Puma SE reported earnings declined in the second quarter on higher costs and currency effects despite an 11 percent currency-neutral sales gain. However, earnings topped analyst expectations on strength in China, Europe and Latin America.

Second-quarter operating profit of €115 million ($127 million) beat the €110-million average analyst estimate. Puma confirmed its full-year guidance and said it may be upwardly adjusted if the momentum continues.

Consolidated second-quarter sales increased 11.1 percent on a currency-neutral basis (+5.9 percent in euro terms) to €2.12 billion.

  • The EMEA region recorded strong currency-neutral sales growth of 25.0 percent currency-neutral to €846.0 million, driven by strong EEMEA performance.
  • The Asia/Pacific region grew by 24.4 percent currency-neutral to €413.3 million, supported by a continued recovery trend in Greater China after the market reopened.
  • Sales in the Americas region were at €861.5 million (-4.4 percent ca) due to ongoing softness in North America, while Latin America continued to show strong growth. The decline in North America was related to macroeconomic headwinds and Puma’s relative dependency on the off-price Wholesale business, which the company said would be strategically contained going forward. Puma also said that despite an overall soft North American market, the brand continued to grow its Performance categories and DTC business.

The Puma Group said it benefited from the geographic diversification of its business as strong growth in other regions more than offset the decline in its North American business.

Puma’s Wholesale business increased 6.9 percent currency-neutral to €1.6 billion. The company said this is entirely in line with being the best partner for retailers while working with them to manage elevated inventory levels.

Puma’s direct-to-consumer (DTC) business jumped 26.5 percent currency-neutral to €515.4 million in the quarter. Sales in owned and operated retail stores increased 30.4 percent currency-neutral, and e-commerce was up 19.1 percent currency-neutral. 

The strong growth in DTC was primarily driven by continued brand momentum and improved product availability; this reportedly resulted in an increased DTC share of 24.3 percent compared to 21.9 percent of sales in Q2 last year.

Overall, Footwear sales were up 18.2 percent currency-neutral, driven by continued strong demand for Football (Soccer), Basketball and Performance Running categories, and Sportstyle.

Overall, Apparel sales grew 4.2 percent currency-neutral, and Accessories were up by 3.3 percent currency-neutral.

Overall gross margin decreased 170 basis points to 44.8 percent of sales in Q2, compared to 46.5 percent in Q2 last year. Currency effects were “a stronger headwind in the second quarter.” Other factors, such as sourcing and freight costs and promotional activity, reportedly weighed on margins, while price adjustments and a positive impact from geographical and distribution channel mix were said to be beneficial.

Operating expenses (OPEX) increased 6.6 percent to €843.4 million in the quarter. The moderate increase in operating expenses was driven by the growth of the company’s DTC channel, higher marketing expenses and sales-related costs, while other cost areas provided operating leverage. As a result, the OPEX ratio increased by 20 basis points to 39.8 percent of sales, compared to 39.5 percent in Q2 2022.

The operating result (EBIT) decreased by 21.2 percent to €115.3 million (Q2 2022: €146.3 million), mainly due to an unfavorable gross profit margin; this resulted in an EBIT margin of 5.4 percent (Q2 2022: 7.3 percent).

Net income decreased 34.7 percent year-over-year to €55.0 million, or €0.37 a share, compared to €84.3 million, or €0.56 a share, in the year-ago second quarter.

First Half Year 2023
Sales increased by 12.7 percent currency-neutral (+10.1 percent in euro terms) to €4.31 billion in the first half. The Asia/Pacific region led the growth with a sales increase of 26.0 percent currency-neutral, followed by the EMEA region with a sales increase of 25.2 percent currency-neutral. Sales in the Americas region declined 2.7 percent currency-neutral.

Puma’s Wholesale business was up 9.6 percent currency-neutral to €3.33 billion, and its DTC business increased 24.6 percent currency-neutral to €980.9 million for the six-month period. Sales in owned and operated retail stores increased 24.0 percent currency-neutral, and e-commerce increased 25.6 percent currency-neutral.

Footwear continued to lead the growth with 23.5 percent currency-neutral growth, while Apparel and Accessories grew modestly and were up 2.9 percent currency-neutral and 0.8 percent currency-neutral, respectively.

Year-to-date consolidated gross margin decreased by 120 basis points to 45.7 percent of sales. OPEX increased 12.5 percent to €1.69 billion. The OPEX ratio increased by 80 basis points to 39.3 percent of sales. 

The resulting EBIT decreased 15.0 percent to €290.9 million. EBIT margin fell 190 basis points to 6.8 percent of sales for the first half; this was said to align with expectations that gross profit margin and profitability will be under more pressure in the first half of the year than in the second half.

Consolidated year-to-date net income decreased 16.2 percent to €172.3 million, or €1.15 per share.

Balance Sheet
Working capital increased by 58.6 percent to €1.69 billion at quarter-end. Inventories were up by 8.1 percent to €2.15 billion at quarter-end, compared to €1.98 billion at the same time last year. Puma said it achieved its objective to normalize its inventory levels by mid-year.

Trade receivables increased by 13.3 percent to €1.35 billion. Trade payables decreased by 12.1 percent to €1.46 billion.

Cash Flow and Liquidity Situation
The free cash flow was negative €341.4 million in the first half of 2023. compared to positive €38.6 million in H1 last year.

As of June 30, Puma had cash and cash equivalents of €307.9 million, compared to €498.4 million at the comparable quarter-end of 2022. The decrease of 38.2 percent compared to last year was said to be mainly related to cash outflows for working capital.

The Puma Group had available credit lines totaling €1.59 billion as of June 30. An increase in credit lines is due to the issuance of promissory note loans totaling €300.0 million in the second quarter of 2023. Un-utilized credit lines amounted to €846.0 million as of June 30.

Full-Year Outlook Unchanged
“In the first half of the year, Puma continued to build its brand momentum, launching exciting products and strengthening its partnerships along the value chain with athletes, retailers and suppliers,” the company said. “Puma continued to benefit from the strong geographical diversification of its business as strong growth in key markets such as Greater China offset a decline in North America. The sustained demand for Puma products, supported by operational agility, resulted in a normalization of Puma’s inventory levels, as expected.

“At the same time, the macroeconomic environment and volatile retail demand remain challenging, particularly in North America and Europe, as recession risks weigh on consumer sentiment. In addition, the pattern of China’s economic recovery after COVID-19 remains uncertain.”

The company said, “taking into consideration Puma’s strong sales growth in the first half of the year as well as the continued brand momentum,” confirming currency-neutral sales growth in the high-single-digits percentage range for the financial year 2023. In line with the previous outlook for 2023, Puma said it expects EBIT in the range of €590 million to €670 million compared to €641 million in 2022 and a respective change in net income. Puma said it continues to expect improved profitability towards the end of the year, mainly driven by a sequential improvement in the gross profit margin due to lower sourcing and freight costs.

“If our business continues to develop favorably in the third quarter of 2023, Puma will be able to adjust its outlook for 2023,” the statement concluded. “As in previous years, Puma will continue to focus on overcoming short-term challenges without compromising the brand’s mid- and long-term momentum, prioritizing sales growth and market share gains over short-term profitability.”

Photo courtesy Puma, Xavi Simons