PUMA AG reported another quarter of strong double-digit growth, with all of the gain coming from the conversion of distributor businesses into direct sales organizations and continued gains in the Americas, particularly in the U.S. Profit growth has started to moderate, inching up in low-single-digits for the quarter, as the company over-invests in the upcoming World Cup and other early initiatives related to the companys Phase IV of its strategic plan. Declining gross margins also had an effect, as margins dipped a bit in the EMEA business and sales increased as a percent of sales in the lower margin Americas and Asia markets.
Sales and EBIT in the EMEA region, which includes Europe, the Middle East, and Africa, actually declined in the quarter and made up just 53% of total sales for the first quarter, compared to over 72% in the year-ago period.
Still, the company pointed to a resurgence in the open order backlog for the EMEA region and the overall performance in the first quarter in raising its sales forecast for the year. Puma now expects to see growth of “up to 35%” for the fiscal year to nearly 2.4 billion. Net earnings, which are expected to be further impacted by the investment in Phase IV initiatives, including the World Cup and distributor consolidation, are now expected to be down in high-single-digits below 2005s results, which represents an improved outlook from earlier estimates of a decline of 10% to 15% from the prior year and initial estimates that the various initiatives would push 2006 earnings down approximately 20% for the year.
Total consolidated sales increased 29.3% to 642.0 million in the first quarter from 496.5 million in the year-ago period, reflecting a 25.4% increase when reported in currency-neutral terms. Organic growth was 10.7% while new consolidations contributed over 18 points of the increase. Measured in Euros, Footwear sales were up 18.0% to 399.1 million and futures were up 29.8% to 720 million. Currency-neutral Footwear sales were up 14% for the period, while Apparel grew 59.8% and Accessories jumped 19.3% on the same basis. In Euro terms, Apparel sales jumped 63.1% to 202 million, due in part to the buyout of the Japan apparel licensee, and Accessories climbed 26.1% to 42.0 million. Apparel backlog was up 49% to 309 million and Accessories backlog was up 35% to 68 million.
Overall licensed revenue declined 34.1% due to the consolidation of the Japan, Taiwan, China, Hong Kong, Argentina, and Canada distributor businesses, but increased 9.9% to 87 million on a comparable basis.
By region, EMEA sales were down 5.4% to 339.3 million in the first quarter from 358.5 million in the year-ago period. Gross margins in Europe were down about 400 basis points to 55.2% in the period and EBIT declined 6.0% to 187.3 million.
Backlog growth of 12% to 600 million in Europe at quarter-end was a bright spot after the same metric had declined 5.5% at quarter-end last year. The World Cup in Germany this year was expected to boost gains in Q2, but the growth appears to be more widespread with increases coming from all countries in the region.
The Americas expanded its percentage of the total business to 28% of sales from just 19% in Q1 last year. Continued growth in the U.S. and the consolidation of the Canada and Argentina businesses contributed to the impressive gain here. In Euro terms, revenues grew by 93.1% to 182 million, but gross margins declined 140 basis points to 46.1% of sales. Organic growth in the U.S. market was up 62.4% to $157 million. EBIT in the Americas was up 99% to 86.4 million.
Order backlog in the Americas was up 88% to 310 million in Euro terms, and up 72% in currency-neutral terms. U.S. order backlog was up 46% to approximately $277 million at quarter-end, possibly signaling an even stronger back-to-school opportunity than last year when futures were up just over 36% at quarter-end.
Asia/Pacific sales jumped 180% in currency-neutral terms and increased 177% in Euro terms to 122 million for the quarter. Organic growth accounted for 18% of the gain. Gross profit margins increased 100 basis points to 51.9% of sales on top of a 290 basis point improvement in Q1 last year. EBIT for the region jumped 183% to 63 million.
Asia/Pacific order backlog increased 115% in both Euro and currency-adjusted terms to 187 million at quarter-end.
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| Puma AG | ||||||
| First Quarter Results | ||||||
| (in $ millions) | Group Sales | Backlog Change | ||||
| 2006 | 2005 | Change | Neutral* | Change | Neutral* | |
| Group Sales | $772.0 | $651.6 | 29.3% | 25.4% | 35.0% | 31.3% |
| EMEA | $408.0 | $431.1 | 3.3% | n/a | 12.0% | n/a |
| Americas | $218.7 | $123.6 | 93.1% | 75.2% | 87.8% | 71.6% |
| U.S.** | $156.6 | $96.4 | n/a | 62.4% | n/a | 45.9% |
| Asia/Pacific | $146.4 | $57.5 | 178% | 179.5% | 115% | 115% |
| Footwear | $479.9 | $443.9 | 18.0% | 14.0% | 29.8% | 25.5% |
| Apparel | $242.4 | $162.2 | 63.1% | 59.8% | 49.1% | 46.4% |
| Accessories | $50.7 | $45.5 | 21.6% | 19.3% | 34.6% | 32.1% |
