Puma SE delivered second-quarter results that topped analyst targets and said it might be able to raise its outlook for the year should the recent momentum in China, Europe and Latin America continue in the third quarter. However, Arne Freundt, Puma’s CEO, was hesitant to forecast a return to growth in the U.S. market due to weak consumer spending.
“In terms of U.S. consumer sentiment, I think it stays muted, especially with the lower income consumer with inflation hitting their discretionary spend,” said Freundt on the analyst call. “They are making their consumer choices or their spending choices more carefully than what they have done in the past. So, it’s really like a need-it-now, buy-it-now mentality that we are seeing. And, obviously, in that promotional environment, they are also searching for the best deals. So. I would say that currently, I don’t see signs of improvement.”
Freundt noted that U.S. households “are not sacrificing their spends when it comes down to sports,” especially in supporting upcoming sports seasons, noting that kids’ sales are holding up in the U.S. region despite macroeconomic pressures. Freundt added, “And, I think, also in that environment, newness is something which is very important, especially if we would like to sell at full price.”
Freundt said the back-to-school season, which started in mid-July, remains a “very important period” for the U.S. market and would be a key indicator of the U.S. performance over the rest of 2023.
Overall, sales in the Americas region were down 4.4 percent as strong growth in Latin America was offset by declines in the U.S. Sales on a reported basis were down 8.4 percent to €861 million ($953 mm).
In the half, sales were down 2.7 percent on a currency-neutral basis, down 3.8 percent reported, to €1.69 billion.
Freundt, who was promoted to CEO at the start of 2023, said the second-quarter performance in the U.S. market was similar to the first quarter, and Puma was “over proportionately hit” because of its over-exposure in the region to the off-price channel. The excess inventory at off-price, in part, reflected the pandemic-related inventory disruption in 2021 and early 2022.
On Puma’s first-quarter call, Freundt, previously Puma’s çhief commercial officer, had presented several strategies to help the U.S. marketplace return to growth but stressed on the Q2 call that several steps would take time to drive improvement.
“We said we need to elevate the brand and reposition it as a true sports brand. We said we need to empower our local product engines to create U.S.-centric products and we need to rebalance our distribution and strengthen our organization locally,” said Freundt. “And we have already started to progress on the strategic priorities. Some of the priorities obviously will take time. Brand elevation, brand positioning and distribution quality will take time until it’s completed, but we are progressing.”
Freundt said Puma had “good moments on the brand elevation side” with its local ambassadors, which include LaMelo Ball and Breanna Stewart in basketball, Rickie Fowler in golf and the return of Rihanna on the entertainment side. Freundt also cited the signing of NBA rookie and the third NBA Draft Pick, Scoot Henderson, who will become the face of the All-Pro Nitro shoe. Henderson is also the first rookie to receive a Puma signature sneaker.
Freundt said that the U.S. continues to show strong growth in performance categories. Freundt said, “We’re gaining market share in the football and basketball segments, which is also very important to underline our credibility as a sports brand.”
On the distribution side, Puma continues to see growth in the U.S. region in direct-to-consumer channels and continues “to build on our strong partnerships with our retailers” as it reduces exposure to off-price.
The U.S. region is also “making good progress” in reducing inventory levels in the marketplace. He said, “Normalization is very well on track. That is very important, especially in the soft environment, because we see that by reducing our inventory locally of the old inventory, we are making room for the newness to come.”
Freundt also noted many of the planned “great brand moments are also pointing towards the U.S.” in the second half, citing LaMelo Ball’s MB.03 launch and Rihanna’s first Fenty x PUMA product drop arriving in September.
He also cited anticipation around the Las Vegas Grand Prix, with Puma recently becoming the official supplier at F1 races and securing the rights to produce F1 branded apparel, footwear and accessories. Freundt said, “I’m very sure that we will create a lot of buzz and brand heat in the second half of the year.”
Companywide, sales climbed 11.1 percent on a currency-neutral basis, up 5.9 percent reported, to €2.12 billion, topping analysts’ consensus estimate of €2.06 billion.
In other regions, sales in the EMEA region jumped 25.0 percent on a currency-neutral basis to €846.0 million, driven by a strong performance in EEMEA (Eastern Europe, Middle East and Africa). The Asia/Pacific region grew 24.4 percent on a currency-neutral basis to €413.3 million, supported by continued recovery in Greater China after the market reopened.
By channel, Puma’s wholesale business increased 6.9 percent on a currency-neutral basis to €1.61 billion, in line with expectations as elevated inventory levels across the marketplace were reduced.
DTC sales were up 26.5 percent on a currency-neutral basis to €515.4 million. Sales in owned and operated retail stores increased 30.4 percent on a currency-neutral basis, and e-commerce gained 19.1 percent on a currency-neutral basis. The DTC growth was attributed to continued brand momentum and improved product availability. DTC accounted for 24.3 percent of sales against 21.9 percent a year ago.
By product category, footwear sales jumped 18.2 percent on a currency-neutral basis to €1.13 billion, driven by continued strong demand for football, basketball and performance running categories as well as for sportstyle. Sales on a currency-neutral basis grew 4.2 percent in apparel to €663.3 million and added 3.3 percent in accessories to €331.3 million.
Gross margins eroded 170 basis points to 44.8 percent, with currency effects representing a stronger headwind in the quarter. Higher sourcing and freight costs and promotional activity also weighed on margins, partly offset by price increases and a positive impact from geographical and distribution channel mix.
Operating expenses (OPEX) increased 6.6 percent to €843.4 million as higher expenses tied to DTC growth and marketing and sales offset cost-containment efforts. As a percent of sales, the OPEX ratio increased 20 basis points to 39.8 percent.
EBIT in the quarter decreased 21.2 percent to €115.3 million due to the gross margin pressures but exceeded the €110-million average analyst estimate. Net income fell 34.7 percent to €55.0 million.
Puma confirmed its guidance for the full year, calling for currency-adjusted sales growth in the high single-digit percentage range. Puma still expects an operating result (EBIT) in the range of €590 million to €670 million. At the midpoint, earnings would be €630 million, down 1.7 percent against €641 million earned in 2022. Improving profitability is still expected towards the end of the year, mainly driven by a sequential improvement in the gross profit margin due to lower sourcing and freight costs.
Freundt said on the analyst call, “What is clear is that the macroeconomic environment still stays challenging. It’s also clear that retail demand continues to be volatile. And it’s also obvious that the speed and the path of China’s economic recovery is still very much uncertain. But despite all of these risks, which were also existing in H1, we were able to show that we have great brand momentum. We were able to deliver sales in line with expectations, and we were able to deliver our inventories back to a normalized level, showing that we, as a brand, have continued great momentum. With that in the back half, we feel very confident to confirm our outlook.”
Photo courtesy Puma x Scoot Henderson, the face of the Puma All-Pro Nitro shoe
