Puma reported first-quarter profits fell 30 percent despite a 13 percent
revenue gain. Sales grew 4.4 percent on currency-neutral terms. The
company said its profit would be lower than expected in 2015 after the
strong U.S. dollar hit its first-quarter earnings, adding plans to
compensate through higher prices and more local sourcing were taking
longer than expected
2015 First Quarter Facts
Sales up by 4.4 percent currency-adjusted (+13.2 percent reported) to
€821 million, growth across all regions and mainly driven by Footwear
Gross profit margin down, solely due to foreign currency impacts
OPEX increase because of marketing expenses, investments in IT, opening of new retail
stores, also strongly impacted by unfavorable currency rates EBIT stands at €38 million
Puma IGNITE running shoe technology successfully launched in February
Outlook adjusted to reflect currency impact
Bjørn
Gulden, Chief Executive Officer of Puma SE: “Puma ́s first quarter
sales grew slightly stronger than expected. This was mainly caused by a
very positive development in footwear. We are working very hard to
improve our product offer, and although we know we have some ways to go,
we feel that this growth in footwear confirms that we are on the right
path.
The negative development in currencies, had a significant
negative impact on our gross profit margin and operational expenses and
therefore also on our EBIT and net earnings. We do work hard to
counter“ these negative currency effects, but do currently not have
enough leverage to fully neutralize the impact and have therefore
adjusted our outlook for the full year EBIT and net earnings.
We
will continue our strategy to become the Fastest Sports Brand in the
World and will continue to invest in Product, Marketing, Retail and IT
to lay the foundation for solid profitable growth in the future.”
Sales
growth in the first quarter Puma’s first quarter sales performance in
2015 was slightly ahead of our expectations. Currency-adjusted sales
increased by 4.4 percent to €821 million. In reported terms, this
corresponds to a growth of 13.2 percent.
Positive sales
development in all regions Sales in the EMEA region rose by 0.2 percent
currency-adjusted to €342 million. Southern European countries developed
positively in the first quarter, while the United Kingdom saw a decline
due to a softer Lifestyle business. The Middle East and Africa regions
continued to show a solid performance in most of the countries and
across all categories.
In the Americas region, sales grew by 5.6
percent currency-adjusted to €289 million, with both North America and
Latin America developing positively.
Asia/Pacific sales increased
by 10.9 percent currency-adjusted to €191 million with strong
performance in China and India supported by the improved Footwear
business.
Footwear leads segment performance in the first quarter
Footwear sales increased by 7.8 percent currency-adjusted to €378
million. This was driven by a higher demand for Puma’s Running, Training
& Fitness products, which was partly triggered by the successful
launch of the Puma IGNITE running shoe in mid-February.
Apparel
sales increased by 5.7 percent currency-adjusted to €280 million. A
strong demand for Puma’s Fundamentals, Running, Training & Fitness
and Golf products underpinned this good performance.
Accessories
sales decreased by 4.6 percent currency-adjusted to €163 million. This
is related to lower sales of socks and bodywear in the North American
market.
Satisfying retail performance Puma’s first quarter Retail
sales increased by 7.3 percent on a currency-adjusted basis to €144
million, with comparable sales in full-price stores and outlets slightly
up. Puma also operated a higher number of stores. Retail sales
represented 17.5 percent of total sales compared to 17.1 percent last
year.
Negative currency impacts affect gross profit margin Puma’s
gross profit margin declined from 48.5 percent to 46.9 percent in the
first quarter, solely due to negative currency impacts. The strength of
the US Dollar compared to major “unhedged” and not fully hedged
currencies including Russian Ruble, Mexican Peso, Brazilian Real,
Turkish Lira and Argentinian Peso led to this decrease. The Footwear
gross profit margin declined from 44.1 percent to 42.9 percent. Apparel
decreased from 53.6 percent to 50.7 percent, and Accessories remained at
previous year’s level of 49.6 percent (Q1 2014: 49.7 percent). In
absolute figures, gross profit increased by 9.3 percent in reported
terms from €352 million to €385 million.
Higher OPEX in line with
expectations As communicated previously, Puma continued to invest in
the “Forever Faster” marketing campaign in the first quarter 2015. There
was no major campaign in the first quarter in 2014. In addition, we
have started to invest in our IT infrastructure and we continued with
our retail strategy to open additional retail stores, mainly in emerging
markets. As with the gross profit margin, OPEX was heavily impacted by
the unfavorable currency developments. As a consequence, Puma’s OPEX
increased by 17.7 percent to €351 million. Puma’s management continues
to put a strong emphasis on strict control of other operating costs. In
constant currencies, the increase in OPEX amounts to 9.5 percent.
Operating
result (EBIT) declines Despite the sales growth in the first quarter
2015, the lower gross profit margin and increased operating expenditures
both impacted by negative currency developments led to a decrease of
Puma’s operating result (EBIT) from €59 million to €38 million. The EBIT
ratio decreased from 8.1 percent to 4.6 percent.
Financial result
improves The financial result improved from €-3.2 million to €0.9
million in the first quarter. The result turned positive due to currency
conversion impacts.
Net earnings decrease Puma’s consolidated
net earnings declined by 30.3 percent from €36 million to €25 million.
As a result, earnings per share decreased from €2.38 to €1.66 in the
first quarter of the year.
Net Assets and Financial Position
Working
capital rose in line with sales Inventories increased by 23.7 percent
(11.9 percent currency adjusted) to €648 million due to earlier
deliveries in order to better service our key strategic accounts. Trade
receivables increased by 17.9 percent (6.2 percent currency adjusted) to
€596 million compared to 31 March 2014, which was driven by higher
sales. Trade payables were similarly affected by currency exchange rates
and
increased by 36.7 percent to €467 million. As a result,
Puma’s working capital rose by 10.6 percent from €674 million to €745
million at the end of March 2015.
Cashflow / Capex The free
cashflow before acquisitions declined to €-233 million mainly due to
lower cashflows from operating activities as a result of the increased
working capital.
Capex increased from €12 million to €16 million,
which was mainly invested in the opening of selected retail stores as
well as IT equipment.
Stable cash position Puma’s cash and cash
equivalents position at €295 million as of 31 March 2015 remained
broadly stable at last year’s level of €301 million.
Brand and Product Update
Following
the launch of our latest running innovation Puma IGNITE by the World’s
Fastest Man Usain Bolt on New York City’s Times Square, the sell-through
of this innovative footwear technology has been off to a good start
both in retail and wholesale. The innovative IGNITE foam technology
offers the highest energy return in the industry and strongly represents
our new “Forever Faster” positioning.
In order to further
strengthen our dominant position in Motorsport, we recently announced a
new long-term Formula 1 partnership with INFINITI RED BULL RACING.
Effective 1 January 2016, we will be the official, licensed supplier of
team and race wear. In addition, we will exclusively produce and
distribute INFINITI RED BULL RACING licensed replica, fanwear and
lifestyle collections for global distribution. We will also prominently
feature INFINITI RED BULL RACING in our brand and motorsport marketing
campaigns in 2016 and beyond.
Our partnership with Red Bull will
span beyond Formula 1 racing. We have also signed a new multi-year
partnership with the “Wings for Life World Run”, which was co-founded by
Red Bull founder Dietrich Mateschitz to fund scientific research for
spinal cord injuries. This will serve as
5
a platform to promote
our IGNITE running and CELL apparel technology. As the exclusive
official sportswear partner, event staff and athletes participating in
the Wings for Life World Run sported Puma footwear, apparel and
accessories. 100 percent of all starting fees and donations will go
directly to spinal cord research.
Our Teamsport category saw the
extension of one of Puma’s longest-standing and most successful
partnerships in Football: through our new long-term contract with the
Italian Football Federation (FIGC), Puma has increased its marketing
rights as well as retained the exclusive Master License to actively
manage the entire global licensing portfolio of the Federation. Puma,
who first became partner of “Gli Azzurri” in 2003, will also continue as
the official technical supplier to all associated FIGC teams.
In
March, Puma won the “2014 Marketing Leader Award” from Foot Locker
Europe. The award has recognized Puma’s “Forever Faster” marketing
campaign, which was launched in Autumn/Winter 2014 and the growth of
brand awareness through the effective use of advertising, public
relations and event marketing. This underlines the impact of our
“Forever Faster” campaign and the close collaboration with our retail
partners.
Strategy Update
We have made further
progress towards becoming the Fastest Sports Brand in the World. We have
launched successful products for this year’s Spring Summer season,
including our new IGNITE running technology. Over the coming seasons we
will continue to develop the IGNITE platform with innovations, material
updates and product launches supported by dedicated media activities.
We
have said that we would enhance our product communication, telling
better and simpler stories to the consumers and utilize our assets. This
promise is reflected in our ongoing marketing campaign “Forever
Faster”. The current theme is more product-focused and features Usain
Bolt running in the IGNITE as well as star-footballers including Mario
Balotelli and Cesc Fàbregas in action with our latest football boot
innovation evoPOWER.
Our new multi-year partnership with Rihanna
has already generated a lot of positive PR and social media buzz.
Rihanna is an ideal brand ambassador, thanks to both her personality and
iconic style. She is currently featured in an in-store marketing
campaign promoting Puma’s key training styles of the season. In August,
Rihanna will also play a key role in the brand campaign Forever Faster,
featured along Puma’s world-class athletes such as Usain Bolt and Sergio
Aguero. Later she will be the Creative Director for her own line of
training & lifestyle products.
In terms of improving the
quality of our distribution, our sales organizations are working hard to
intensify our relationships with key strategic accounts as well as
building new partnerships with strong retailers in both established and
emerging markets. Amongst others we have continued our collaboration
with Foot Locker and opened the first European Puma Lab at the Foot
Locker store in Milan in February. We have also added new locations to
their US portfolio in Philadelphia and Atlanta.
As for Puma’s own
retail, we have developed a new instore concept which will ensure that
our Puma stores better tell our product stories, reveal the technologies
behind them and strengthen Puma’s positioning as a sports brand. Last
month, we started the global roll-out with our Puma store in
Herzogenaurach. It will continue to be implemented in our stores
world-wide, with the shops in Hong Kong and Mexico City being next in
line. Continuing our efforts to improve and expand our online presence,
we have expanded the selection of our eCommerce website to include our
more exclusive Puma Select products as of May.
We continue to
work on simplifying our organizational structure and setup. In Indonesia
we have transitioned from a distributor to a new subsidiary which will
improve our presence in this important market. In terms of our IT
enhancement, we continue to work on our focus areas including
standardized ERP systems, overall IT infrastructure and also tools to
enable more efficient design and planning processes. These investments
are essential in order to achieve our vision of becoming the Fastest
Sports Brand in the World. We will continue to drive our growth strategy
forward with better, and faster collections, continued investments into
our brand, our organization, our distribution and our IT
infrastructure.
Outlook for the Financial Year 2015
In
2015, Puma will continue its strong marketing investments to further
enhance and reinforce our brand positioning, making a further step in
getting Puma back on a path of more profitable and sustainable growth.
After
the positive sales development in the first quarter 2015, we continue
to expect an increase in the medium single-digit range for full-year
currency-adjusted net sales.
However, as already indicated in the
outlook for 2015 at the beginning of this year, the continued adverse
developments of foreign exchange rates during the recent months,
particularly the strengthening of the US Dollar versus nearly all other
currencies, had a significant negative impact on Puma’s reported gross
profit margin. Puma has already taken and will continue to take
countermeasures, but the impact will not fully offset the negative
currency impact on the gross profit margin. As a consequence, we now
foresee a drop in the gross profit margin for the full year in a range
of 100 to 150 basis points versus last year (2014: 46.6 percent).
As
announced at the beginning of this year, we will continue to invest
strongly in marketing, in the upgrade of Puma’s current IT
infrastructure and the extension of our own retail store network. This
will result in an increase in OPEX, that will be further exacerbated by
negative currency impacts. At the same time, Puma’s management will
continue to put a strong emphasis on strict control of other operating
costs.
As a consequence of the now expected drop in gross profit
margin and adverse currency effects on OPEX, we now expect EBIT for the
full year to come in at a range between €80 million and €100 million.
Net earnings will be impacted accordingly.
