Good day, and welcome to the adidas conference call for the full year 2017 financial results. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Sebastian Steffen. Please go ahead, sir.
Thanks very much, Tracy, and good afternoon, ladies and gentlemen. Also, a warm welcome from my side to our full year 2017 results conference call. Our presenters today are our CEO, Kasper Rørsted, and our CFO, Harm Ohlmeyer. Before I will hand over to Kasper and Harm in a second, I will, as always, quickly run you through a couple of housekeeping items. Firstly, we have once again a lot of topics to cover, as you know, and we have a very large number of people dialing into our call today. I'm again asking you to strictly limit your questions to two in order to give as many people as possible the chance to ask what's on their mind. Thank you very much for that in advance.
Secondly, as always, unless otherwise stated, all figures that we will be talking about are currency neutral and will be discussed for our continuing operations. With that, I would say we kick it off. Over to you, Kasper.
Thank you very much, Sebastian, and welcome to everybody also from my side. Today, we'll have four topics on the agenda. I will give you a strategic update and subsequent business update. Harm will take you through the numbers more in detail, and at the end, I will give you the outlook, and we will then move to a Q&A session. Let's dive into it. Of course, what we are doing is we're executing our Creating the New strategy that was formulated in 2015. Where the creation of brand desire at the center of what we do is aimed at delivering top-line and market share growth, gross margin expansion, operating leverage. We've defined three core areas of focus: cities, speed, and open source. Culture, meaning the organization that we have at hand, and then four acceleration topics.
I will speak you through most of this in subsequent, take you through how it can be found within our numbers. Our culture, we are making increasingly progress when it comes to diversity, not only when it comes to male, female, but also having a more international base of key leaders across our organization. When it comes to female leadership, we almost grew our presence of female leaders with three percentage points in the last year. We are also making progress in this area, but I would say from an international standpoint or a passport standpoint, we are becoming a much more global company. We've also made progress in creating a performance culture. In essence, what does that mean? That means differentiated view on what performance looks like. Be clear on what works well, what does not work well, and also reward accordingly.
We've established the core leadership groups within our organization, our top 25 and top 110, that will allow us to have a very direct dialogue with 140 leaders in our company that will ensure that things happen, engage in the strategic conversation, but most important, make certain we're completely aligned when it comes to executing our strategy. Last but not least, for our key leaders in our company, our top 600 leaders in our company, we've introduced last year an LTI program, which is focused solely on our LTIP target for 2020. We have now a complete alignment of how we measure the key leaders and what we are telling you our targets are. Which you can find in our annual report, and I really ask for you to read the compensation part on your report, but I'm also asking for your support.
We've changed the compensation system for the management board, and what we have done is that 80% of the total variable compensation is completely aimed at the targets that we are presenting. Our long-term incentive is based on net earnings. Our short-term incentive, 6% is based on currency neutral growth and operating margin, and thereby making our compensation system as transparent as absolutely possible and as aligned as, I would argue, probably any other large company today are. I believe we've taken a leadership position in aligning our overall comp model to what we are setting out as targets to the market. As I said, I hope that you read it, and I even more hope that you will also give us the support for the compensation model that will be presented at the AG in May.
Last year, we also undertook a significant generation change with our management team. Harm, who you all know, joined and became CFO. Karen came from within and is managing our HR group globally. Jill was running Europe, is now running our global supply chain. Eric and Roland, brand and sales respectively, have just extended their contracts with another five years, meaning we have created stability within our management structure for the team that's here to deliver on our 2020 targets, which I believe is exceptionally important. We've undergone a generation change in the management team, and we have signed the quote, unquote, "Two longer," first on the management team on a longer-term contracts. When it comes to speed, and you're all aware of the initiatives, we are making the progress we are aiming at making.
In speed, we have this now speed enabled our products that account for approximately 28% of our sales, meaning the capability to do replacement within season. Furthermore, we have not only brought our German-based SPEEDFACTORY up to speed, so to speak. It is now manufacturing close to full volume. We've also opened our second manufacturing SPEEDFACTORY in Georgia, Atlanta. When it comes to cities, we are seeing our key cities, Los Angeles, New York, Paris and London, Shanghai and Tokyo. We're seeing above-market growth, above-market NPS, and really delivering upon the expectation that we have that will have a major impact across not only countries but regions. Meaning that when we do a major launch in New York, it does have an impact on our European business and our Asian business that has proven to be the case.
On open source, last year, I can proudly say that we sold more than 1 million Parley Shoes, shoes that are made of ocean plastic, that does not only position us as a company with a great focus on sustainability, but also delivering true value to our consumers. We've extended our relationship with Carbon that allows us to do 3D-printed shoes. This year we'll sell approximately 100,000 3D-printed shoes. We've established our adidas Runners in more than 50 cities. We're delivering upon what we set ourselves up for in our three strategic choices. When it comes to our acceleration plan, our four acceleration topics, let me start with portfolio. Earlier or the mid-summer last year, we parted ways with CCM, our hockey brand and TaylorMade.
We have made substantial progress with our Muscle Up program when it comes to Reebok, which we'll speak about more on today, and two countries that were giving us headaches and were highly dilutive journeys, Brazil and Argentina. We've implemented the necessary steps to turn those companies or subsidiaries around. We're making the progress that we expected with significant upside in the business to come. In North America, we continue to outperform the market, both on a top-line basis and subsequent from a market share standpoint, where we're seeing us moving into double-digit territory when it comes to footwear, getting closer to the first target we set ourselves, which is the 15%, also getting us closer to the EUR 5 billion target we set ourselves as a company for 2020. We're starting to see the profitability improvements that we need, and we also expect out in North America.
On ONE adidas, we have changed our organizational model substantially to make certain that we make use of becoming a global company. We're starting to see the first very early fruits of some of the efficiency initiatives. I just want to highlight here, these are multi-year initiatives when it comes to global business services, procurement, et cetera. We are only seeing the very early fruits of this. This is something that we expect will deliver significant advances over the next years to come. As I said, this is a long-term initiative we have. Digital is making a true impact on our company, not only when it comes to how we sell our products, but how we engage with consumers, and also the early signs of how we design our products.
This will be a large investment area moving forward, but one that does and will give us sustainable competitive advantages. In all of our acceleration topics, portfolio, America, ONE adidas, and digital, we are well on track to establish and achieve what we are trying to do. This brings me now to the business side of it. What came out of all the efforts? What came out was a currency-neutral growth of 16%, bringing the net sales to EUR 21.2 billion for the first time surpassing the EUR 21 billion line, which should be operating margin up on continued business of 1.2% to 9.8%. As you will see further along in our presentation, it was a significantly bigger step from the starting point that we had January 1st a year ago.
The net income from continued operations increased 32% to EUR 1.43 billion, and that will be the basis for the dividend payout. We're also looking upon our balance sheet to ensure that we create value for our shareholders. We will propose to the AGM a dividend of €2.60, which is an increase of 30% compared to last year's earnings, and with a payout ratio very similar to last year at 37.1% versus 37.4%. Yesterday evening, we announced our intention to launch a share buyback program this month for the next three years with the aim of spending EUR 3 billion or investing EUR 3 billion in our shares over the next three years, which reflects approximately 8% of our current market capitalization, which should also, of course, ensure that our capability to deliver returns to our shareholders will continue to increase.
We're not only putting our P&L to work, we're also making use of an attractive balance sheet that we have. Which brings me to the guidance. For 2018, we see a currency neutral growth of approximately 10%, and we expect net income from continued operations between 13% and 17%, equating to EUR 1.615 billion-EUR 1.675 billion. I will come back to that in further detail at the end of the presentation. Our long-term financial ambition on the top line, that remains unchanged. The net income from continued operations on a CAGR level from 2015 to 2020 is now 22%-24%, up from 20%-22%. Again, for the second time within three years, we have now upgraded the not only short-term, but also long-term guidance. When I look upon the strength and opportunities that the company has, let me start with some of the challenges.
We saw sales decline in football and basketball, predominantly due to our license business. We saw football picking up in the fourth quarter as a result of the World Cup. Overall, we did see increasing sales in the footwear side of it. The basketball is due to the exit of the NBA, football predominantly due to the exit of the Chelsea business, but also a more depressed market when it comes to overall licensed business in the football area. Our sales in apparel continue to lag behind our sales in footwear. While we are very happy with some of the progress we made on the footwear side, it's clear that right now with a 7% growth in apparel, we are not quite where we need to be. Our top line growth has also challenged our existing infrastructure.
We spoke about that in the third quarter, which did have an impact on our overall delivery. We are investing heavily across the board to ensure that we have the optimal infrastructure. This is not only buildings or warehouses, it's also systems, infrastructure, use of shared services, et cetera. Lastly, we did see a slower comp, slower sales growth, for the company, mainly due to Western Europe and of course, a very depressed Russian market. On the upside, we continue to see a broad-based top line momentum with double-digit growth across most of our regions. e-commerce continued to outperform any region in the world. We saw strong gross margin increases.
I believe it's all back to the point that we are relentlessly executing the strategy we have ahead of us instead of talking about new strategies, getting the job done, which allows us to make progress financially to the tune that we're striving towards. Let me now go through the adidas brand. The adidas brand saw growth of 18% last year, on top of 22% the prior year, so very strong comparable. We saw significant double-digit growth in footwear. We continued to do a good job on managing the different franchises. Women's business also outperformed in 2017 with an increase of sale of more than 20%.
When it comes to performance, we saw a growth of 8%, running up 23%, sales grew. Training grew 7%. As I said, football revenue did come back to growth in the fourth quarter. You saw a very strong growth of our sports business in the fourth quarter of 18%. We're starting to see a revitalization of our growth in our performance business. Originals and NEO, very strong at 32%, driven by North America, Greater China, and Western Europe. We saw the Modern franchises grow by more than 50%. They're now representing more than half of the Originals footwear business. We have seen the slowdown in some of the more traditional franchises that you know, like Stan Smith and Superstar. This has been going on throughout the entire year.
In most of the cases, not all, we've been capable of driving the new franchises into growth, which we're seeing also. The NEO business grew in the past year 35%, predominantly through our football business. Now let me just spend a couple of minutes on the Reebok business, as we promised that we would do. 18 months ago, we put a turnaround plan in place called Muscle Up, with the aim of fully turning Reebok around by 2020. Also indicating that it would take three to four years to get Reebok to the state that we felt comfortable with. Of course, the first part was to stabilize the business, get the profitability back under control to build a foundation from which we can grow upon. Last year, we achieved an increase of 400 basis points when it comes to our net margin.
We now have the highest net margin in Reebok since the acquisition. We saw sales of 4% reflecting improvements in most regions, but with a strong negative growth in North America. This was done deliberately to get the foundation to a level which is healthy in North America. We have been accelerating the cleanup of our North American business throughout the entire year. We look upon the Reebok business on a quarterly basis, and the management team, Harm and Roland, looks upon it monthly, and the Reebok team has what they call their Wednesday meeting, where they go through every single project every Wednesday for 15 months now. The projects you can really characterize or separate into 6 categories: organization, design to value, margin working budget, business models, U.S. market, and efficiency improvement.
In the organization, we've finalized the move into a new building, I think quicker than we've ever done before, the old building was sold this week. On a design to value, we're very keen to ensure that when we have products, the consumers are willing to pay for what we're putting into products. On the margin working budget, we have dramatically reduced the number of concepts, but at the same time, we've added new influencers and creators like Victoria Beckham into our brand to give the brand more heat. Not only our absolute, but also our relative margin working budget did increase in 2017, meaning that the 400 basis points you saw on the margin at the top is most likely flowing to the bottom because we're not doing any savings when it comes to investing in the brand, on the contrary.
We're pushing a new business model very similar to the adidas one by pushing e-com. We have done a significant cleanup of the U.S. market and expect the U.S. market to return to growth for the first time in many years, and we are starting to see the efficiency improvements. Overall, a very important first year of four years of a turnaround plan. We still have three years ahead of us, but we achieved or overachieved any single milestone we set ourselves out for in 2017. However, I do want to caution everybody, this is a long-term turnaround, and we're treating it also as a long-term turnaround. Our e-com business grew 57%, by far outgrowing our entire market, or any market, and getting the actual number to above EUR 1.5 billion, still with a target of approximately EUR 4 billion in 2020.
We also launched our adidas app that you can have in a number of countries. We initially launched in the U.S. and U.K. In Spain and France, now in Germany. This has now more than one million downloads. We are making the right progress of not only on store but also through our app capability that will increase consumer loyalty. Now, I've gone through the highlights. I would now like to hand over to Harm, who will take us through the details from a financial standpoint, and hopefully, that will give you the right insight to the closure of the year and also the foundation for the next year.
Thank you, Kasper. Good morning. Good afternoon, ladies and gentlemen. It's a pleasure for me to guide you now through the financial details. I want to start with the markets. As I go a bit deeper in North America, Western Europe and Greater China, I just want to sit on this chart a little bit for the other tech mentions. Starting with Russia, clearly, besides the growth of all markets in double-digit, Russia is the one market that declined in double-digit and the main reason for that is what we all know, the sanctions in the market. The consumer, what we're also seeing is clearly trading down. We have closed net more than 180 stores in 2017. That, of course, results in a double-digit decline overall. However, the focus on Russia as only representing roughly 3% of our top line in 2017.
We are focusing on the profitability and on the cash generation that it remains cash positive, and that is clearly our goal and what we have achieved in 2017. You also see on the operating margin actually improved by 520 basis points in Russia. When I move to Japan or Middle East and other Asian markets, especially in Japan, in a very mature market, we were able to grow double digits with 10% in 2017 as well. Also in Japan, not just the gross margin improved by 370 basis points, but also the operating margin improved by 460 basis points. This is, again, testament of the quality of growth that we are driving in the markets overall. When I look at Middle East, another Asian market, it's a mixed bag.
We definitely saw strong double-digit growth in most of the Asian markets, there definitely were some flattish markets when it comes to Dubai or UAE, where Dubai, of course, is the main area of consumer demand there. That's definitely impacted by many years of oil price depression. Even so, it came back in 2017 a little bit from an oil price point of view. We haven't seen a significant turnaround from a pricing point of view in that market. When it comes to Latin America, I'm very happy with double-digit growth there as well, 12%. That is especially significant as we talked about in the portfolio approach.
It's not just a Reebok Muscle Up plan, it's not just about selling at TaylorMade and CCM, we also looked at markets that are not contributing to the overall company, we called out Brazil and Argentina back then. Brazil only being flat in 2017. The growth is really driven by Mexico, Argentina, which ran a turnaround situation, and also by smaller markets like Chile and Peru. When I go a little deeper in North America, I believe you all know about the retail environment that wasn't the easiest in 2017. In light of that, growing 27% in the market and especially with the adidas brand growing 35% in 2017, driven by running, training, Originals, and NEO is a significant achievement of our North American team. We're definitely very proud of that one. When we look at the Reebok brand, a decline of 15%.
This is what we talked about all along 2017. It is right-sizing the business, focusing on profitability and not chasing the next consecutive quarter of growth. It is all about our Muscle Up plan, where we need to drive profitability. And in that number, just 37 stores that we closed in the course of 2017. What you all should expect for Reebok just looking forward, we still have a few stores to be closed in Q1. And you will most likely see a single-digit decline in Q1. But for the full year, as we mentioned also our Q3 call, we are expecting returning back to growth with Reebok in North America in 2018.
Overall, given the growth of the market of 27%, we were also able to expand our gross margin by 180 basis points contributed by both brands, even over-proportionate as a percentage from the Reebok brand in the North American market and overall operating margin up by a significant 470 basis points to now 10.9% in 2017. When we look at Greater China, one of our three key markets as well, growing 29% in 2017 on a currency-neutral basis. This is again, almost equally in the growth, 30% for the adidas brand. Double-digit growth in running, training, basketball, Originals, and NEO. So it is very broad-based from a category point of view. And also the Reebok brand, of course, on a different absolute level, but from a percentage point as well, 25% up driven by training, running and classics.
I know even my predecessor talked about the operating margin will not remain at a 35% forever. And I have to repeat that again today. Even so, the gross margin was down by 50 basis points given the expansion in lower tier cities and also bringing the right price into the market that is resonating with these consumers in lower tier cities. We were still able, given the growth of the top line, to leverage the operating margin by 20 basis points. I am not hoping this is the last time that I am presenting something like that. Just looking forward, I really expect a 35% is on a significant level that we should not count on towards 2020 and it will slightly go down over time year by year. Still, it will remain our most profitable market for the foreseeable future.
When it comes to Western Europe, another of our mature markets similar to Japan. Double-digit growth, again, with 13% driven on the adidas brand with 12% out of running, outdoor, Originals, and NEO. Again, very broad-based in our home turf here as well and the Reebok brand on a significant level as well, growing 24%, driven by, again, training, running, and classics. So it is broad-based. What I am most proud of and credit to the team in Europe is the expansion of the gross margin of 110 basis points, despite the fact that we had an FX impact of more than 200 basis points. And that is a significant improvement. Again, credit to the management team and again, also testament of the quality of growth that we are managing in Europe.
That I believe we are doing the right things in that market, also from a growth and from a profitability point of view. All of this drives an expansion of 210 basis points to now 20% of the operating margin. When it comes to the overall P&L now in nominal rates on the top line, the currency neutral 16% top line in 2017 equals 15% in nominal. We already talked about the gross margin expansion of 120 basis points. That is very healthy despite the FX effects. What you will see here is the impact of other operating income. This is, again, we talked about it all '17, the one-time effects that we had in 2016 with the termination of the contract with Chelsea and also the divestiture of Mitchell & Ness, where we had one-time effects in 2016 that didn't repeat themselves in 2017.
As we see a lot of numbers here and the operating margin, please allow me on the next page to guide you a little bit through the bridge of where we're actually coming from in 2016 and what we have achieved in 2017, also on a comparable basis. When we looked at 2016 as reported, we actually started with 7.7% operating margin, including TaylorMade and CCM, our hockey brand. That of course, drove one of the decisions to clean up the portfolio to focus on adidas and Reebok going forward. Just the success of divesting both brands led to 90 basis points improvements. Yes, I have to say again, we paid the price in profitability in the past, now we get the gain in 2017 on that divestiture. The starting point on a comparable level would then be 8.6%.
Also on the 8.6%, despite the currency headwinds that we had in 2017, we were able to expand the gross margin by 120 basis points. This, of course, is the quality of growth, but also the e-commerce growth is contributing to that gross margin expansion of 120 basis points. I also talked about limited leverage of our operating overheads. When you look at this chart, the leverage that we had of 80 basis points were completely eaten up by the, not reoccurrence of the 2016 events of Chelsea and Mitchell & Ness, but still on the 80 basis points operating expense leverage. The majority of that leverage came out of operating expenses and not out of marketing investments or operating overhead and not out of marketing investments.
All of this, given the significant growth, the gross margin expansion, we are now at an operating margin of 9.8%. With that 9.8%, of course, that was leading to the increase of our 2020 guidance from 11% originally to now 11.5% because we are well on track with the achievements in 2017. When we look at the net income, Kasper already mentioned how the operating profit of EUR 2 billion 70 and the operating margin of 9.8% led to a net income from continuing operations of EUR 1 billion 430. On a comparable basis excluding the divestitures that will be an increase of 32% in 2017. Again, a lot of numbers on that sheet. Please allow me to guide you through the bridge on the next chart, because also there need to start with what we reported back in 2016.
The net income from continuing operations as reported was EUR 1.019 billion. If you then adjust that one for discontinued operations, given the divestiture of TaylorMade and CCM, the comparable base for our net income would be EUR 1.082 billion. The underlying improvement of our (operational distance) of continuing operations equals actually 32%. So it is EUR 1.430 billion compared to the EUR 1.082 billion, and that is really what we need to focus on. It is also the EUR 1.430 billion that we are going to pay the dividend on. What you also see as a reported number is the EUR 1.1 billion as net income. Of course, that is the bridge with the losses from discontinued operations given the divestitures of both brands and also the one-time negative U.S. tax effect that we articulated in early January.
That, again, I want to repeat it is a one-time 2017 and a non-cash effect in 2017, and it will not repeat itself in 2018. Going to the operating working capital. We finished the year with very clean inventories. So we are well prepared moving into 2018 with a truly comparable 8% currency neutral inventory position at year-end. Receivables are in line with the 90% growth that we saw in the Q4, especially with the shipments that we did in December as well. So this is at a healthy level. Also the aging of those inventories or receivables have not fundamentally changed compared to prior years. All of this led to a very healthy position of 20.4% average operating capital over net sales.
This is also bringing us closer to our, I do not want to call it a dream scenario, but at some stage during my tenure I want to see it below 20%, and that is what we are relentlessly working towards, starting in 2018 and beyond. When it comes to the net cash position, I need to get used to that. We normally speak about net debt on that chart. So for the first time in many years, we are talking about a net cash position again of EUR 484 million. Again, this is one of the questions that I always got from all of you during my road show in at least in the second half of 2017. What if we generate some cash? What are we going to do with that one?
So far, I talked about, well, let us generate the problem first before we deal with it and spend the cash. But that is actually leading to the next chart, which is explaining in more detail our cash strategy. Of course, we will first and foremost continue to invest into our operations with a CapEx that we guide around EUR 900 million in 2018 coming from EUR 752 million in 2017. That is the best investment or the return that we can get for the money we have been investing. We will be very predictable with our dividends going forward, staying within the payout ratio of 30%-50% on the continuing operations. As you saw yesterday evening, we announced a share buyback program of up to EUR 3 billion that we are going to start in probably around March 22nd, and then it will run through May 2021.
I want to give you some more details around that one. Just when it comes to CapEx, where is it going to? There are pretty much three buckets where we want to invest. One is controlled space. Within controlled space, there are primarily three areas that we are investing into. One is selectively new stores, primarily focused on key cities. That doesn't mean it's only the six key cities that we talk about. It might be the top 10-15 cities around the world where we keep investing into. It will be the remodeling of the retail fleet that we have around the world, and certainly it will also be branded space within our wholesale partners. This is where a significant piece of the CapEx will be invested into.
Secondly, as we talked about some of the bottlenecks that we had, but also part of the growth of our digital business to keep investing into our IT, not just in digital IT but also in overall IT infrastructure to run this company as one company and not like many small companies. We keep investing into this one. We also have to invest into more warehouses. We talked about given the Brexit, there will be a dedicated e-commerce warehouse in the U.K. There will be one in the northeast of the U.S., and there will be one warehouse on the West Coast to service the consumers better, primarily in the online space and on the e-commerce space.
Whether we like it or not, we keep hiring or have hired in the past, and there's still an investment here in our headquarter in Herzogenaurach that will be finished during the course of 2018 and early 2019. We will also keep investing primarily in China and also in our hyper locations in the U.S. When it comes to the dividend, the increase from EUR 2 per share from 2016 to now EUR 2.60, as we propose for the annual shareholders meeting, is a 30% increase in dividend. We actually took the liberty to look at the DAX 30 average, our peers, at least the ones that have reported their financials already. So far, we are leading the pack with a 30% increase. We are pretty happy to announce that today that this is what we are proposing.
Also in absolute terms, it's EUR 530 million absolute terms, we are at a similar ratio that we had in 2016. This is within our guidance of 30%-50%, and we will continue to do so in the years to come. Even after the dividend is being paid out and the free cash flow that we are generating, we also looked at what would be the right size of a share buyback program. That's where we settled, given the underlying improvements, not just of the business as part of our Creating the New strategy or the execution of Creating the New strategy. Of course, that success will generate cash as well every year. That's why we have proposed up to EUR 3 billion towards May 2021. It would start as early as March 22nd.
It will not be a tactical program where we will be in and out. We want to be continuous in the market and work with the respective banks to be in the market on a continuous basis and then continue to buy back shares starting significant in 2018 with up to EUR 1 billion. We are clearly committed to that program as early as March 22nd and expect a significant part of that happening in 2018. From a funding point of view, I talked about it. We have a solid net cash position already at the end of 2017 or as we are today, March 14. We will generate more free cash flow going forward, not just in 2018, but the years to come. We might also look at opportunities of debt funding in the market, and this could be as early as 2018 as well.
Stay tuned for that going forward. With that, I would like hand over to Kasper again to give you the outlook, and then we come back to this Q&A later on.
Before I go to the outlook, let me just stress again what we are aiming at achieving, and it comes really back to the core slide of Creating the New. Winning for us looks like growing market share and growing margin. That is what we're trying to do to get the right balance between our top and bottom line. We have, rightly so, for many years been criticized about our, compared to peers, underperformance on the profitability. It's very important for us that we find the right balance moving forward of growing market share, but at the same time improving the profit margin for us as a company that allows us to do the right things and become equally efficient as some of our peers, or particularly one of our peers.
That is how we look upon our overall company also going into 2018, but also towards 2020. Finding the right balance to make certain that we focus on revenue when it delivers margin, but of course, not focus on margin if we don't get any revenue along with it. You will see that being characterized also in our guidance. Look upon 2018, we are looking for high-quality top-line growth, ensuring that we are getting the products into the market that have value for us. We will over-portion investment in brands and products. The increase in the guidance I'll speak to in a second is not coming through savings to our brands. We're over-portioning investing both absolute and relative in our brands. We're starting to see the first levered response of our scale, the business models are getting more scale out of the same population.
Last year, if you go through our numbers, we actually decreased our number of employees by 2,000. At the same time, added EUR 3 billion to the top line. You are seeing that we are getting the first signs of the scale of the business model, and we want to drive margin expansion over proportional net income growth. We will do that through a number of initiatives. One is our existing products successes, use them as a baseline to drive revenue forward, continue to launch new products and franchises. We hope most will win, not all will win, because that is an illusion in any given industry, but be very focused to ensure that those we launch are successful and should we launch some that are not successful, have the courage to pull them from the market quickly. Use innovation not only to drive revenue but to drive brand differentiation.
Our 3D relationship with Carbon is a good example, with a 3D-printed shoe in 2018. This year, we'll sell more than 100,000 of these shoes. Maybe the revenue itself is not so important, but the brand heat we create through that revenue is substantial. Lastly, but not least, make certain that we use the major sporting events to promote our brand and our products. Just looking back, since we are in 2018, we start up with the Grand Slam Cup in the, or Grand Slam tournament in tennis in Australia, where Caroline Wozniacki won. True, as its ambassador, we had for the brand a very strong Winter Olympics in Pyeongchang, in now it's Korea, in the month of February, and of course, we're looking forward to a very strong World Cup in Russia. Football is and will remain the single biggest sport in the world.
While the commercial part of football, how we find our P&L might have a lesser importance now than it did five or 10 years ago, simply due to the absolute size of our company, the brand exposure side is immensely important for us to make certain that we transmit the brand we have with 12 teams globally to push revenue for us as overall company, probably more in the market than in Russia itself. We have made one reporting change, which is a reflection of a business model change. In Europe for a very long time, we've been running Europe as one organization. We've done the same with emerging markets. We've done the same with Latin America. We've done the same with the U.S. and Canada. We've now made the decision to bundle all our activity in Asia in one organizational structure, headquartered out of China.
Asia will be run out of China in a very consistent set up to our other regions, and it will be run by Colin Currie. Some of you will know, is our current head of China, and he will do both roles in China and Asia simply because of the big impact that China has in the overall Asian market. We need to make certain that we run the region more consolidated and get more benefits from the scale and learnings that we have in Asia. It's a natural evolution, taking the Asian model into a model that is very similar to the models we have in other regions. The growth drivers also in 2018 will be North America, where we continue to expect a very strong growth on top of the 27% growth we saw in 2017. The adidas brand grew 37%.
We expect also margin to continue to improve. It will continue to be dilutive, but the absolute income growth coming from North America is quite substantial. Asia Pacific grew 22% overall, with China growing almost 30% last year. We do not believe, as Harm said, that there is substantial margin upside, but we need to continue our strong growth pattern in Asia. e-com, after a 57% growth in 2017, we need to ensure that we drive that business forward and also get the benefits of the investments we made in infrastructure in Europe, in the U.S., and in China. From a marketing standpoint, we will be investing mainly in three areas: reason to believe, reason to buy, and sports communities. Our marketing investments are aimed to increase in absolute and in relative terms compared to 2018.
Again, to repeat myself, the margin expansion that we're foreseeing is not coming from brand cuts. We are over-investing in our brand compared to previous years. The leverage point is taking the strategic model that we have in brand leadership and execute that very consistently on a global basis. Have clarity on who does what and making certain that we don't reinvent the wheel. Drive marketing effectiveness, and as you could hear before, while we're increasing the amount of absolute spend and also relative, we want to invest in pure campaigns. We want to make use of data analytics to ensure that we get the best possible return on the very large marketing investment we're doing. Lastly, but also very important, improve operating efficiency.
The scale of the business model that we can have revenue at a higher rate on the top line than the overall operating overhead to ensure that we get the margin expansion. Which brings me to the outlook. The net sales is aimed to increase approximately 10%. The gross margin up 30 basis points to approximately 50.7%. The operating profit increased 9%-13%. The operating margin between 50 and 70 basis points to 10.3%-10.5%, which will be an all-time high. Net income from continued operations will increase between 13% and 17%, and the basis is the EUR 14.30. So that is excluding the U.S. tax reform, and that is the number. Of course, the basic EPS from continued operations will increase between 12% and 16%. So 12% and 16% includes the convertible bond, does not include the share buyback program that we have.
Of course, overall, everything else being equal, EPS will, of course, grow and benefit from the buyback actions and activities we are taking in place. When it comes to the convertible bond, we have a small portion, 6% of the convertible bond has not been converted into shares, and that conversion might increase the share count by 2.4 million. So you need to take into account that we will be happy on subsequent meetings to take you through really the details of this. But of course, the overall intention is to decrease the amount of outstanding shares by acquiring up to potentially 8% of the outstanding shares, depending on the share price. Let me just spend a couple of seconds on the guidance and give you an insight in how we look on the guidance from a more qualitative standpoint.
We believe, starting from below, that we feel very comfortable with the net income increase to between 13% and 17%. The same goes for the margin expansion, taking the margin from between 10.3 and 10.5, up from the 9.8. Where we believe that we are most challenged, from a guidance standpoint, is on the top line. The 10%, we think that is by far going to be the most challenging element of our guidance for 2018. As I said, the overall margin, the net income, and subsequently EPS, we feel is less challenged than the top line. I want to make certain that you understood that up front, and let me just give you another caveat.
For your models, we are seeing significant currency headwinds, which will mean that with the current view of how the year will evolve from a currency standpoint, we will lose up to half of the nominal conversion from the currency neutral. Meaning, should we grow 10% currency neutral, we expect 5% or less nominal growth. You're saying that we are actually guiding right now with that assumption, a profit expansion of a rate three to four times higher than the nominal expansion on the top line. We are seeing in the first quarter, higher levels of currency headwinds than we expect for the year. The conversion from currency neutral to nominal will have a higher currency loss transaction-wise in the first quarter than we expect for the year.
Just to repeat, current view is that we will lose at least half in conversion from currency neutral to nominal on a full year basis, and we expect an over-proportion, higher loss in the first quarter. I'm saying that just to make sure that you build your models appropriately. The same goes from the way we look upon the different elements of our guidance, where I said the highest challenge will be on the top line. We feel more comfortable with those in the middle and subsequent below. We've also updated our 2020 guidance, and this is the second time we're doing it. You know, the March 15, which we spoke about last year, where we updated not only the top line, but also the net income and net sales and operating margin.
Again, now we're upgrading net income for the full period, where a year ago it was 20 to 22, we now see it 22 to 24. The implied margin, and I use this deliberately, is now up to 11.5 versus the 11. I say this deliberately because we consistently said that the key guidance is the net income, because that is what drives shareholder value. Of course, there's an implication in the margin. That's what we are showing you here in the same logic as we've done before. Up to 22 to 24 and operating margin up to approximately 11, up to 11.5 versus 11.0 last year. In summary, strong operational financial performance in 2017. 2018 will be another year of high quality growth, but with a different profile than we've seen in the last year, but with continued margin expansion toward the target of 11.5.
The 2020 financial ambitions have been upgraded and profitability targets have increased. We'll continue to invest in people, infrastructure, and brands. While we will continue to invest in people, it is equally from a quality standpoint that we hire different profiles, particularly with a digital background and a more analytical background, infrastructure when it comes to buildings and supply chain, and of course, continued very strong spending into our brands, adidas and Reebok. Lastly, a relentless focus on executing Creating the New and the acceleration plan. There is no discussion about new strategies at this stage. There's only discussion on how to ensure consistent execution of the strategy we have towards the target we've set ourselves. For this, I'd like to stop at this stage, hand back to Sebastian Steffen so we can start with the question and answer round. Thank you very much.
Very much, Kasper. Tracy, we're now ready to take questions.
Thank you, sir. 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 turned off to allow your signal to reach our equipment. Please limit your questions to two. We will now take our first question from Fred Speirs from UBS. Please go ahead.
Hi, good afternoon. Two questions from me, please. The first was around the 2020 EBIT margin. Could you please just detail what the main drivers were behind raising the target to 11.5% from 11%, and perhaps give us a bit more detail around how much is from a better gross margin expectation, how much is from better OpEx leverage expectation? The second would be on North America. You're guiding for significant double-digit revenue growth here for the adidas brand. It'd be helpful to hear more about the key drivers for that in 2018. In particular, obviously, shelf space gains are a major driver. Could you perhaps also share some color around recent like-for-like sellout trends as well? Thank you.
On the U.S., we believe that through further expansion of distribution points in the U.S. where we have been under-distributed in the past, that will help drive top-line growth along with the consistent new introduction of key franchises in the U.S. and the expansion of our e-com business in the U.S. We will not comment on the remaining part of your question when it comes to the U.S., but we do see continued market share opportunity gains in the U.S. where we are under-proportionally represented. I believe Harm had on previous meetings said that this is one of the few countries where we're below 15%, so the first step is towards the 15%. On the 11.5% versus 11%, as I said, this is an entire margin. I want to be very clear on this because of course, we're operating with models.
We think that we can get more operating leverage out than we've seen before. We're not guiding on the gross margin by 2020 at this stage. We will, of course, in 2020 guide for 2020. It's really making more use of becoming a global scalable organization. It will predominantly come out of operating overhead and also using the right channels to optimize our margin. That is a project that was initiated this year where we look very deeply into what is the most profitable way of bringing products to market and optimize that also from a channel standpoint and not only from a country standpoint.
Just to add to that, Fred, as I mentioned in many meetings in 2017 as well, we made tremendous progress in 2017 with our 9.8%, we believe the next three years ahead, the majority of the leverage will come out of the operating overheads and less so out of the margin. Yes, we will work on improving the gross margin as well, the majority will come out of the operating overhead leverage.
Thanks. Just one follow-up. Seeing the marketing as a percentage of sales going up this year, there's been a longer-term view of it coming down from 13% to 12% by 2020. Do you reconfirm that?
Directional, yes. What the absolute number is, of course, we're still looking at one, but what I want to say is, that's why I deliberately said that our primary KPI is the net earnings. We want to make certain that we invest ourselves to success well knowing that there is targets beyond 2020, we're trying to set ourselves up for long-term success. We don't believe that we should save ourselves to that, directionally, yes.
Understood. Thank you very much.
Thanks, Fred.
We will now take our next question from Erinn Murphy from Piper Jaffray. Please go ahead.
Great. Thanks. Good afternoon. A couple questions for me. I guess first on the 2018 guidance, can you talk a little bit about what your underlying assumptions are for Reebok versus adidas to hit that 10% goal?
We don't guide on Reebok specifically. You've seen Reebok has had a significantly lower growth rate than adidas. That would be our assumption also for 2018, I just want to reiterate what we're trying to do with Reebok. On previous calls, we have said that the challenge we have around Reebok is not growth, it's profitability. In the past, we drove I think 15 or 14 quarters of growth that delivered negative contribution to our company. If we have to settle with less growth than adidas, we're more than willing to do so. We need to get the foundation right, and the first step was the first 400 basis points. You should expect a lower or under proportional contribution from Reebok and an over proportional contribution from adidas. That's pretty much the way we would specify it so you can hear it's still there.
Okay, that's helpful. Just two more for me. Just in 2018, could you just talk about your overall assumptions for the competitive or the promotional landscape broadly? I know last quarter you spoke more specifically to some of the promotional threats that you're seeing from some of your competition in Western Europe. Are you still seeing that or expecting that to be the case in 2018? Just any major nuances Both in Europe and the U.S. My last question is just on the e-commerce business in North America. How are you feeling about the fulfillment rates versus where you had been in the prior quarter? Thank you.
Yeah. First, on the promotional environment, of course, it's different market by market. The fundamentals are very positive in China, of course. Yes, it has improved slightly in the U.S. It's stable, I would say, in Western Europe. I would say 2018 should be, from a promotional point of view, a better environment than 2017. That's the ingoing assumption for us, also feeding to the guidance of 10% currency neutral, as Kasper mentioned earlier. When it comes to the fulfillment, we're definitely not satisfactory. This is not a satisfactory situation that we have, and will not be fixed very quickly. We made the decisions, especially in the U.S. for West Coast warehouse and also the Northeast warehouse.
We implemented omni-channel capabilities where we start to ship from store to the consumers. There's only so many consumers you can reach with the inventory that you have in the stores, so it's very limited. Until we have these warehouses up and running, the fulfillment will remain a challenge in North America. Just want to repeat it, in Q3 and Q4, and as of today, for an e-commerce consumer, it takes probably four to five days on average to get the product after you ordered it. That will not fundamentally change in the first half of 2018. We just don't know also.
Yes, we lost some demand in 2017, given the warehouse constraints. There's an underlying challenge that we have in the U.S. as well, that if you are a consumer that has ordered something in Q4 and you wait five days, how likely do you buy again? That's something we are looking at. We can quantify the impact of not shipping, but we can't really quantify the impact of unsatisfaction of consumers given that. Before we get to the second half of 2018, we will be constrained from a fast shipment point of view.
Okay. Thank you, guys. All the best.
You're welcome.
Thanks very much, Erinn. Before we continue, let me remind everybody to really stick to the two questions. I think it's a question of fairness to all your colleagues that are queuing up here in our Q&A session, give them a chance to ask their questions as well. We appreciate all the interest and all the questions that you have, really limit the amount of questions to two. Thanks very much.
We will now take our next question from Andreas Inderst from Macquarie. Please go ahead.
Thank you. I have two questions. On your apparel business, Kasper, you highlighted slower growth. You're not fully happy here, as I understand. Maybe you can give us a bit more insight. What is the current strategy here? What are the key initiatives to accelerate the business and to take market shares too? Maybe particularly for the U.S. market would be quite interesting. The second question is related to speed to market. You highlighted that significant progress here, 27%, 28% of sales on speed to market capability. You mentioned in the past a target of 50%. Is that still valid? Does it make sense to keep it on 50% or maybe even more? Maybe on that respect, also, what was the impact from speed to market on full price sales and gross margins? Thank you.
Thank you very much for the question regarding apparel. I'll do that, then Harm will do the speed question. If you look upon the foundation for our Creating the New strategy, it was very much based, taking a starting point in footwear. That's where we use as foundation on the belief that you create more customer loyalty through footwear than you do through apparel. Today, approximately 6% of our business is footwear and 4% of the business is apparel. We grew our apparel business 7% last year, compared to the 16, diluted. Still, overall, an okay number. However, we believe in the bigger context that we have more growth opportunities in apparel moving forward because of our previous focus in footwear. I think there's a couple of areas where we can be better.
One is in the overall use of franchises for apparel, like the Z.N.E. hoodie. Build a franchise, expand the franchise with different models, different pricing points, and different materials. One is franchise management. The second is use of different materials that we've not done before, and I'll give you another example. We've been very successful with the (Cali) shoes, where we sold more than 1 million last year. You would also have seen by mid in last year, we started using the (Cali) material into swimwear. Using different kinds of materials that I've not used before, differentiate through the use of material in our apparels business, I believe gives opportunity for more growth.
Starting with a point, with the understanding our primary focus in 2014 and 2015 was differentiation through footwear, and now you're seeing that we're trying to move some of the learnings we had from our successful footwear expansion back into apparel to drive a higher growth rate than we had in the past. With this, I'd like to hand over to Harm for speed.
First of all, give you credit, Andreas, for sticking to the two questions. I will give you a very good answer on speed, as it's still one of our Choices, and you're absolutely right, 28% of our speed-enabled articles were driving 28% of the sales. It makes sense directionally to stick to the 50%, and it's really important in a more volatile market environment that we really drive the speed initiatives to the full extent. I can't really tell you, as I said in earlier calls, what is the impact on full price sell-through because we don't get all the numbers on a wholesale basis. You will see in '20, or you have seen in 2017, that the quality growth and our gross margin expansion is definitely impacted by our speed initiatives and how we operate going forward. You also see it on the inventory discipline.
For me, I'd rather look at having the right inventory through ordering later, rather than full price sell-through, because it's an easier measure that we can look at. It remains one of our choices and it's definitely rather getting more important. The 50% is a direction, not a hard target. Okay, understood. Thank you. Thanks very much, Andreas.
We will now take our next question from Geoff Lowery for Redburn. Please go ahead.
Hi, team. Could you talk a bit more about conditions in Greater China, and what is driving your top line in terms of price versus volume and performance versus lifestyle, and also what you're doing to accelerate your progress on [inaudible]?
If you look upon, we don't give specific numbers, but the overall growth of China is based on a number of parameters. One is expansion of stores. We have approximately 10,000 stores today, and we're aiming towards a rough target around 12,000 franchise stores by 2020. Second is that we're seeing a significant expansion opportunity when it comes to the entire digital marketplace, not only our own site, but through partnerships with the Alibaba Tencent of this world, which has a much more dominant position than we see in Europe. The entire expansion of digital is very much advanced in China compared to any other market. If you take our franchise stores, approximately 50% of all payment in our franchise stores are done by mobile pay. It's the single highest payment methodology in the world.
There is a physical expansion, there is a digital expansion, and the growth is coming more or less equally from lifestyle and also sport. As you probably know, the Chinese government is pushing quite aggressively the use of sport within the schooling system and the implementation of football as one of the areas of sport. China has traditionally not had sport as part of the curriculum in the school. That has changed now. It's a mixture of many things, lifestyle and sport, physical and digital, and also political expansion, or political pressure for our products. We're seeing an increasingly demand also at the mid-tier price point. We started from the very top, so we have pricing very similar to Europe, but we are, of course, seeing a market that is bigger in the mid-size market.
Over time, the more successful we become in the mid-tier market, it will have an impact on the margin, which was predicted by Harm previous today. The bigger we become, we are hitting different price points with lower margins. If you look upon the overall margin in China, we believe that it is highly acceptable with the current margin landscape we have. On your question on the volume versus price, it is a difficult answer because if you just look at one channel like a franchise channel, it is definitely driven by volume as we get (comms) into same doors and expand to new doors. There is a significant factor of the overproportional growth of e-commerce as well, where you get the retail value is a lower volume, right? It is a mixed bag. It is definitely a combination of both volume and price.
That is great. Thank you, team.
Thanks very much.
We will now take our next question from Piral Dadhania from RBC Capital Markets. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. Quickly on e-commerce, could you perhaps explain where the acceleration in the fourth quarter came from, and maybe break that down by region, if possible? Are you seeing any normalization or improvement in your returns rates within the e-commerce channel? Secondly, just on China, again, if possible, could you perhaps give us a bit of an update on how the competitive environment is evolving and how you view local brands, in relation to Western brands? Is it more competitive now, and are you having to work harder to generate the growth rates that you're posting? Thank you very much.
Let me continue with China since we were at China before. China has been and will continue to be a very highly competitive landscape. I think that it's important to understand that that was never a walk in the park. It is a very competitive landscape, which also has some strong local players. Most of the local players are occupying price points which are lower than our traditional price points have been, and that's why we're looking at one from an expansion standpoint to take our price points and move them down, also to complement our current products with lower price products. We still see the Chinese market as being very attractive for us, also moving forward, both from a top-line standpoint and a bottom-line standpoint. I would argue, we always say it's a high competitive environment. That it is, and that will remain so.
We don't see any change there. There is, however, no indication that the Chinese consumer would prefer local brands versus global brands. I would say the other way around, that the global brands still have a very high level of attractiveness and aspiration for the typical Chinese consumer.
Particularly, the further you go down in the market, the more attractive it is because you attract the consumers that before have not been able to buy into those brands. We still believe that we have a huge opportunity in China moving forward with the expansion plans that we have. On the e-com side-
Just on the e-commerce on the fourth quarter, e-commerce will always remain the most significant quarter in our business overall. What we're driving this one, we are just getting better prepared, and we're taking the learnings from the past on things like Singles' Day. We have been better prepared. We have been better bought for it. We've partially repeated Singles' Day in China on 12/12 again, which is another significant day that we have in China as well. We're not just talking about Cyber Monday in the U.S., but we are actually expanding Cyber Monday to several days starting from the day before Black Friday and until Cyber Tuesday, whatever, we're expanding this period as well. We're better prepared for these as well.
There's also significant World Cup drops, specifically with the jerseys and the ball in Europe, primarily, but also in other markets when it comes to jerseys. We had 2 significant Yeezy drops as well, primarily in Western Europe and in North America as well, that fell into the fourth quarter. From a market point of view, as we said in previous calls, 80% of the growth is largely coming from the 3 key markets, which is China, Western Europe, and North America, and that is pretty much unchanged. As we started late in China, you can expect an overproportional growth in China in general, not just in Q4.
Thank you. That's very clear. Thank you, Harm. Kasper, just quick follow-up. Is that to suggest that in China, you're going to extend the product architecture from a price perspective downwards while maintaining premium price products? You're going to expand the overall merchandise offer as you expand into lower tier cities. Is that fair?
Yeah, that is very consistent to what we've also done in other markets. In China, when we came in, we deliberately, because the market was in a different stage, it was less mature, we started at the very high end, it's a normal evolution. We're not going to be a low price company. Let me just be clear on this so I don't remove any kind of anxiety that's in the room. Of course, we do want to try to take certain of our price points down like we've done in Europe and the U.S. also to address broader base. At the same time, we clearly do not want to aspire to be a low price brand. We want to be a high price brand that people can aspire to, but hitting sequentially lower pricing points.
Oh, that's very clear. Thank you very much.
We will now take our next question from Erwan Rambourg from HSBC. Please go ahead.
Yeah. Hi, good afternoon, gentlemen. Erwan Rambourg from HSBC. Two questions. I'll stick to it, promise. First of all, following up on that comment of more access price points, I had noted that one of the big untapped opportunities in the U.S. was the development in family footwear in that channel, and I'm just wondering if you could update us on how that's going and what you think for 2018 and beyond. The second question is around, sorry to belabor the point, but the guidance for 2020, 11.5% operating margin, presumably FX has a role to play in this, and I'm just wondering, obviously, when you gave guidances before, you were in an environment where FX was not as favorable as it could be now with the euro/dollar at 124.
I'm just wondering if you can comment on what the role FX has to play, and how does the FX tailwind look like for 2019 and 2020 if we were to keep the current spot rates still valid? Thank you.
Let's start off with the first one, Harm will take the second one. Of course, we are seeing incredible opportunity in the U.S. in places like Kohl's or Famous Footwear. We can also find a set of our products today, which you couldn't find a year ago. We've been very selective in the U.S. in our expansion strategy because we want to make certain that we are building a foundation upon which will last for a long time in contrast to some of the learnings of the past. We start off by almost exclusively going through Foot Locker. We expanded to a number of other franchises or partners. Now with DICK'S Sporting Goods. From DICK'S Sporting Goods, we move into Kohl's and Famous Footwear.
Of course, we're moving broader at the high end, we're moving also in now to the family, quote-unquote, part of the distribution channel, because that's where a huge part of the market is. We just want to make sure we do it sequentially right so we don't overload the market, we don't build inventory positions, and we don't harm the brand. We see the opportunity. We're executing upon the opportunity. It will help us achieve the task we have from the U.S., but we're trying to do it in the right way. From a 2020 guidance standpoint, I'll hand over to Harm.
Just on the 11.5%, we are definitely not betting on every currency development in 2018, 2019 or 2020. Of course, it's a simple calculation. As dollar weakens further, it sounds like it's easier to get to the operating margin. On the other hand, don't forget there is significant translation impact as well. As Kasper Rørsted mentioned earlier, if we would get to 10% currency neutral growth, and this is nominal only 5% or less, we have a lot of costs denominated in EUR or pound or other currencies than dollar. There's definitely stress on the organization as well to be disciplined on cost. Even if you get a probably nicer operating margin through the currencies, it's also getting harder to get to the absolute net income. Don't forget about this one.
That's why we need to be disciplined also on the quality growth. If the nominal growth rate isn't what the currency neutral is, we've got to be really disciplined on the quality growth to get the respective gross margin and leverage our infrastructure that we have. The guidance that we gave for 2020 is given the progress that we have made in the first two years and our confidence to leverage, regardless of the top line, our infrastructure, and that's what it's based on. It's not betting on currencies up or down because it could move in any direction, as we learned in 2017. That was our answer, Erwan, was that okay?
Yeah. No, that's fine. I'm not taking a bet on currency either. I'm just looking at the current spot rates. I'm thinking these spot rates will give you a pretty good tailwind. Not this year, obviously, but more in 2019. I'm just wondering if you could give us an idea of how much that, again, not taking a view on currency, let's just imagine that the spot rates remain. How much does that help 2019 and 2020?
The straight answer is, we don't worry about the spot rate.
Okay. That's clear. Thank you.
Thank you very much.
We will now take our next question from Anna Andreeva from Oppenheimer. Please go ahead.
Great. Thanks so much. Good afternoon, and congrats. Great results. Two questions for us. A follow-up on Europe. Can you maybe talk about performance versus your expectations? Any differences you saw by country? What was the amount of the World Cup sell-in, and what's driving that deceleration to mid-single digits in 2018? Secondly, just bigger picture, curious on your thoughts about the pipeline of innovation for 2018. Should we think this year will be driven more by expansion of current franchises or more new franchises? Thanks so much.
No, let me start with that. I think I tried to give you a good explanation. It's got to be a mix of all. If you go to page 37, it's a mix of existing franchises, new franchises. Existing, we still believe have a long way. We'll continue to implement new franchises and then using technologies to build brand heat. It's very similar to what we're trying to do with football. We are diligently managing our franchises through its life cycle to ensure that we don't overexpose them. When it comes to Europe, we don't break it down to the level that you would like us to break it down to. I can't give you much guidance on the detail that you would like to.
However, we do see the European market being less attractive this year from an overall growth profile than we've seen in the previous years, and that's built into the numbers. football, as I said, has a tremendous brand impact, has relative to the overall company, a much lesser financial impact, simply because we're becoming so much better and bigger. There are 32 teams that qualify. A big part of those teams are outside Europe. We have 12 of those teams. We have three in Western Europe, if I remember correctly. It has a contribution in 2017. In the fourth quarter, you are seeing a lesser contribution than you've seen some years ago. That's the macro of the question.
A European market that is growing at lower rates, a growth profile between existing and new, but also with a lot of energy put into driving select franchises, select models that will drive brand heat into us as an organization.
Thanks so much. Very helpful.
Thank you.
We will now take our next question from John Kernan of Cowen. Please go ahead.
Harm, you indicated that you're actually seeing the 2018 markets to be less promotional. At the same time, you're saying you're pushing new franchises into the marketplace, and the old ones are also still doing fine. Help us better understand why the sales line is such a big challenge for you at this point in time. Maybe some additional words here on that one. And then secondly, on store growth, I think in 2017, you had, on a net basis, store closures. I was wondering how you see that rate developing in 2018, 2019, and 2020. Thank you.
You open, Kasper. Here, let me just speak a bit about the franchises. When we say that existing franchises are doing fine, I think it's important to understand that each franchise has a life cycle. That means we manage it through the life cycle. For us, of course, we know, and I'll use two examples, that the growth rate of Stan Smith and Superstar are now by far not what it was 18 months ago that we have seen in the last 6 to 12 months. In the context, when I'm saying they're doing fine, they're doing according to the basic expectation that we have. The plan is, which you could see in our slides, we've consistently spoken about how much of the growth is coming from new franchises to replace existing franchises.
That is in that context when we're saying they're doing fine, they're doing fine in the context of what our expectation said. We need, of course, to implement new franchises to deliver growth to replace existing franchises. Some of them will take longer, particularly because a Stan Smith or a Superstar is such a massive franchise globally. We all know, and I hope you do also, that franchises doesn't last forever. It's managing through the cycle up, managing down, and then eventually managing up again. If we're not clear on this, I apologize.
Clear.
The second point is the store closure impact. In 2017, we roughly closed a net 220 doors. A lot of these, of course, in Russia, which led to the double-digit decline in Russia. Of course, these closures, as they happen throughout the whole year, will impact still 2018 because there still has been some sales in the first couple of quarters. We believe we will not continue on the same level, but we are planning on roughly 170 doors again to be closed in 2018, and that is reflected in our guidance. It's predominantly coming out of Russia again. That's why we're also guiding a bit of flat market in Russia. There's some uptick, hopefully, through the event, but there will be more closures in Russia as well.
I also want to repeat, if we believe if the currencies aren't moving as we expect them to move, and there's more stress on the nominal rates, we will look at the quality of the growth again and might be more aggressive in some of the stores, wherever they are, because I think we want to make sure that we are here for the long run, even beyond 2020. If we need to act, we will act.
Very good. Thank you very much.
Thank you, John.
We will now take our next question from Omar Saad from Evercore ISI. Please go ahead.
Thanks for taking my question. Great finish to the year. Congratulations. I was hoping that you could shed some light. If you look at some of the retailing chains across Europe and North America, the results they're posting are slowing. There's negative sales growth, negative comps. Obviously, it's not what you guys are experiencing in your business with your brand. Could you help maybe talk about, is there an underlying channel shift going on there and what that means for the business versus the way you guys ran your businesses historically? Because it feels like there's a disconnect between a lot of the retailers, again, especially in North America and Europe versus what you and other brands are seeing in their businesses. My second question was, I was hoping you could just maybe elaborate on the old. It was interesting to hear the new management incentive system.
It's great to hear. Maybe contrast it with the old system and how that's changed and what the response has been internally to it. Thanks.
What we're seeing is, I don't believe I should comment on retail by retail. They need to comment on their business. I think that the biggest shift you're seeing is really the shift towards digital across all markets. That has a disruptive impact, and those retailers that have strong online platforms continue to benefit. It's clearly that we are seeing, particularly the smaller retailers, will continue to struggle and is struggling moving forward. There is that. There is particularly in the U.S., the entire challenge around the mall structure that you probably know better than I, that those retailers that have a higher exposure to, I would say, lower quality or lower attraction located malls are suffering more than that. I think that the biggest switch we're seeing is brick-and-mortar to digital, and of course, that's where we see the opportunity in the U.S.
We have been less exposed than some of our retail partners simply because we were under distributed in the U.S. and still under distributed in the U.S. When it comes to our comp system, let me just try to be very crude, but explain what it will consist of. For the management board, I hope that if you're a shareholder, you vote for it because we believe it's a very, very easy one to understand. We are only compensated when it comes to LTI on the incremental net income for the next three years. We have a target every single year of EUR 210 million incremental net income. If we overperform one year, the starting point is higher. Let me be very easy. We ended this year with a net income of EUR 1,430.
The net income target for long-term incentive next year or 2018 is EUR 1,430 plus EUR 210, EUR 1,640. If we do EUR 1,660, then of course, we overachieve in the first year, but we still have to add EUR 210 to the EUR 1,660. If we underperform, we have to add the EUR 210 plus the underperformance of that. We then get allocated options in our shares every year that pays out with a 3.5-year vesting. That means if you were to do the right thing, if we did EUR 210 every year, we got shares in year one, two, and three. In year four, shares from year one vested. In year two, in year five, shares from year two vested, etc. Of course, the value of the share, you only know when it vests.
If we do the right thing in year one and get the award of the shares, we only know the real value in year four because that's where the number of shares are multiplied with the share price. It's a very transparent one. It's completely aligned to the target we gave out of 22%-24%, and it's sitting right in the middle. 23% gives you EUR 210 net income every year. In the old model, we had five criteria which had very little to do with what I speak about right now, and I'll get there in a second if you're interested. In our short-term incentive, 60% of our short-term incentive is down to two criteria.
It is operating margin to the 11.5%, so to speak, and for this year it's 10.4% because we're guiding between 10.3% and 10.5%, and currency neutral, and we measure 100% is a 10%. You become very transparent. 80%, as I said, of the variable income that we have is 100% aligned one-to-one to what we are speaking about right now. You look on the old one, it was net income from continued operations. It was increase in presence on the U.S. It was share price development improvement. It was retail profitability and improvement in sustainability. It was quite difficult to be very transparent. It was difficult to show what the target is. Here, you know exactly what the target is, and the target gets converted to shares, and the share price is a determining factor how much we're getting out.
After the 3.5 years listing. That's what we believe is the most transparent compensation system that I believe that's in the market right now, and is one that is completely linked to the guidance that we're sitting giving you, LTI, here today and STI for the fiscal year 2018. You know how we're compensated right now. There's a description in our annual report, but I really hope you support us in this. Total transparency, completely linked to the targets we're speaking about. No adjustments, by the way.
That's excellent, Kasper. Thank you very much. Good luck.
In addition to that, we also aligned our top leaders in the organization to that incentive system as well. In the past, we had an LTI for China or for e-commerce or for North America, and our top leaders are aligned on earnings per share growth as well on their LTI. That's something we implement already in 2017.
Thanks.
Okay, thanks very much, Omar. Tracy, we have time for one more question, please.
We will now take our last question from John Kernan from Cowen. Please go ahead.
All right, thanks for sneaking me in there. Just congratulations on tremendous performance, particularly in the digital space, 57% growth in Q4. How should we think about your investments in digital? My follow-up to that is, how do we expect the margin mix shift from growth in digital to play out? Thank you.
You should think about our investment into digital in the entire end-to-end chain. What we mean by that is from consumer engagement to demand generation and transaction to the fulfillment. When Harm speaks about we are building large warehouses in Europe, in the U.S. or in China, that's actually related to digital. We're opening one of the largest e-com warehouses, or probably the largest we have, as we speak, on the German border to Belgium and Holland. You should look upon it in the entire context of from consumer engagement to fulfillment of it. What we are doing is we are investing in people, substantial increase in our capability than we ever had. We're investing in software and solutions. We're investing in infrastructure. We're investing in traffic, because we believe this is an extremely attractive business model for us.
It is accretive to our overall business from a margin standpoint, despite the higher return rates, because, of course, there is no "middleman," and that's why it's not only attractive for us financially, but it's also very attractive for us because we see the pulse in the marketplace every single day. We know the demand for every franchise every single day. Whereas if we do it through wholesalers or some of our own retailers where we don't have the same sophistication level or systems, we don't have the same market touch. It's strategically relevant for us, it's financially relevant for us, but it does imply a fairly large investment in people, systems, and physical infrastructure.
All right, thank you. Best of luck.
Thanks very much, John. Thanks very much to Kasper and Harm. Ladies and gentlemen, this completes our conference call for today. As you know, our next reporting date will be in less than two months on May 3rd, 2018, for our Q1 results. We all look forward to speaking to and seeing many of you over the next couple of weeks and months during our roadshows here in Europe and also over in the U.S. If in the meantime you have any questions, as always, please don't hesitate to reach out to Christian, any other member of the team or myself. We will always be happy to assist you. With that, I would also like to thank you for participating in today's call. Wish you a great day and bye-bye. Thanks very much.
This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.