an impact on the nominal growth in Argentina, and the impact, as I mentioned, is a high double-digit impact on the nominal growth number in Latin America for the overall company. That's really what it is based on the spot price or spot exchange rate that we had end of September applied for the first nine months. Again, high double-digit number on the nominal sales. On the overall profitability for the company, it's a minor effect that we don't need to quantify or disclose meaningful on the net income or operating margin number. It's more on the net sales.
Regarding the growth assumptions, the growth assumptions are very clearly articulated in our overall target setting, and that is the currency-neutral growth during the period of 10-12 percentage points. That should get us into that range that we're speaking about. The actual growth for 2019, we'll give when we have the guidance for 2019, which is along with the annual results in the month of March next year. It's consistent with the overall guidance we've done consistently in the long-term guidance of currency growth for the period of 10-12% points. As I said, actual guidance for 2019 will happen in 2019.
Thank you. Just to follow up, in the release it says hyperinflation accounting had a slightly positive impact on currency-neutral revenue growth. Are you able to quantify it, the Q3?
We're not going to disclose that number in detail, it's minor.
Okay. Thank you.
Thank you. We can now take our next question from Andreas Inderst from Macquarie. Please go ahead.
Yeah. Andreas Inderst, Macquarie. Good quarter. Two questions. First of all, on the feedback, what you hear and see for the spring/summer 2019 on your products, maybe particularly for your Originals. Maybe you give us a general sneak preview without going too much into guidance for next year. The second question on digital, extremely strong growth. I understand this was partly driven by Yeezy, by Yung-1 and so on. What can you actually do better to get to your EUR 4 billion sales target by 2020 or even beyond the EUR 4 billion? Kasper, you can elaborate what can be done better in the digital environment at adidas. Thank you.
Andreas, thank you for your question. Of course, a sneak preview of our product pipeline would be a sneak preview to our guidance. I would leave it at that and be happy to give you the details when we meet in March, but I think it would be inappropriate to speak about it today. Of course, our product pipeline, the one we have assumes, of course, from our standpoint, that it's capable of supporting the long-term guidance. If that was not the case, of course, we would say something different. I assume that we have it with the product pipeline. When it comes to digital, we still believe there are many things we can do. We have been and will continue to invest very heavily into the overall setup of our digital business model. We have the Creators Club that we just launched in the U.S.
We'll roll that out. We have the app that we have launched this year, now in 17 countries with almost 5 million downloads. We are heavily investing in people and looking upon how we can make use of the data much more diligently. We are applying dynamic pricing. We are investing into physical infrastructure to ensure that we speed up the delivery. We are doing hype launches online. It's a combination of products, hype launches, surrounding, I would say, digital tools like the app, like the Creators Club, and just continue to invest in making the site consistently better. Two years ago, we would do updates maybe monthly or quarterly. Now we do software updates to the site on a weekly, on a daily basis to continue to look upon increasing site speed, making checkout easier.
It's an ongoing process, and that's why if you look upon the operating overhead, you are seeing a reflection of what we're doing in digital. We believe and we're convinced that digital is the most important store for us globally, and that's why we consistently invest into it. Whether we do a 3.7 or 4.3, makes no big difference in this. It makes a huge difference that we drive our business and our consumer engagement through the digital channels. And that's where, I would say, a proof point of that was the Yeezy launch, where we worked a month before we launched the product on driving engagement with our consumers, understanding what the gross demand was, which allowed us to do a fairly, I would say, detailed forecast on the net demand based on the gross demand.
We'll continue to do so and feel comfortable with the journey we're on. Some quarters will be great, some will be slower because of what we said, but overall, we're convinced that the digital journey is the right one for the company.
Very good. Thank you.
Thank you. We will now take our next question from Omar Saad from Evercore. Please go ahead.
Thanks for taking my questions. Just two questions. Number one, on the marketing side, wanted to see if there was any change in strategy. Noticed a couple big team contract signings recently, Real, Arsenal, how you're thinking about those kind of high-profile endorsement deals. I also wanted to ask, I noticed in the presentation, seems like you've switched the nomenclature from Originals to Sport Inspired. Is that just to accommodate the Yeezy franchise, or is there a different way you're thinking about the two pieces of the adidas brand? Thank you.
On the sports marketing, there is no change. We've signed Arsenal, we've not signed Real. Real is signed right now because they're under contract. There's speculation in the marketplace that we can't comment on regarding Real. We've been very happy with the Real relationship. Arsenal, we have signed. We'll continue to sign sports franchises because that's how we influence the consumers. There is no change in our strategy. It's very consistent to pursue the greatest sports assets in the world, where football is one of them. I just want to clarify that there has been no extension to Real to our current contract. Should an extension come, we will of course immediately notify you.
On the sports and Sport Inspired, Omar, there's no change. We changed at the beginning of the year how we report it as Sport Performance and that's Sport Inspired. Originals is part of it, and Yeezy is part of it. There will be other basic products both in Sport Inspired and also in Sport Performance. That will cover it. We talked about core in the past, but there's core lifestyle products and there are core Sport Performance products that are part of the respective categories there. There's no change from the beginning of the year, and any comparison will carry the same product as have been as well.
Okay, thanks. Sorry, to clarify, Yeezy goes in other, or is it in the other category line item?
No, Yeezy is part of Sport Inspired.
Got it. Thank you.
Thanks, Omar.
Thank you. We will now take our next question from Piral Dadhania from RBC Capital Markets.
Yeah. Hi, Piral here from RBC. Thanks for taking my two questions as well. Firstly, just on product categories, similar speed of growth for footwear and apparel in the third quarter. Given the strength in retro Sport Inspired designs in the clothing category, should we expect to see any acceleration in the coming quarters or months as we've seen with some of your competitors? Secondly, just on Reebok and your thinking around that. Obviously, the brand has been repositioned as a fitness brand in the past few years. However, most of the growth is coming from classics, where training remains negative in most markets. Could you just perhaps give us your thoughts on the contribution and composition of growth within Reebok and how you're thinking about it relative to the repositioned branding? Thank you.
Piral, just on the first question, we are pretty happy with the Q3 balance of apparel and footwear. When we look back in the first two, three years, we have been over-proportionately growing in footwear, which was also our strategy. We said we want to build the brand from the feet up, and we always got the questions, why is apparel not following? Now, given the strengths of the brand that we have today, there's also more apparel pull coming in, and that's why it's pretty balanced in Q3. Especially in Q3, I'm pretty happy with that one because the World Cup effect is now behind us. Don't expect a significant change in that going forward. I'm pretty happy with the balanced growth that we have across apparel and footwear.
Regarding the Reebok and the Reebok position, Reebok was changing position many times in the past. We believe it's important that we have a more consistent position in Reebok and not just change because of quote-unquote, "the weather." We need to make certain that we build an understanding in the consumer so they know what Reebok stands for. Today, 50% of the business is classic and 50% is really the running products. We're seeing progress on the classic side. We need to see the same progress on the sports side, so to speak, and that's why we haven't seen the growth yet. We believe it would be a mistake of trying to change the position. We need to make certain that we do the right thing, bring the right products to market.
We've done that in a higher extent on the classic side than we've done on the remaining side, and we need to make certain that happens to get the growth back into the Reebok brand that we need to get back.
Great. Thank you.
Thanks, Piral.
Thank you. We will take our next question from Chiara Battistini from JPMorgan. Please go ahead.
Good morning. Thank you for taking my question. I have a broader question on the footwear category, and I was wondering if you could comment on what you are seeing in that category broadly and notably in Europe. One of your peers mentioned there is an underlying slowdown in the sneakers market in Western Europe and a couple of apparel players recently have noted that athleisure is also slowing while new fashion trends are emerging. I was wondering if you could add some colors on your side and what you currently see in this category and possibly by region, please. Thank you.
Regarding the slowdown of the market in, as one of our competitors have said in Europe, unfortunately, we haven't seen that. That's why we were quite distinct about our slowdown. We don't think that's a market slowdown, and we don't think there is any fundamental change in the market at this stage. That we're seeing changing trends is a different matter. Right now, you're seeing the bulky trend coming in, which is why we launched the Yung-1 and the Falcon or the Aztrek from a Reebok standpoint. We have not seen any fundamental changes, also not by region, from a market growth standpoint. Also not in Europe.
Great. Thank you. If I may, I ask another question on your inventories that were very healthy again, following a very healthy Q2 as well. Can you talk a little bit more about the initiatives you are implementing, leading to such tight inventory management? Was there any early shipment in Q3 that led to very light inventory levels at the end of the quarter, please? Thank you.
Yeah, good question. It starts with what you measure will actually eventually happen, right? When I took the helm as the CFO last year, I want to make sure that we are focusing much more on cash, not just P&L, because as I probably said at previous occasions, cash, at the end of the day, it's a fact and a P&L is an opinion. That's how we all, as I mentioned, implemented it into the company. Cash is really important, and we have now for every legal entity, for every market, we also look at the cash, not just the P&L, and that is being felt in the organization. That's how we install discipline, and that's really what is paying off right now.
On top of that, probably as we announced in March to do a share buyback, it also helps remain disciplined because it needs to be financed. That was an additional help to get that discipline into the organization.
Great. Thank you very much.
Thanks, Chiara.
Jeff, we have time for one more question, please.
Yes, sir. Certainly. We will now take our next question, John Kernan from Cowen. Please go ahead. Your line's open.
Great. Thanks for sneaking me in. Two quick questions. Just, Kasper, you talked about some of the investments you're making in the digital space and dynamic pricing, physical infrastructure, and such. We obviously know there's a positive mix shift on the gross margin from e-commerce. Can you just talk to the overall profitability and how that's trended within the digital space? Then my follow-up is just on the growth of apparel versus footwear. Apparel has outgrown footwear this year, in each quarter. How should we think about that growth by category going forward? Thank you.
Just on the e-com margin, we said it all along, we're not going to disclose channel profitability, but I also said, of course, the gross margin is higher in e-commerce than it would be in wholesale or retail. It's also, and that's what we are disclosing, it's accretive to our corporate profitability or overall company profitability. The faster we grow in e-commerce, in simple terms, the more it will help our overall gross margin, operating margin as well. If you look on when it comes to apparel and footwear, we've had a slightly higher growth in apparel than we've had in footwear. I wouldn't put too much into it. I think that if you go back, there's no doubt that we had a contribution from the World Cup with apparel led.
In the beginning of the year, which we've said is some of the early launches of our new franchises, did not work as well. That, of course, had a impact on the overall profile. In the past quarter, we had, as we said, it was completely balanced. It was 10/10, it's completely balanced, and you can see that we are striving towards having a fairly balanced growth rate of the two. Our footwear driving our business from a footwear standpoint, approximately two-thirds of the business is footwear. You should think about it probably in the context of a year where we had Football Championship and the initial launches in the beginning of the year were less successful than we had expected.
Right now, as we said, with Yung-1, Continental, and Falcon, we're seeing a different picture, and that's why you're seeing a more balanced growth in the latter. Maybe before we close, we would like to thank you for dialing in. After nine months, we are well underway. We want to make certain that we push the message to you that we are managing towards a market share and a margin improvement while continuing to invest in the business. We've done that so far, we believe in the appropriate way. It was a high quality third quarter. The areas of North America, digital, and China has lived up to our expectation. Clearly, Europe has not. We're very committed to turning Europe around, but I hope you see that we are striving towards taking the right long-term decisions and not pushing anything for the short term.
At the same time, we're very committed to deliver the financial results that we committed the company to, and we'll manage the company towards that also in the future. We have a 2020 target we extremely committed to, we're very focused on, but we're doing it through an investment mode and not through a savings mode. With this, I'd like to hand over to Sebastian.
Thanks very much, Kasper, and thanks also to Harm. Ladies and gentlemen, this completes our conference call for today. Our next reporting date will be March 13, 2019, for our 2018 full year results. As you've heard several times today, this will also be the point in time when we will provide you with our 2019 guidance. We all look forward to speaking to and seeing many of you over the next couple of weeks and months. If you have additional questions today, in the next couple of days, or weeks, or months, please don't hesitate to reach out to Adrian or myself. With that, thanks very much for your participation. Have a great day, and bye-bye.