Riding continued momentum in its women’s offerings, Puma reported significant gains in earnings in its second quarter as gross margins improved 90 basis points and sales climbed 16 percent on a currency-neutral basis.
On a conference call with the media, Bjørn Gulden, Puma’s CEO, said the company achieved double-digit growth in all regions and in both footwear and apparel in the period. He particularly credited Puma’s success in reestablishing strong traction in the footwear category and success in women’s.
Asked why sales growth has been accelerating over the last two quarters, Gulden said that when Puma started its initial turnaround plan four years ago, it first had a mid-term plan to reestablish the brand “stone by stone.” With the investments, some acceleration was expected in the first and second quarter although he admitted revenues are “growing faster than we actually expected.”
Among categories, Gulden said clearly the “biggest growth” is coming in footwear and that’s helping the overall brand’s growth. He noted that it’s critical for a sports brand to lead with footwear “because that’s where the innovation is and the technology is and that’s where you get a niche for your brand. And we worked hard on that and I think this is the 11th quarter in a row that we grew in footwear.”
He also noted that new product, especially on the women’s side, is selling “very well” in both lifestyle and performance and new introductions on the mens’ side have recently “sold well.” He added that what he described as the “new Puma has resonated well with the consumer and that is currently what brings us our success.”
At the same time, Gulden stressed that Puma’s turnaround is still a work in progress, noting that he doesn’t feel the brand is “excellent in anything yet” and its operating margins still significantly lag competitors. Gulden added, “We still have a lot improve and I don’t celebrate this as a huge success but it’s another step in the right direction and we feel more comfortable now than a year ago. And a year ago we felt more comfortable than the year before. So I would say it’s a normal development for a great brand that now has a long-term view, a good long-term owner and decent management.”
Second-quarter results were in line with a forecast given on July 17, when the company also raised its guidance for the year.
In the quarter, sales jumped 16.3 percent currency-adjusted to €968.7 million ($1.14 bn) and grew 17.2 percent in euros.
Footwear led the way with sales of €463.0 million ($543.4 mm), up 28.5 percent in euros and 27.2 percent on a currency-neutral basis.
Puma share in footwear improved 53 basis points to 1.5 percent while sales increased in the high- double digits in the calendar first half through June 2017, according to SSI Data, powered by SportsOneSource. The solid sales growth outpaced the overall footwear business trend in the period in the SSI Data Measured market.
Puma saw a strong double-digit sales increase in the Big Box & Mall Specialty as well as the Internet segment. Women’s Fenty Bow colab with Rihanna, which added a fashion flare to the old school Trinomic running style and updated court style Women’s Basket Platform style led the top Seller Chart in these segments. At the Footwear Retailer segment, sales improved in the low teens as classic styles Roma and Basket top the charts.
Apparel revenues were €334.8 million ($461.1 mm), up 11.9 percent on a reported basis and 11.4 percent currency-neutral. Accessory sales reached €170.9 million ($200.6 mm), up 2.3 percent in euros and 1.3 percent currency-neutral.
By region, sales in the Americas grew 12.4 percent to €354.6 million ($416.2 mm) and added 10.5 percent on a currency-neutral basis.
On the media call, Gulden noted the market shouldn’t ‘read anything” into the slowdown in the U.S. to 10.5 percent growth on a currency-neutral basis in the second quarter from 17.0 percent in the first quarter. He said 80 percent of the American market is wholesale and sales are booked when they’re delivered.
“The most important thing is that the retail and the sell-through numbers that we have are going in the right direction,” said Gulden of the Americas region. He still said Puma is addressing the region “one step at a time” by continuing to work on gaining additional “good space” at key accounts.
He added, “Some of the products have sold very well, some of them have sold average and some haven’t done well. And the goal that we have is of course to have more and more product that is selling well and then we can continue to grow double digits in the Americas.”
In Asia/Pacific, sales increased 20.8 percent in the quarter to €229.0 million ($268.8 mm) and grew 19.5 percent currency-neutral. In the EMEA region, sales improved 19.9 percent to €385.1 million ($452.0 mm) while gaining 20.1 percent currency-neutral.
The gross profit margin improved, despite negative currency effects, from 45.6 percent in the second quarter last year to 46.5 percent. Improving sourcing and price adjustments supported the gains.
Operating expenses (OPEX) rose 11.4 percent to €410.8 million($481.1 mm) mainly due to higher sales-related variable costs as well as further marketing and retail investments. Costs for other operating functions grew only moderately. Due to the top-line growth, OPEX was reduced as a percent of sales to 42.4 percent from 44.6 percent.
EBIT increased from €11.9 million last year to €43.4 million ($50.9 mm), or 4.5 percent of sales, due to strong sales growth combined with an improved gross profit margin.
Net earnings increased from €1.6 million to €21.9 million ($25.7 mm) and earnings per share were up correspondingly at €1.46 compared to €0.11 in the second quarter last year.
As noted on July 17, Puma now expects that currency-adjusted sales will increase between 12 percent and 14 percent for the year, up from previous guidance calling for an increase at a low double-digit percentage rate. EBIT is now anticipated to come in between €205 million and €215 million, up from previous guidance between €185 million and €200 million). EBIT was €128 million in 2016.
Elaborating on progress in the quarter, Gulden noted that success among its sponsored teams in global football included BVB Borussia Dortmund snatching the German DFB Cup, Arsenal FC claiming the FA Cup, Mexico’s Chivas winning the 2017 Liga MX Clausura title, and the Cameroon national team winning the 2017 Africa Cup of Nations.
At the UEFA Women’s Euro 2017, 67 players will be wearing Puma shoes, including 14 playing for Germany. Puma also sponsors a number of soccer stars competing, including Ada Hegerberg (Norway), Dzsenifer Marozsan (Germany), and Eugenie Le Sommer (France).
In running, Usain Bolt is expected to retire after the IAAF World Championships in London at the end of next week but he will remain Puma’s brand ambassador beyond his active athletic career and Puma is sponsoring a number of other elite runners. These include Canadian sprinter Andre de Grasse, the reigning Pan American champion in the 100 meters and 200 meters, and a number of newly-signed Jamaican sprinters, including Julian Forte, Bronze medal over 400 meters at the Rio Olympics, and Shericka Jackson., Silver medal winner in the 4×400 meters relay at the Olympics.
In Motorsport, Puma’s three partnered F1 teams Mercedes AMG Petronas, Scuderia Ferrari and Red Bull Racing are currently at the top of rankings.
Strategically, the focus remains on five priorities: creating further brand heat, increasing the pace and quality of its product launches, strengthening distribution by delivering results for its key retail partners, further accelerating speed in its organization and growing its women’s business across Sports Performance and Sportstyle ranges.
“The improved financial results, better sell-through performance as well as the continued positive feedback from our retail partners confirm that Puma is on the right track,” said Gulden.
Beyond signing new sports assets, Puma has also signed “other cultural icons,” including Grammy-nominated, multiplatinum recording artist Big Sean as its new creative collaborator and global ambassador. Big Sean will be coming out with an exclusive collection in Spring 2018 and will be the face of the next Puma Classics campaign this summer.
In women’s, the successful “Do You” campaign continues around celebrities such as Cara Delevingne, the New York City Ballet and Kylie Jenner. Strong demand was seen for the Basket Heart, a classic silhouette with a unique feminine touch, and for the Fierce, which has become a big driver of women’s footwear. A highlight in women’s apparel has been the Velvet Rope collection, which melds Sportstyle and Training pieces.
Other newer launches have been its “Run The Streets” concept that combines performance and style as well as the Ignite Evoknit, Ignite Limitless And The Brand New Sportstyle Franchise Tsugi – all featuring Puma’s Ignite midsole technology “but at the same time they have a progressive fresh look inspired by urban culture and street style,” said Gulden.
Netfit, its customizable lacing system for runners, has been extended into the Sportstyle category and will also be used in its football shoes 365 Netfit and Future.
In distribution, strengthening relationships remains critical as well as making sure “our retail partners earn money with our products.” Gulden added, “In this spirit, we have worked hard to fulfill their needs and maximize our contribution to their business. As the demand for our products has often exceeded expectations this year, our key account teams worked closely with our sourcing organization to ensure product availability of popular styles. Improved sell-through has led our retail partners to dedicate more shelf space to Puma and to feature our products more prominently in their stores.”
Puma’s owned and operated retail store network continue to undergo upgrades and is seeing select openings, such as the full price store on Carnaby Street in London and a new outlet store concept. In addition, Puma.com is being relaunched in a more modern and mobile-friendly format with the new European website going live in June.
In the media conference, Gulden noted that Puma had undergone a period where it needed to “over-invest relative to” sales in many areas to regain its sales momentum and the reason profits are growing is because the brand is finally gaining “leverage” with sales starting to expand.
The brand still expects to keep its marking budget between 10 to 12 percent or revenues. The CEO sees continued investments in sports and mentioned that Puma is “looking at” investing in American sports. At the same time, investments will continue in “celebrities” such as Big Sean, Kylie Jenner, Rihanna and The Weeknd.
Overall, Gulden noted the company’s EBIT margin remains near 5 to 6 percent of sales and we “need to get higher.” He added that the “whole package” – including improved product, marketing, distribution and operations – will have to successfully work “hand in hand” to continue Puma’s recent momentum.
Gulden added, “I think we can only get higher by still executing in the way that we are doing. We need to continue to innovate and I would say be a little bit disruptive in the way we do market things so that people notice what we’re doing. We need to have our own DNA in the product and I think the teams have done that well, especially on the women’s side but now slowly also on the men’s side. And then we know, especially with our size, there’s some potential in all markets to grow with us. So we are not at the end in any market to be honest.”
Photo courtesy Puma
