Puma AG looked to the U.S. to continue the companys winning ways in the third quarter as Europe growth flattens out a bit. Third quarter consolidated sales grew 16.4%, better than expected, reaching 536 million ($655 mm). Currency fluctuations played less of a role in the gains for the period, with currency-adjusted growth coming in at 16.2% for the period. Footwear was up 16.6% (16.5% c-a) to 350 million ($428 mm), Apparel grew 15.0% (14.5% c-a) to 149 million ($182 mm) and Accessories increased 19.9% (19.6% c-a) to 37 million ($45 mm).
Year-to-date, sales growth accelerated to 13.6%, or 14.4% currency-adjusted, to 1.43 billion. Within the segments, Footwear grew by 14.1% (14.9% c-a) to 954 million, Apparel increased 9.9% (10.1% c-a) to 373 million and Accessories jumped a strong 24% (24.8% c-a) to 102 million. Each region contributed with solid growth.
Total PUMA branded sales, which include consolidated sales and licensee sales, reached 699 million ($853 mm) during Q3, thus marking an 18.4% increase or 17.7% currency adjusted — over last years quarter. For the first nine months, branded sales grew 16.4% (currency adjusted 16.9%) to 1.87 billion. Footwear sales rose by 16.9% (17.4%) to 1.08 billion and Apparel by 12.8% (13.3%) to 627 million. Accessories reported the strongest growth at 28.8% (29.3%) and reached 163 million in nine months.
PUMAs licensed business reported a strong development and continues its exceptional performance. Licensee sales increased by 25.6% to 162 million ($198 mm) in Q3 and by 26.3% to 439 million after nine months. In particular, the Asian region contributed to the favorable growth. Based on licensed sales, royalty and commission income was up 23.3% to 14 million ($17 mm) in Q3 and 21.4% to 40 million year-to-date.
For the period July until September, the gross profit margin stood at 52.1% compared to 52.8% last year. The decline was due to the regional and product mix. The accumulated gross profit margin for the first nine months remained on a high level, reaching 52.9% compared to 51.9% in the last years period. The Footwear margin was almost flat with 53.1%, Apparel improved 330 basis points to 52.6% and Accessories increased 280 basis points to 51.5%.
Total SG&A expenses increased as a percentage of sales from 28.1% to 29.4% during Q3 and from 28.7% to 30.5% for the first nine months. The increased cost ratio was in line with expectations.
Year-to-date, Marketing/Retail expenditure accounted 13.9% of sales compared to 12.5% last year. Product development and design costs rose by 10%, but remained at 2.1% of sales. Other selling, general and administrative expenses increased 50 basis points to 14.6% of sales from 14.1%.
Earnings
In the third quarter EBIT increased by 7.9% to 129 million ($168 mm) and by 10.3% to 343 million after nine months. This resulted in an EBIT margin of 24% in both reporting periods.
Net earnings increased 11.5% to 92 million ($112 mm). Net margin was calculated at 17.1% for Q3, down roughly 80 basis points from Q3 last year. Diluted earnings per share reached 6.58 ($6.96), an increase of 12.5% versus last years quarter.
Balance Sheet
Inventories increased by 16.6% to 213 million ($257 mm) and trade receivables were up by 36.8% to 391 million ($471 mm). The regional expansion led to the over-proportional growth in current assets. Excluding the expansion, inventories were up by 6% and trade receivables by 12%.
Regional Results
The EMEA region reported sales of 346 million ($422 mm) in Q3, a growth of 5% (currency-adjusted 4.8%) and therefore clearly exceeding expectations. In particular Apparel and Accessories contributed to the favorable growth. Total sales after nine months increased by a solid 5.5% (5.3%) to 944 million. The region accounts now for 66.1% of consolidated sales versus 71.2% last year. The gross profit margin improved by 120 basis points year-over-year and reached 54.9%. The order book at the end of September amounts to 510 million ($614 mm) compared with 532 million ($641 mm) last year, a 4.1% decline in backlog.
Sales in the Americas reached 137 million ($167 mm) in the third quarter or a growth of exceptional 63.6% (currency-adjusted 63.2%). In particular Footwear contributed strongly to the overall performance. After nine months, the region represents 23.8% of consolidated sales compared with 18.2%. The gross profit margin increased by 90 basis points to 47.7% through the end of September. Future orders stand at 225 million ($271 mm), an extraordinary growth of 72.5% for the period, or 69.3% currency adjusted.
The U.S. market, which is included in the total Americas figures, contributed with a top-line growth of 62.7% in Q3. In U.S. Dollars, sales were up 62.9% to $131.1 million from $80.5 million in the year-ago period. Orders accelerated since the beginning of the current year and are up by 78.1%, totaling $245 million ($245 mm) at the end of September.
In the Asia/Pacific region sales improved by solid 11.6% (currency adjusted 13.2%) to 54 million ($65 mm) in Q3 and by 8.1% (11%) to 145 million year to date. Overall, the region contributed 10.1% to consolidated sales. The gross profit margin improved 320 basis points to 51.8%. Future orders reported 98 million ($65 mm), like-for-like an increase of 6% versus last year.
Beside the consolidated business, licensed sales for this region were significantly up by 24.9% to 89 million ($109 mm) in Q3 and by 24.2% to 249 million during the nine months period.
Order Backlog
Consolidated orders at the end of the quarter increased by 10.1% (currency-adjusted 9.5%) to 833 million ($1.00 bn). This represents the 39th consecutive quarter of order increase. The order volume is comprised mainly of deliveries scheduled for the next two quarters. In terms of product segments, Footwear increased by 9.7% (currency-adjusted 9%) to 592 million ($713 mm), Apparel 11.2% (10.4% c-a) to 193 million ($233 mm) and Accessories by 11.3% (11.6% c-a) to 47 million ($57 mm).
Outlook 2005
Taking into account the strong sales performance for the first nine months, management raises its sales guidance and now expects a double-digit increase for the full year 2005. Gross profit margin should reach the high end of the given range between 51% and 52%, or slightly above. Due to the stronger own retail business as well as start up costs for Phase IV, total SG&A are now expected between 31% and 32%.
Management confirms EBIT margin well above 20% and raises net earnings guidance from mid to high single digit to now high single digit growth. All in all, after 11 years of top line growth 2005 will once again set new records from top to bottom and become the 5th consecutive year with records results.
Jochen Zeitz, CEO: “We are pleased with another record quarter in both the top and bottom lines and feel confident to increase the full year guidance. The continued development of our business combined with the announced plans for Phase IV put us on target for a successful start to 2006.”
