Closing out 2016 with double-digit growth in all regions and fatter gross margins in the fourth quarter, Puma SE offered a bullish outlook for 2017, expecting operating earnings to climb between 33 and 49 percent.
Revenues in the fourth quarter increased 10 percent on a currency-adjusted basis to €958 million while expanding 9 percent on a reported basis. EBIT (earnings before interest and taxes) improved 30 percent to €14 million.
Puma showed a net loss in the period of €4.6 million against a loss of €4.3 million a year ago, dragged down by non-controlling interests in North American joint ventures.
“The fourth quarter developed as expected with solid growth in both sales and EBIT,” said Bjørn Gulden, CEO of Puma SE, in a statement. “We have seen a continued increase of interest in our products and brand both from consumers and retailers. The sell-through of our new product launches has been good.”
He added that the year ended in line with goals, with revenue growth in all regions and product segments as well as a significant increase in EBIT and net earnings. Added Gulden, “The year has confirmed that our strategy has been right and we will continue to invest in our mission of becoming the Fastest Sports Brand in the World. We feel confident that we will continue to see revenue growth and a significant increase in earnings again in 2017.”
Among regions, sales increased 9.9 percent currency adjusted in the Americas in the fourth quarter to €393 million, with growth in North and Latin America. In Euro terms, sales grew 6.7 percent, as the weakness of currencies in Latin America, notably in Argentina, continued to have a negative impact on reported sales.
The EMEA region’s sales jumped 13.4 percent currency adjusted to €298.4 million while expanding 10.4 percent on a reported basis. The performance was achieved despite tough comparisons against a 21 percent comparable-store gain in the year-ago period.
The Asia/Pacific (APAC) region saw sales increase 6.8 percent currency adjusted to €266.8 million and 11.1 percent on a reported basis. China was the main driver of the gains.
By category, footwear continued to drive the strongest growth, showing gains for the tenth quarter in a row. Footwear sales were up 17.6 percent currency adjusted and 15.3 percent on a reported basis, to €416 million. Sportstyle and Fundamentals categories fueled the increase.
Apparel sales increased 3.7 percent currency adjusted to €366.6 million and gained 3.3 percent on a reported basis. Year-ago sales were supported by the Euro Cup replica business.
Sales in accessories improved 7.5 percent currency adjusted to €175.6 million while advancing 7.5 percent on a reported basis. The increases were driven by a strong performance of its North American accessory business in the fourth quarter.
The bottom line was helped by an increase in gross margins of 180 basis points to 44.6 percent. Selective price adjustments and lower discounts offset the ongoing negative currency impacts from a stronger U.S. dollar. In addition, higher share of its owned retail sales, which carry a higher margin, had a positive effect on gross margins.
Operating expenses increased 12.6 percent to €416.6 million mainly due to further marketing and retail investments, as well as higher sales-related variable costs in connection with growing retail and e-commerce revenues. As a percent of sales, operating expenses increased to 43.5 percent of sales from 42.2 percent.
For the full year, sales were up 10 percent currency adjusted to €3.63 billion while moving up 7 percent on a reported basis. EBIT was up 33 percent to €128 million. Net earnings jumped 68 percent to €62.4 million.
In the Americas region, sales in the year rose 8.3 percent currency adjusted to €1.34 billion. In Euro terms, sales grew 2.2 percent as weakness of currencies in Latin America, notably in Argentina, continued to have a negative impact on reported sales.
Offering some highlights for the year, Gulden noted that “Fenty Puma by Rihanna” Creeper “was repeatedly sold out worldwide within mere hours of hitting the stores as soon as we launched new colorways throughout the year.”
Among introductions, Puma Fierce “has been an instant hit in terms of distribution, media coverage and most importantly sales.” Other new key footwear styles showing strength were the performance shoe IGNITE Dual and the IGNITE Evoknit, a style for street running that comes with a form-fitting, mid-height knitted upper.
“Independent research has shown that we have gained market shares in most geographies and channels, showing that Puma products are again resonating well with consumers, which was also echoed by our retail partners,” said Gulden.
To improve the quality of distribution, strengthening relationships with key accounts and building new partnerships with strong retailers in both established and emerging markets remained a priority. As an example of progress, he noted how the company has successfully been rolling out “Puma Lab” in-store shops inside Foot Lockers in North America for several years. Gulden added, “This has helped to lift product sell-through well beyond the ‘Puma Lab’ doors, especially in Foot Locker’s women-only banner Six:02, where Puma sales more than doubled in 2016.”
Puma also gained traction with other important accounts in the U.S. and also in Europe, where Puma returned to double-digit growth rates in many markets. In China, retail partners such as Belle and the YY Group opened around 200 additional Puma doors in 2016.
Including e-commerce, Puma’s owned and operated retail sales increased 12.5 percent currency adjusted in the full year to €794.3 million. The gains were driven by positive comp growth, expansion and “significant momentum” in e-commerce. Said Gulden, “We also continued our worldwide roll-out of the “Forever Faster” store layout, which contributed to this positive development. We will further use this momentum with our most important accounts, own retail stores and e-commerce across all geographies in 2017 to drive our sales growth.”
Efforts to improve systems, processes and organizational speed over the last two years led to “even more flexibility in our supply chain in 2016,” added Gulden. Steps to improve speed to market including relocating employees closer to supplier production sites, setting up local manufacturing in countries such as India and Mexico and opening up a new highly automated warehouse in the U.S.
With the success of Fenty and Fierce, the women’s business particularly gained momentum for Puma in 2016. Gulden said the brand found success introducing cross-category collections merging both sports and fashion.
“Building on Puma’s fashion credibility and sports authenticity, as well as profound understanding of the modern female athletic consumer, we have positioned Puma to address the segment ‘where the gym meets the runway,’” said Gulden. “Women worldwide are more and more participating in sports, while taking inspiration from athletic wear for their everyday wardrobe.”
The women’s momentum has been helped by Puma’s “Do You” campaign, which focuses on instilling confidence in women, and collaborations with Rihanna, Kylie Jenner, Cara Delevingne and the New York City Ballet. The ”Fenty Puma by Rihanna” runway shows during the New York and Paris Fashion Weeks in particularly drew heat to the brand.
“Our women-specific collections are among the best performers in terms of both sell-in and sell-through,” said Gulden. “Many major retailers provided additional space for our female collections. In many accounts, the success of our women’s line was actually a door opener to expand our shelf space with men’s and kids styles.”
For 2017, Puma expects currency-adjusted net sales will increase at a high-single-digit rate. Gross margins are expected to improve slightly, to 46 percent, up from 45.7 percent.
Operating expenses (OPEX) are expected to increase at a mid- to high-single-digit rate. Continued investments in marketing, in the modernization and expansion of its retail network and in IT infrastructure are expected to be partly offset by a strong emphasis on strict control of other operating costs. With sales increasing at a faster pace than operating expenses and the slightly improved gross margin rates, EBIT for the full year is expected to come in between €170 million and €190 million, which compares to €128 million in 2016.
Image courtesy Puma
