Puma AG reported that consolidated sales for the third quarter were up 32.2% in currency-neutral terms and by 30.3% when measured in Euros, to 699.2 million ($892 mm). By segments, Footwear increased 19.8%, or 21.5% currency-neutral, to 420 million ($535 mm), Apparel improved 57.5% (58.5% c-n) to 235 million ($299 mm) and Accessories were up 21.3% (23.9% c-n) to 45 million ($57 mm).
PUMAs branded sales, which include consolidated sales and licensee sales, increased 13.7% currency-neutral, or 12.5% in Euro terms, to 786 million ($1.0 bn) in the third quarter.
Sales for the first nine months grew 31.7% currency-neutral and 32.2% in Euro terms, totaling 1.89 million versus 1.43 million last year. Organic growth contributed 12.8% and new consolidations 19.4% to the overall performance. By segments, Footwear was up 20.2% (currency-adjusted 19.6%) to 1.15 million, Apparel increased 65.7% (65.1% c-n) to 618 million and Accessories improved by 21.9% (22.8% c-n), totaling 124 million.
For the first nine months, branded sales were up 14.0% in currency-neutral terms, or 14.7% in Euro terms to 2,142 million. Footwear sales increased 12.2% (11.5% c-n) to 1,209 million, Apparel rose by 18.5% (17.7% c-n) to 742 million and Accessories improved by 17.2% (16.5% c-n) to 191 million.
On a comparable base, the licensed business increased by 3.2% in Q3. Due to the take-backs of several license markets, total actual licensed sales declined from 162 million ($198 mm) to 87 million ($111.9). Based on the remaining licensed business, royalty and commission income was 9 million in Q3 and 25 million after nine months.
Gross profit margin reached 50.4% in Q3 compared to 52.1% last year and remained at 51.4% on a high level after nine months. This development is mainly influenced by regional and product mix and was in line or slightly better than expected. Footwear margin declined from 53.1% to 51.2% and Apparel from 52.6% to 51.2%. Accessories improved from 51.5% to 54%.
Due to the strong brand investments and the regional expansion total SG&A expenses increased in Q3 by 44.7% and 48% after nine months and totaling 228 million or 644 million respectively. As a percentage of sales, the cost ratio increased as expected from 29.4% to 32.6% during Q3 and from 30.5% to 34.1% for the first nine months.
For the nine-month period, Marketing/Retail expenses were up from 13.9% to 16.6% on sales, totaling 313 million compared with 198 million last year. In particular, the marketing campaign for the World Cup, other marketing and retail initiatives as well as the license take-back program contributed to the increase. Product development and design expenses increased 34.9% to 40 million and were flat as a percentage of sales. Other selling, general and administrative expenses were up 40.3% to 292 million and increased as a percentage of sales from 14.6% to 15.5%. The increase in other SG&A expenses is related to the extended infrastructure and operations for Phase IV expansion and is in line with expectations.
EBIT margin reported strong 17.6% in Q3. In absolute terms, operating profit amounts to 123 million ($169 mm) versus 129 million ($166 mm). Taking into account the full-year guidance of a high single-digit decline given the high brand investment, the year-to-date EBIT came out better than expected.
Net earnings were 87 million ($111 mm) versus 92 million ($112 mm) in Q3. This translates into a net yield of 12.5% compared to 17.1% in last years quarter. Earnings per share in Q3 were 5.41 ($6.90) compared to 5.70 ($6.96). Diluted EPS translated to 5.39 ($6.87).
Regional Results
Due to the license take-backs, the regional mix changed as expected resulting in a more balanced business portfolio. EMEA now accounts for 51.8% (last year 66.1%), Americas for 29.1% (23.8%) and Asia/Pacific for 19.1% (10.1%).
The EMEA region reported sales of 378 million ($482 mm) in Q3, a strong growth of 9.4% versus last year. Year-to-date, sales increased 3.7% and totaled 978 million. The gross profit margin reached 54.2% compared to 54.9% last year. The order book at the end of September was up almost 3% currency neutral or 1.6% in Euro terms and amounted to 518 million ($657 mm) compared with 510 million ($614 mm).
Sales in the Americas reached 195 million ($249 mm) in Q3, a currency neutral growth of 45.7% or 42.3% in Euro terms. The gross profit margin decreased from 47.7% to 46.8%. U.S Sales were up nearly 29% to $206 million. Future orders in the Americas region finished the quarter at 284 million ($360 mm), a currency neutral growth of 29.7% or 26% in Euro terms. In the U.S. market sales increased 23.1% in Q3 and strong 41.8% year-to-date. Due to a high base effect resulting from the particularly strong order growth in Q3 last year (+78%), future orders for the U.S. were only slightly above last years level at $245 million.
In the Asia/Pacific region sales improved 145.6% currency neutral and 134.9% in Euro terms to 126 million ($161 mm) in Q3. The regional expansion in particular contributed to the overall sales performance. Due to the new consolidation in this region, the gross profit margin was down 120 basis points and reached 50.6%. As of September, the order book was up 135.6% currency neutral and 127.5% in Euro terms and totaled 222 million ($282 mm).
Board of Management
Martin Gänsler informed the Supervisory Board that he is not planning to extend his current contract beyond 2007 as he is planning to retire from his duties after that. He will be actively involved with the search of his successor, who will be announced at a later date. Over his 25 year career with PUMA, Gänsler has been serving as Member of the Board since 1993 and since 1998 as Vice Chairman, overseeing Research, Development and Design, and Sourcing.
Outlook 2006
Total orders on hand as of September increased by 25.5% currency-neutral or 22.9% in Euro terms, reaching at 1.02 million ($13. bn) the 43rd consecutive quarter of order increase. The orders are mainly for deliveries scheduled for Q4 2006 as well as Q1 2007.
In terms of product segments, Footwear increased 12.8% (currency adjusted 15.6%) to 668 million ($848 mm), Apparel 53.8% (55.3% c-n) to 297 million ($377 mm) and Accessories 23.1% (28.7% c-n) to 58 million ($74 mm).
The fourth quarter is expected to generate continued strong top-line growth. Hence, management confirms the full-year guidance, which was already upgraded earlier this year with a currency adjusted sales growth of up to 35%.
The full-year gross profit margin should range at the higher end of the given range between 50% and 51%. Based on the final top-line, selling, general and administrative expenses should rise as expected to or slightly above 35% of sales.
Due to the ongoing brand investments for the remaining of the year, profit in Q4 is expected to decline double digits versus last years quarter. For the total year, management expects operating profit (EBIT) to reach the earlier given guidance of around 360 million. The tax rate should stay on last years level around 29%. As a result, net earnings should post a high single-digit decline versus last year and should therefore significantly exceed the original expectations for 2006 communicated with the Phase IV strategy mid last year.
Jochen Zeitz, CEO: “We are more than pleased with our results for Q3 and through the first nine months of 2006 as we will significantly exceed full-year guidance as part of our original Phase IV plan. Based on these results we remain very confident in our ability to reach all of our Phase IV targets.
