Puma SE second quarter consolidated sales grew by 11.8 percent in Euro terms and by 6.0 percent currency adjusted to €752.9 million ($968 mm). Whereas Footwear sales were flat currency adjusted at €370.9 million ($477 mm), with Teamsport and Running balancing the softening sales in the Motorsport and Fitness categories, Apparel sales increased by 7.9 percent to €256.4 million ($330 mm), fueled in part by higher demand for fan wear in the Teamsport category on the back of EURO 2012. Accessories jumped by 24.3 percent to €125.6 million ($161 mm) with strong results in all regions for our Cobra Golf products and the socks business.
“Despite the poor consumer sentiment and challenging business
environment particularly in Europe, PUMA achieved respectable sales
growth in the second quarter and first half of this year,” said Franz Koch,
CEO of PUMA SE. “However, pressure on gross profit margins and further
strategic investments related to our ‘Back on the Attack’ plan in
combination with a weakening European business impacted second quarter
net earnings. We have therefore taken measures to secure sustainable and
profitable growth by broadening the scope of our Transformation
Program. This program is designed to reduce complexity and establish a
more efficient business model, operating on a leaner cost base.”
The performances of the PUMA supported Italian and Czech teams were resounding successes for our growing football (soccer) category and clearly underline PUMA’s reinforced commitment to strengthen our brand visibility and position as one of the top three football brands. The “Squadra Azzurra” made it all the way to the final, while the Czech Republic put on an excellent display to reach the quarter-finals. PUMA’s main footwear style for the Euro 2012, the new EvoSpeed, worn by German striker Mario Gomez, was launched shortly before the start of the tournament, generating strong sell-through figures.
In PUMA’s Sportlifestyle business, the Archive Lite, an ultra-light shoe with a contemporary look that derives from the Suede and has been fused with performance technology such as the FAAS Foam and mash, continued to resonate well with consumers.
Sales Performance by Region
In regional terms, PUMA continued gains in the Americas with sales growing by 15.0 percent currency adjusted to €278.7 million ($358 mm) in the second quarter. Asia/Pacific posted a gain of 8.6 percent to €190.6 million ($245 mm). Sales in EMEA declined by 3.0 percent to €283.6 million ($364 mm), due to the difficult market environment in Europe and the weaker performance of the footwear category.
Sales Performance Retail
PUMA’s retail operations continue to provide solid growth. Second quarter retail sales were €150 million ($193 mm), 22.3 percent ahead of last year’s €122 million ($176 mm), representing 19.9 percent of total sales. From January to June, retail sales were up 19 percent from €228 million to €272 million, delivering 17.3 percent of total sales. Increased volumes at existing stores, new store openings as well as continued growth in our e-commerce business were responsible for this positive development.
Margins, Expenses and Profitability
PUMA was mostly able to allay the effects of continued input price pressures in the second quarter. The gross profit margin stayed flat at 49.1 percent in the second quarter of 2012, supported by a favorable hedging impact compared to last year. However, the expected slight increase in margin did not materialize and we were therefore not able to offset higher input cost and margin pressure. Footwear rose slightly from 48.1 percent to 48.3 percent and Apparel improved from 48.9 percent to 49.4 percent. Accessories, however, fell back from 53.3 percent to 51.1 percent compared to 2011.
Second quarter operating expenses continued to rise as set out in our growth strategy. OPEX rose by 17.0 percent to €327.4 million ($421 mm) in the second quarter of the year compared to €279.9 million ($403 mm) last year. Increased expenditures were necessary to support the Euro-Cup in Poland and Ukraine and first initiatives for the Olympics in London, while at the same time PUMA has been extending RD&D resources and initiatives in order to strengthen the company’s product pipeline. In addition, PUMA’s increased number of retail stores, currency impacts and the extended scope of consolidation were responsible for a considerable portion of this increase.
Operating profit declined by 15.0 percent to €47.1 million ($61 mm) during the second quarter of 2012.
As a consequence of lower than expected gross profit and increased expenses, consolidated net earnings decreased by 29.2 percent to €26.7 million ($34 mm), coming in weaker than Management had anticipated. Earnings per share fell by 29.0 percent to €1.78 ($2.29).
Looking at assets, inventories rose by 26.1 percent currency adjusted or 32.3 percent in Euro terms to €672.3 million ($846 mm). This is mainly due to the continuing expansion of PUMA’s retail store network and higher average prices per unit on stock. Trade receivables also increased by 7.0 percent currency adjusted or 11.6 percent in Euro terms to €582.7 million ($733 mm), broadly in line with sales growth. Cash Position
The total cash position as of June 30, 2012 was reduced by 19.8 percent from €352 million ($506 mm) to €282 million ($354 mm), affected by the purchase of the remaining Dobotex shares.
PUMA’s Transformation Program aiming at optimizing Business Model and improving Cost Structure
Given the challenges in its European business, coupled with increasing pressure on gross profit margins and the need for continued strategic investments into brand, product and the company’s structure, PUMA’s management has decided to accelerate the Transformation Program, which began in 2011 under the aegis of the company’s five-year growth plan.
This program aims to reduce complexity, increase operational efficiencies, and streamline the company’s cost bases. At the core of the program is the setup of a new regional business model which will initially be rolled out in Europe and will then be extended to the remaining regions.
The European setup will be simplified by consolidating the number of organizational entities within Europe from 23 countries to seven areas. Areas are groupings of countries where operations and back-office functions will be further centralized while each of the individual countries will maintain their commercial functions to enable a stronger focus on the end-consumer.
Another key component of the new regional business model is the establishment of a fully regionalized supply chain, which will significantly improve order management, inventory levels and turns, as well as production flows on the sourcing side. In order to enable and benefit from these new processes, PUMA has decided to roll out a globally harmonized IT systems landscape.
The extended scope of PUMA’s Transformation Program includes the continued optimization of PUMA’s retail portfolio mainly in Europe and North America. PUMA’s retail strategy consists of the selective adding of new stores in profitable locations, particularly in Emerging Markets, while closing those that are underperforming.
In addition, PUMA will further simplify its product portfolio by significantly reducing the overall number of articles developed. In line with the new regional business model, PUMA will develop strong global and regional collections while trimming collections that are created for specific local markets. Furthermore, collaboration and endorsement contracts that are either not viable or in line with PUMA’s long-term strategy will be terminated.
In addition to the above laid-out measures, PUMA will further improve the company’s cost structure by streamlining its global and regional organization setups.
PUMA’s Management estimates that these actions will require one-time costs of up to €100 million, which will ultimately result in higher cost efficiency and working capital improvements in the upcoming years.
Klaus Bauer (57), Chief Operating Officer, informed the Administrative Board that he is not planning to extend his current contract beyond 2012 due to his personal life planning. Michael Lämmermann (50), General Manager Finance, will take on the position of Chief Financial Officer, effective January 1, 2013 and will also be responsible for Legal in addition to Finance.
Klaus Bauer joined PUMA in 1989 and became a member of the Board of Management in 2009. As Chief Operating Officer, Klaus Bauer is responsible for Finance, Legal, Human Resources, IT, Logistics and Operations. He will remain in charge of his duties until he leaves the company at the end of the year, hence ensuring a smooth transition and hand-over to both Michael Lämmermann and the successor as COO, who will be announced at a later date.
Michael Lämmermann joined PUMA in 1993 and became the Director of Controlling in 1998. He was then promoted to Chief Financial Officer and Chief Operating Officer of PUMA North America, based in Westford, USA, a role he filled for 10 years, before returning to Germany to take up his current role as General Manager Finance.
Antonio Bertone (39), Chief Marketing Officer, will also be leaving the company at the end of 2012 to pursue other career opportunities after 18 years with PUMA. Antonio Bertone will continue to work for PUMA as a consultant on a project basis, providing his skills and expertise in managing global brand and marketing initiatives to PUMA. As Chief Marketing Officer, he oversees PUMA’s global brand management and will also remain in charge of his duties until the end of the year. His successor will be announced at a later date. Antonio Bertone had been a deputy member of PUMA AG´s Board of Management since 2008.
Outlook for the Financial Year 2012
The above laid-out one-time costs of up to €100 million will be booked in the second half of 2012.
Management expects PUMA’s sales in the upcoming two quarters to grow, albeit at a reduced pace due to the increasingly difficult macro-economic environment and high levels of inventory in the markets.
Puma SE revised its previous guidance for PUMA’s 2012 net sales growth from a high-single-digit to a mid-single-digit rate and expects annual Net Earnings to decrease significantly from the €230.1 million posted last year, impacted by the aforementioned one-off expenses.