Puma Q1 Earnings Drop on Slight Sales Decline

Net earnings declined 93.8% to €5.6 million ($7.3 mm) versus €90.1 million ($134.9 mm) last year and earnings per share as well as diluted earnings per share were at €0.37 ($.048) versus €5.76 ($9.63) in last year’s quarter.

Due to the take-over of a former licensee, the licensed business was down 41.6% on a currency neutral basis. Based on the licensed business, the company realized a royalty and commission income of €5.0 million ($7.0 mm)in the first quarter versus €7.1 million ($11.0 mm) in the prior year.

In the first quarter, consolidated sales were up 0.8% on a currency neutral basis and 3.6% in Euro terms to €697.4 million ($912 mm). Americas increased by double-digit rates whereas EMEA and Asia/Pacific were below last year.

 

Currency adjusted, sales in Footwear were slightly down 0.8% representing €397.1 million ($519.4 mm). Apparel sales decreased 8.1% to €222.4 million ($290.9 mm) due to high comparables which resulted from replica sales relating to the Football Euro Cup last year. Accessories were up a strong 56.7% to € 77.9 million ($101.9 mm) which stems mainly from first time consolidation effects.

In the first quarter, gross profit margin reached 52.1% compared to 53.4% last year. The decline was mainly due to the regional mix. Footwear reported 50.4% versus 53.4%, Apparel 53.7% compared to 53.4% and Accessories 55.6% versus 53.7% last year.

Other operating expenses increased by 5.4%, rising from €241.0 million ($215.2 mm) to €254.1 million ($380.6 mm), or from 35.8% to 36.4% as a percentage of sales.

Marketing/Retail expenses remained unchanged to last year’s level and totaled €127.2 million ($166.4 mm) whereas Marketing was below last year and Retail increased due to full year effects. The cost ratio decreased from 19.0% to 18.2% of sales. Other selling expenses increased 20.0% to €84.5 million ($110.5 mm), or from 10.5% to 12.1% of sales, mainly due to first time consolidations and currency impacts.

 

Expenses for product development and design were up 23.9% to €14.6 million ($19.1 mm), or as a percentage of sales from 1.8% to 2.1% as major development costs occurred in US-Dollars with the US $ strengthening on a like-for-like basis. Other general and administration expenses were down 10.5% and totaled €27.8 million ($36.4 mm), representing 4.0% of sales versus 4.6%. Operating Expenses include depreciations of €15.8 million ($20.7 mm), up 19.9% compared to last year.

Operational result before special items amounts to €114.0 million ($149.1 mm) versus €125.8 million ($188.4 mm) last year, a decline of 9.4%. As a percentage of sales this relates to a margin of 16.3% versus 18.7%.

PUMA has taken further actions to ensure long-term profitable growth in the future given the currently challenging economic environment and an unpredictable outlook. Management has implemented a cost reduction program which will reduce originally planned costs annually and lead to cost savings of up to €150 million in FY2011.

With the resulting one-time expenses of €110 million ($143.9 mm)(net of taxes € 75.2 million) in the first quarter, PUMA will optimize its retail portfolio, the global organizational structure and the operating processes. The number of employees in PUMA's global workforce is expected to remain at previous year’s level while ensuring an even better alignment of resources with key business opportunities. The program was initiated as a proactive step in order to ensure an even leaner and more efficient platform that will help PUMA to focus even stronger on the numerous opportunities that arise in the sportlifestyle market in a challenging market environment accordingly.

After adjustment for special items, EBIT amounted to €4.0 million ($5.2 mm) compared to €125.8 million ($188.4 mm) last year.

Before restructuring costs, the company’s pre tax profit (EBT) accounts for €112.4 million ($148.5 mm) versus €126.8 million ($200.3 mm) and net earnings to €80.8 million ($106.7 mm) versus €90.1 million ($142.4 mm), a decline of 10.3%. This results in earnings per share of €5.36 ($7.01) compared to €5.76 ($8.63). The operational tax ratio came in at 28.5% versus 28.9% last year.

Taking into account the restructuring costs, earnings before taxes declined from last year’s €126.8 million ($200.3 mm) to €2.4 million ($3.2 mm) this year.

 

Sales in the EMEA region (Europe, Middle East and Africa) decreased currency adjusted by 3.0% reaching €366.1 million ($478.9 mm) versus €391.1 million ($585.8 mm) last year. Sales in last year’s quarter were impacted positively by major sport events. The region now represents 52.5% of consolidated sales. Gross profit margin increased to 55.1% compared to 54.7% last year.

Sales in the Americas were up currency neutral by 11.5% to €178.1 million ($233.0 mm). The region now accounts for 25.5% of consolidated sales. Gross profit margin stood at 46.7% compared to 50.4% last year. In the US market, sales increased by 3.4% to $138.7 million in the first quarter.

Asia/Pacific sales decreased by 1.2% currency neutral but increased by 14.8% in Euro terms to €153.3 million ($200.5 mm). The total region accounts for 22.0% of sales. Gross profit margin reached 51.0% versus 53.0% last year.

As of March 31, 2009, total assets climbed by 16.4% to € 2,108.0 million and the equity ratio reached 56.6% after 60.4% in the previous year.

Inventories grew 22.6% to €446.7 million ($590.0 mm) and accounts receivable 5.3% reaching € 533.1 million ($704.1 mm). Adjusted by acquisitions and currencies, inventories were up 16.6% and accounts receivables by 1.3%. Due to lower liabilities at the end of March, working capital totaled €596.9 million (ex acquisition €581.2 million) compared to € 521.1 million last year.

Total cash end of March stood at €267.6 million ($353.4 mm) versus €357.2 million ($564.4 mm) last year. Bank debts were down from €67.1 million to €63.2 million. As a result, the net cash position decreased from €290.0 million to €204.5 million year over year, mainly due to the aforementioned acquisitions and a lower free cashflow in the first quarter.

PUMA did not purchase own shares during the first three months. At quarter-end, 950,000 shares were held as treasury stock in the balance sheet, accounting for 5.9% of total share capital. Effective April 29, 2009 all own shares were cancelled and share capital was reduced accordingly. As of today, subscribed capital consists of 15,082,464 shares or € 38.6 million.

Outlook 2009 – Market environment remains challenging

During the first quarter, sales came in better than the order books at the end of the fourth quarter 2008 had indicated. Due to seasonability, the current shift in future orders to at-once business in the current market environment, as well as the own retail business which is not included in the order books, quarterly orders are losing significance as an indicator of future sales. As a result, PUMA will not release future orders as of the first quarter 2009.

After 14 years of consecutive growth, the year 2009 will be taken as a year of consolidation with a clear focus on adjusting the cost basis in alignment to the current business environment. First positive signs are not expected before 2010, the year that is highlighted by the upcoming Football World Cup in South Africa, where PUMA will once again be one of the most dominant brands. It currently outfits eleven African Football Federations including Egypt, the African Cup of Nations winner 2008, as well as the reigning World Champion, Italy.

Furthermore, additional focus for 2009 is on working capital improvements to strengthen the cash position and therefore the return on capital employed by year-end.