PUMA AG again looked to Europe in the second quarter to lead the gain in sales for the period, but opened a few eyes on Tuesday when they announced that the currency-neutral growth rate in the order backlog for the Americas, which includes the U.S. market, was nearly twice that of Europe at the end of the quarter. The nice outlook for the future, coupled with a stronger-than-expected jump in second quarter earnings, sent PUMA shares up 3.6% for the week to close at 195.80 on Friday.
U.S. backlog growth had lagged behind the total backlog position as recently as the end of fiscal 2003, but came roaring back at the end of Q1 to pull even with the total on-order gain. At the end of Q2, backlog for U.S. orders was up 35.8% to $131 million versus a 23.8% currency-neutral gain for the total company and a 20.4% increase in Europe. The company said order flow accelerated since the beginning of the year and that Spring 2005 orders are coming in stronger due to orders from the larger customers.
The total company order backlog picture actually starts to look stronger as the company moves into Spring 05, according to company CEO Jochen Zeitz. He said that the Q3 backlog gain was closer to 15% and Q4 increased closer to 20%, but hinted that Q1 2005 backlog was up “significantly”, and was clearly up in high double-digits. The Q1 2005 backlog was reportedly 10% of the total open order book.
Total futures orders at the end of the quarter increased by 21.9% from 593 million ($678.8 mm) to 723 million ($873.8 mm). By product segment, Footwear increased by 19.7% to 499 million ($603.0 mm), Apparel backlog was up 24.4% to 185 million ($223.6 mm) and Accessories by 41.9% to 39 million ($47.1 mm). On a regional basis, Europe owns about 70% of the backlog orders, while the Americas, including the U.S., represents roughly 16.5% of the total. Asia/Pacific is 10.7% of the total order book at quarter-end and Africa/Middle made up the balance.
PUMA also feels that sales can outpace backlog as well, with Zeitz pointing to the 17.1% increase in total sales for Q2 versus a 15% increase in backlog gain for Q2 at the beginning of the quarter.
The better-than-expected results in Q2 and the stronger on-order picture led the company to increase their sales guidance to the upper range of their previous forecast of 15% to 20% growth and settle on an estimate that is around a 20% increase for the year. Earnings are now estimated to increase more than 30% for the year. Gross margins are expected to end up in the range of 50% to 51% of sales.
Zeitz said the 220 basis point GM gain for Q2 was due to a 130 basis point upside from FX rate benefits, 60 basis points from a shift in product mix, and 30 basis points due to an increase in owned-retail. Zeitz said the apparel GM will remain lower than the footwear GM since 25% to 30% of apparel is sourced in Europe and sees no FX rate upside. He also said U.S. margins were below the average for the same reason, but they had still improved roughly two percentage points during the period.
The owned-retail business increased more than 50% for the quarter to 41 million, or 9% of total sales. It was 7% of sales in Q2 last year. First half owned-retail was up 52% to 72 million, a result of double-digit comp store gains and a few new stores. PUMA opened three new stores in the quarter for a total of 36 doors and the company is now ahead of plans to have 40 stores in place by end of 2006. A PUMA spokesperson told SEW that a total of five to ten concept stores will open per year through 2006.
From a second quarter product mix standpoint, PUMA saw the Football (Soccer) business increase in strong double-digits and saw the Running category post a triple-digit gain for the period. Zeitz said they saw as much growth coming from lifestyle running as with performance. Mr. Zeitz also said the old school retro product has been replaced by more contemporary looks. He said Heritage will always be in the range, but it has declined “substantially”.
Total Q2 consolidated sales increased by 17.1% to 352.3 million, with Apparel showing the strongest growth and gaining of 26.3% to 98.7 million. Footwear was up 13.3% to 229.0 million and Accessories sales increased 19.2% to 24.6 million.
And Margin Improvement Pushes Profits Higher…
For H1, the Footwear margin climbed from 48.6% to 52.8%, Apparel from 46.6% to 48.8% and Accessories from 45.7% to 46.9%.
PUMAs branded sales, which include consolidated sales and licensee sales, reached 465 million during Q2, a 20.4% increase over last year.
Footwear accounted for 58.2% of total sales versus 61.5% in H1 2003, while Apparel represented 34.4% of the total versus 32.1% in H1 LY and Accessories added a point of share to 7.4% of global branded sales.
In Q2, licensee sales increased by 32% to 112 million ($134.9 mm), driven by sales in Asia, generating 11 million ($12.9 mm) in royalty and commission income for the period.
In Europe, sales increased 23.7% to 232 million in Q2. All countries in the region reported double-digit growth rates in the first half, but Zeitz said the U.K. and France were the toughest markets and Germany remains “miserable”. Footwear and Accessories each grew 18.1% in Europe in the first half while Apparel increased 38.2% last year. The European region represented 68.5% of consolidated sales in the first half.
The Americas increased 9% to 72 million in Q2, while the U.S. market saw top-line growth of 13.9% in Q2 and 15.2% in H1. On a U.S. Dollar basis, all product segments contributed with double-digit increases, with Footwear up 17.4%, Apparel up 24.8%, and Accessories up 59.6%. The gross profit margin in this region improved by 300 basis points during the first six months and reached 46.6% compared with 43.6% LY.
After the first six months, this region accounts for 18.2% of group sales.
The Asia/Pacific region reported sales of 41 million, slightly higher than last years quarter. All product segments achieved favorable growth rates and gross margin improved from 44% to 47.6%. The region accounts for 10.8% of Group sales at the end of the first half.
Sales in the Africa/Middle East region increased 9.5% to 7 million in Q2. All product segments reported double-digit growth rates in H1. Overall, the region contributed 2.5% to consolidated sales. A considerable improvement was realized in the gross margin, which jumped from 24% to 30% of sales.
PUMA net earnings rose from 37 million, or 2.26 per diluted share, to 55 million, or 3.33 per diluted share, in the year-ago period.
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