Q3 even better than fans hoped for Adidas'' Q3 EBIT was 10% higher than consensus and over 20% ahead of the mid-point of management''s August guidance. This demonstrates how the environment had evolved through the quarter, despite a slowdown in China. With such a strong performance, the company could afford to be prudent in its sell-in to the wholesale channel, and this should support future quarters. Nevertheless, management''s Q4 guidance was cautious due to recent lockdown measures in Europe, and this mostly offsets the beat in Q3. Q3 results: operating margins back into double-digits Q3 EBIT of EUR 794m was 10% ahead of consensus (EUR 720m) and represented an operating margin of 13.3%, just -70bps yoy despite sharply negative currencies and continued effects of the pandemic. Notably, direct to consumer represented 40% of sales in the first nine months (versus 30% in the prior year), and we estimate that close to half of this was from online. Q4 outlook: guidance disappoints Management has seen a good start in October and is confident that China can return to growth in Q4. However, the European lockdowns could lead to low- or mid-single-digit declines in constant currency sales. We are a little more optimistic (-2%) and factor in EBIT of EUR 208m, roughly at the top of management''s guided EUR 100-200m range. More importantly, however, inventories look likely to be clean by year end, management remains bullish about its product pipeline, and will set out its five year strategy in March with DTC boosting the margin potential. Valuation: on a par with peers On CY22 P/E Adidas trades on 26.8x (at EUR 281.5), similar to Puma (28.9x). We nudge up our target price, reflecting increased optimism about margin potential, but maintain our Neutral rating. We set out 15 questions for management inside.