Puma SE delivered another round of robust results in the second quarter, gaining a boost from a solid performance of its teams at the UEFA Euro 2016 as well as traction gained around its women’s initiatives, led by Rihanna.
For the fourth straight quarter, however, the sizeable gains weren’t enough for the company to raise its revenues or earnings guidance for the year. Earnings continue to be weighed down by the stronger U.S. dollar. The Americas also saw a mid-single digit gain on a currency-neutral basis, marking the weakest performance among Puma’s three regions.
But the brand by all indications continues to make progress with its turnaround, focused on a reposition back on competitive sports after a prior heavy focus on lifestyle fashion.
“We are happy with the development in the second quarter,” said Bjørn Gulden, Puma’s CEO. “Sales developed as expected with double-digit organic growth. Gross profit margin continued to be under pressure due to the strong U.S. dollar, but based on good cost discipline, we achieved operational leverage and saw nice improvements in both EBIT and net earnings.”
He added, “We continue to see better sell-out of our products in the stores, as we feel consumers are getting more interested in our brand and products again. Meanwhile, we continue to work hard with the leading retailers in order to secure more and better space in their stores.”
The company also owns Cobra Puma Golf and Dobotex, which makes socks and bodywear for Puma as well as socks for well-known brand-name companies.
Revenues in the quarter jumped 12.8 percent on a currency-neutral basis to €826.5 million ($908.3 million) and were up 7 percent on a reported basis.
The gains were led by the EMEA region, which expanded 23.5 percent on a currency-neutral basis, to €321.3 million ($353.1 million) and gained 18.8 percent on a reported basis. All countries within the region showed strong performances, especially in the Teamsport category, which gained extra momentum due to the UEFA Euro 2016.
The Asia/Pacific (APAC) region’s sales advanced 10.3 percent on a currency-neutral basis, to €189.6 million ($208.4 million) and gained 9.1 percent in Euro terms. China was the main driver.
In the Americas region, sales increased 5 percent on a currency-neutral basis to €315.6 million ($346.8 million), with growth in North and Latin America. In its home-currency Euro terms, however, sales decreased 3.9 percent, as the weakness of currencies in Latin America, notably in Argentina, had a negative impact on reported sales.
Overall growth in the Americas region continues to decelerate on a currency-neutral basis. Sales had risen 5.4 percent in the first quarter. In 2015, Americas sales on a currency-neutral basis grew 8.8, including gains of 7.2 percent in the fourth quarter and 10.8 percent in the third.
By category, apparel led the gains, climbing 19.5 percent on a currency-neutral basis to €299.1 million ($328.7 million) and increasing 13.6 percent in Euro terms. The gains were mainly due to success of the Teamsport category, fueled by UEFA Euro and high growth in other product categories.
Footwear sales came in at €360.2 million ($395.9 million), representing an increase of 7.3 percent on a currency-neutral basis and 0.4 percent on a reported basis. Sportstyle, Fundamentals and Teamsport saw “major gains.”
Sales in Accessories improved 14.1 percent on a currency-neutral basis to €167.1 million ($183.6 million) and added 10.9 percent in Euro terms, driven by a higher demand for backpacks and headwear.
Net earnings in the quarter came to €1.6 million ($1.76 million), rebounding from a loss of €3.3 million in the same period a year ago. EBIT (earnings before interest and taxes) jumped 75.1 percent to €11.9 million ($13.1 million), largely due to the sales growth combined with the only moderate increase in operating expenses.
Gross margins eroded 110 basis points to 45.6 percent, due to the stronger U.S. dollar. Footwear’s margin softened slightly from 42.3 percent to 41.9 percent, Apparel fell from 50.7 percent to 49.5 percent and the Accessories margin declined more strongly, mainly due to the difficult golf market, from 50.0 percent to 46.6 percent.
Operating expenses (OPEX) increased only 3.2 percent to €368.8 million ($405.3 million). The increase is mainly due to investments in Puma retail stores and additional marketing activities associated with the UEFA Euro 2016. Other operating areas and functions kept the costs stable. As a percent of sales, OPEX was reduced to 44.6 percent from 46.2 percent.
In the statement, Gulden said Puma continued to make inroads into becoming the “Fastest Sports Brand in the World.”
He added, “The two major football tournaments, Copa America and the UEFA Euro 2016, on the one side and the further accelerated success of our women’s initiative, ‘The Future is Female,” on the other were the dominating factors for us.”
Puma had five sponsored teams, as well as a number of high-profile players, at UEFA Euro 2016 sporting the brand’s new Tricks boots and gloves.
“We have been leveraging this momentum with our key retail partners,” said Gulden. “Building on the impressive sell-through results of Tricks during the 2014 World Cup, we generated healthy sell-in of Tricks this year. Many key retailers, including Intersport, Dick’s Sporting Goods and Kamo, supported them with very visible in-store executions.”
With an on-field presence of almost 40 percent across all matches, Puma’s five participating teams secured strong visibility at UEFA Euro 2016 with their kits featuring its apparel technology ACTV Thermo-R. While Switzerland and Slovakia reached the round of sixteen, Italy made it to the quarter final, beating former European Champion Spain. Puma also sponsored Austria and the Czech Republic. At Copa America, Puma sponsored Uruguay.
Among its sponsored players, France’s Antoine Griezmann was voted Player of the Tournament by the UEFA after being the top scorer. Puma player Olivier Giroud was ranked third in the scoring table of the event, while European Champion Portugal’s Rui Patricio emerged as the Goalie of the Tournament at UEFA Euro 2016.
In other marketing partnerships, Leicester City Football Club became the first Puma team to take the English Premier League title while Puma-sponsored Arsenal FC secured the second rank. Both teams qualified for the UEFA Champions League.
In the run-up to the Olympic Games in Rio, Puma signed a partnership with the Athletics Association of Barbados (AAB). The Barbados track & field team will first wear Puma apparel in Rio, and Puma will also support the team through the next two IAAF World Championships. Jamaica, Cuba, Grenada, Dominican Republic and the Bahamas are already in Puma’s Caribbean stable.
Said Gulden, “We are looking forward to great Olympic days in Rio, where fantastic athletes like Usain Bolt will be wearing our innovative and design-driven products.”
On the product front, the Fenty Puma by Rihanna runway show during New York Fashion Week drew “overwhelming reactions,” especially across social media, to support Puma’s overall collaboration with Rihanna. The Fenty Trainer and the Creeper’s new color ways were sold out in days, while the Fur Slide sold out in hours. In a new partnership with reality star Kylie Jenner, the Fierce performance training shoe was launched.
“All of these products generated great sell-in and sell-out results, which continue to strengthen our relationship with key retailers,” said Gulden. “This includes Foot Locker’s women-only banner SIX:02, which has decided to dedicate additional space to Puma shop-in-shops in their stores.”
Other initiatives introduced in the quarter included a partnership with New York City Ballet (NYCB) to become its official off-stage activewear partner. Starting in October 2016, a number of dancers from the New York City Ballet will be featured in several Puma campaigns. The brand also partnered and made a donation to Right To Play, an organization founded by four-time Olympic gold medalist Johann Olav Koss dedicated to educating and empowering children facing adversity.
Looking ahead, Puma continues to expect a currency-adjusted high-single-digit increase of net sales, a gross profit margin on previous year’s level (45.5 percent), an increase in currency-adjusted operating expenses in a mid- to high-single-digit range and an operating result (EBIT) between €115 million and €125 million.
Photo courtesy Puma