Puma raised the company’s outlook for full-year sales and operating profit as the company reported strong sales growth in the Americas and Asia and indicated the company’s first basketball shoe in 20 years had been well received.
On a conference call with journalists, Bjørn Gulden, CEO of Puma SE, noted that Puma announced the company’s return to basketball in September. The return has been marked by the signing of seven NBA players including DeMarcus Cousins, Rudy Gay, Kevin Knox, Marvin Bagley III, Terry Rozier, Michael Porter Jr. and DeAndre Ayton. Puma had already signed WNBA star Skylar Diggins-Smith last year.
Puma also named Jay-Z as the company’s creative director for basketball to guide the company’s re-entry into the sport and signed Walt “Clyde” Frazier, the NBA Hall-Of-Famer who was Puma’s most famous basketball ambassador in the seventies, to a lifetime contract.
Gulden said marketing activations, assisted by Jay-Z, over the last two months supporting the launch “created a lot of noise, positive reaction in social media and a lot of talk about Puma.” About 10 days ago timed to the NBA season’s start, Puma launched the company’s first new basketball shoe, the Clyde Court Disrupt, and the sell-through as been “very positive.”
Gulden added, “The reaction in the marketplace has been good. Players are happy, and then we will come out with a new version for Halloween, which is at the end of this month. And we feel glad to be back in the basketball business not only because it’s basketball, but it puts the brand into American performance sports again.”
Gulden cautioned it’s still “very early days” for Puma in the company’s re-entry into basketball and noted that the brand has to reintroduce itself to a new crop of basketball footwear buyers. Puma’s last basketball endorsement contract was in 1998 when Vince Carter was the Toronto Raptors’ rookie sensation.
He added, ”The father will remember that Puma was in basketball. The son doesn’t.”
But he also said Puma has “some basketball shoes” from the eighties and the seventies, including the Clyde Frazier, that are being brought back to support classics and retro styles in lifestyle offerings. Gulden added, “This investment in Performance Basketball and the ‘culture’ around Basketball is a strong commitment to both the performance and the sportstyle business in the North American market.”
In the quarter ended September 30, Puma’s net earnings increased 24.8 percent to €77.5 million, or €5.18, a share. Sales increased 13.9 percent currency-adjusted to €124 billion and 10.7 percent on a reported basis.
Gulden said results were “a little stronger than we had expected.” The gains were led by double-digit growth in both the Americas and Asia-Pacific regions and a high single-digit growth in the EMEA region.
By category, apparel was the main growth driver in the quarter, rising 27 percent. The apparel gain was supported by new product launches in the Sportstyle, Teamsport and Motorsport categories.
Footwear and accessories grew at a high single-digit rate. In footwear, strong style platforms this year have included the Thunder and RS-0 established in the “chunky/ugly shoe” category.
Gulden noted that footwear had grown faster than apparel for 17 straight quarters for Puma with the brand investing in the category to reestablish credibility for the brand in the marketplace. But he said footwear growth has slowed overall across the marketplace since the second and third quarter of last year, as trends have shifted away from classics and running lifestyle product to “more visible technology, chunkier shoes and more aggressive colorways.”
He suspects footwear trends may pick-up by the first quarter. He added, “We still see large shifts in product trends and consumer demand, but feel we have reacted fast enough to continue our growth.”
Gulden also implied that Puma doesn’t necessarily mind the shift with apparel being a higher-margin category. The apparel shift, with “big logo driven pieces” doing well, also supports branding and growth across both the lifestyle and performance segments.
Gross margins in the quarter improved 150 basis points to 49.6 percent due to more sales of new products with a higher margin and further sourcing improvements as well as positive effects from the product mix related to Apparel.
Operating expenses (OPEX) increased 10.6 percent to €489.7 million. The increase was mainly due to higher sales related variable costs based on increased sales volumes and higher retail investments related to the increase of the company’s retail store count.
EBIT rose 28.4 percent to €129.9 million due to a strong sales growth combined with an improved gross profit margin. This corresponds to an improvement of the EBIT-margin from 9.0 percent last year to 10.5 percent in the third quarter this year.
Results were impacted by the 60 percent decline in valuation of the currencies of Turkey and Argentina that provided “less headwind in sales than in previous quarters,” according to Gulden.
Given the slightly-stronger-than-expected third quarter and “despite the uncertain business environment, with volatile currencies and an uncertain global trade environment,” Puma said the company now sees full-year organic sales growth between 14 percent and 16 percent on a currency-neutral basis, up from 12 percent and 14 percent previously. Full-year EBIT is now expected between €325 million and €335 million representing growth of at least 32 percent year over year. Previously, Puma had expected EBIT between €310 million and €330 million.
Gross margin is still anticipated to improve by approximately 100 basis points while the company now expects that operating expenses (OPEX) will increase at a low-double-digit rate related to higher sales related variable costs versus previous guidance calling for an increase at a high single-digit rate.
Asked to elaborate on the “uncertain business environment,” Gulden cited the recent stock market gyrations and the trade war between China and U.S. that has already impacted some of Puma’s accessories categories. Gulden said Puma would face a “big impact” if footwear and apparel were hit by tariffs in another round.
Regarding regions, he said Europe’s performance is a “little mixed” with some markets particularly impacted by the shift away from the “sneaker boom” seen over the last few years and reports of regions impacted by weather conditions. China continues to perform well for Puma and the overall active category despite reports of a slowdown for China’s overall economy. The U.S. has gone from “maybe a little negative to more positive” in recent quarters.
He said Puma’s overall business is delivering largely as promised. Gulden said, “We see we are a better company than a year ago. We feel we are selling product on a wider basis.”
Image courtesy Puma
