Puma SE last week reduced its outlook for 2013 revenue and profit after reporting first-quarter results came in below plan.
The shortfall was primarily attributed to weaker consumer demand in Europe hurt its business, particularly in Italy and France. But revenues in its Asia/Pacific region also declined due to challenges in Japan. Only a modest gain was achieved in the Americas, driven by South America as well as Cobra Golf.
Puma now expects a low-to-mid-single digit revenue decline in full-year sales on a currency-neutral (C-N) basis. In February, it forecast 2013 sales to be at a similar level to 2012. Citing expectations for continued pressure on the gross profit margin, Puma also indicated it was unlikely to meet its original guidance of low-to-mid-single digit growth in earnings before interest and tax before special items. It still expects net earnings to increase compared to 2012 levels.
The profit warning, the second in less than a year, comes after Puma last month appointed Bjørn Gulden, who is credited for turning around Danish jewelry manufacturer Pandora, as its new chief executive. Pumas poor recent financial performance led to the exit of former CEO Franz Koch in March after only a year and a half in the job.
Puma, which was acquired by PPR – soon to be renamed Kering-in 2007, is said to have succeeded in expanding its lifestyle products in recent years but it may have come at the expense of its credibility in performance. As part its Transformation and Cost Reduction Program, Puma is closing stores, eliminating jobs and cutting product ranges. At the same time, Puma earlier this year indicated it would stop making sailing products beginning in 2014 and end its sailing sponsorships to instead focus on running, soccer and outdoor areas.
“We have to address the brand product and marketing to improve our sports performance image,” said Puma Chief Financial Officer Michael Laemmermann last week on a conference call with reporters.
In the first quarter, revenues declined 2.3 percent to €782 million($1.02 bn) on a currency-neutral (C-N) basis. Consolidated net earnings dropped 32.0 percent to €50 million (65.0 mm), or €3.36 a share, ($4.33).
Puma’s sales in the Americas improved 1.8 percent C-N to €260 million ($338 mm). Strong performances were seen in Mexico and Brazil, where its Teamsport segment was bolstered by Rio de Janeiro soccer club Botafogo, and Argentina, where Lifestyle collections are resonating well, Puma said in a statement. Its Cobra Puma Golf division continues to deliver outstanding results, also reflecting rising sales in North America.
Sales in the EMEA region fell 4.8 percent C-N to €348 million ($452.4 mm), impacted by soft retail spending, exacerbated by the unusually long winter. Strong performances came in Russia, Turkey and the D-A-CH region, where classic footwear models such as the Suede and new Motorsport apparel lines resonated well, could not completely offset weak performances in Italy and France.
In the Asia/Pacific region, sales declined by 2.9 percent C-N to €173 million ($224.9 mm). Positive performances in India, supported by strength in Running and Teamsports, and Australia couldnt offset declines in Japan, held back by an unusually harsh winter, and China, where Fitness & Training products underperformed.
Puma’s Retail sales increased by 13.9 percent C-N to €135 million ($175.5 mm) as a result of excellent results from our e-commerce business, particularly in North America.
By category, Footwear sales declined 7.8 percent C-N to €373 million ($484.9 mm). The decline was caused in part by the Teamsport category, which did not perform as well in a non-event year given last years Olympics and Euro Cup. Training & Fitness was also impacted by the lower demand for toning products. In Lifestyle, Puma’s new range of Suede and Archive Lite Models were very well received, with our Future Suede Lite and TX-3 shoes resonating extremely well with consumers in the Asia/Pacific region, Puma indicated.
Following the launch of “The Nature of Performance” brand platform to revitalize its Performance categories, Puma Running was invigorated by our new Adaptive Running shoe, the Puma Mobium Elite. The Mobium Elite is delivering encouraging sell-through in many markets, including the United States and Asia/Pacific region.
Apparel sales slid 1.1 percent C-N to €256 million ($332.8 mm). Although its Fundamentals apparel collection declined, Cobra Puma Golf and Running apparel continued to perform well. Its ACTV and RCVR performance apparel, which won awards at ISPO, was recently successfully introduced.
Accessories revenues climbed 11.9 percent C-N to €152 million ($197.6 mm), again led by Cobra Puma Golf and its North American joint venture for socks and bodywear.
Gross margins slid to 49.1 percent from 51.2 percent due to substantial currency headwinds from a negative hedging position in the quarter compared to the same period last year. Margins were also impacted by continued inventory management with a particular focus on Footwear, combined with higher input costs. Footwear margins dropped from 49.5 percent to 46.1 percent and Apparel retreated from 53.5 percent to 51.5 percent, while Accessories improved from 51.9 percent to 52.6 percent.
Due to its ongoing Transformation and Cost Reduction Program aimed at improving efficiencies and its cost base, operating expenses were reduced 3.9 percent to €310 million ($403.0 mm).
Puma said its Transformation Program is being implemented on plan. As part of the reorganization, each of Puma’s six Business Units will be managed by one fully accountable Business Unit General Manager. Each team is wholly situated at one location to be able to react faster to consumer trends and optimize each team’s efforts. Puma’s European consolidation of 23 countries into 7 areas is also on track, with its D-A-CH and Iberia areas now established. In retail, 45 underperforming stores were closed by the end of the first quarter.
