Puma AG saw its business turn negative in the third quarter after posting flat growth in Q2, led by a downward turn in the U.S. market. Consolidated net sales declined 6.3% in third quarter on a currency-adjusted basis, and revenues declined 5.5% to €673.4 million ($962 mm) when measured in the reported euro terms.
Total worldwide sales under the Puma brand, which includes both consolidated and license sales, decreased 7.6% to €719.6 million ($1.03 bn) during the 2009 third quarter, reflecting a currency-adjusted decrease of 8.3% for the period. The licensed business decreased in the third quarter by 29.9% to €46.2 million ($66 mm) for the quarter and the related royalty and commission income declined 19.4% to €5.4 million due to the move of more distributor business in-house.
Puma consolidated sales in the EMEA region declined 5.6% in euro terms to €366.4 million ($524 mm) in the third quarter, a currency-adjusted decrease of 3.1%. Gross margin declined 360 basis points to 52.8% of regional sales compared to 56.4% of sales in Q3 last year. While the sales performance in Western Europe was said to be impacted by promotional sales due to the current market situation, the Eastern side of the region managed to stay on prior year level.
Third quarter sales in the Americas were down 11.2%, currency-adjusted, to €165.4 million ($236 mm), reflecting a 10.4% decrease in sales in euro terms. The region accounted for 24.6% of consolidated sales in Q3 compared to 25.9% in Q3 last year. Gross margin in the Americas was up 50 basis points to 49.4% of net regional sales in the quarter, compared to 48.9% of sales in the year-ago period.
In the U.S. market, sales fell 11.3% in U.S. dollar terms to $129.5 million in the third quarter from $142.9 in Q3 last year, reversing the Q2 mid-single digit growth trend. The U.S., which saw the benefit from an expanding mall business slip away, represented 13.5% of Puma consolidated sales in the period, roughly flat to last year’s third quarter.
The health of the Latin American region, which has posted meteoric growth of late due in part to the consolidation of former distributors, was characterized by management this quarter by the “convergence of increased import restrictions and other conditions which had negative impacts on sales performance.”
Sales in the Asia/Pacific region decreased in the third quarter by 8.3% currency-adjusted to €141.6 million ($202 mm), or a 1.2% decline when measured in euros. The total region accounted for 21.0% of sales, up about a point from last year’s Q3, but down almost two points from the second quarter this year. Gross profit margin reached 52.5% of sales in the third quarter versus 52.0% in Q3 last year, a 50 basis point improvement.
Puma said in a release that further inventory reduction programs and changes in the product and regional mix, as well as higher raw material costs, resulted in a 250 basis point decline in gross margin to 53.6% of net sales from last year’s 51.9% of net sales. Footwear margins shrank 140 basis points in the quarter to 51.2% of sales, while apparel margins narrowed 280 basis points to 52.0% of sales, and accessories margins dipped 60 basis points to 54.6% of sales from 55.2% of sales in Q3 last year.
Operating expenses decreased by 2.5% to €256.9 million ($367 mm) in Q3.
Puma operating profit declined 21.6% in euro terms to €98.0 million ($140 mm) in the third quarter versus €125.0 million ($188 mm) last year, or a 300 basis point dip in operating margin to 14.5% of sales in Q3 this year. The company’s pre-tax profit was €96.0 million ($137 mm) in the third quarter versus €124.5 million ($188 mm) last year. Net income totaled €67.9 million ($97 mm) versus €89.0 million ($134 mm) in Q3 2008, a decline of 23.7% year-on-year. Diluted EPS was €4.50 ($6.43) for the quarter, compared to €5.81 ($8.75) in Q3 2008.
Puma said it adhered to its plan to significantly reduce inventory, which declined 17.5% to €356.4 million ($520 mm). Accounts receivable were slightly below last year’s level at €530.7 million ($774 mm). Working capital improved to €523.3 million (ex-acquisition €507.6 million) from €599.6 million last year.