Puma’s Forecasts Double Digit Growth Again In 2019

Puma closed out its 70^th year in business by seeing sales further accelerate in the fourth quarter, led by strength in Asia and North America. Another year of double-digit revenue growth and”significant” earnings gains was predicted for 2019.

In the quarter ended December 31, revenues jumped 20.1 percent to €1.23 billion on a currency-adjusted basis and 17.9 percent on a reported basis. In the third quarter, sales grew 14 percent on a currency-adjusted basis.

Strong growth was seen across all regions and product segments.

By region, the biggest gain in the quarter by far came in Asia/Pacific, where sales catapulted 38.5 percent on a currency-neutral basis (37.4 percent reported) to €378.0 million. In the Americas, sales were up 17.4 percent on a currency-neutral basis (13.4 percent reported) to €473.1 million. Sales in the EMEA region were up 8.7 percent on a currency-adjusted basis (7.8 percent reported) to €375.3 million.

By category, the gains were led by apparel, up 28.6 percent currency-neutral (26.4 percent reported) to €491.1 million. Footwear grew 17.4 percent currency-neutral (14.5 percent reported) to €535.0 million. The footwear category marked its 18th consecutive quarter of sales growth.

Accessories advanced 9.2 percent currency-neutral (8.6 percent reported) to €200.3 million.

Net earnings in the quarter improved significantly to €15.7 million from €2.2 million a year ago, driven by the sales leverage.

Gross margins remained stable at a high level of 47.1 percent despite currency-headwinds.

Operating expenses (OPEX) climbed 17.1 percent due to higher sales related variable costs as well as higher marketing and retail investments, caused by the growth and stepped up investments in retail, including e-commerce. Football sponsorships, marketing initiatives for new footwear franchises and the launch of the basketball category drove higher marketing costs. Still, as a percent of sales, OPEX was reduced to 44.4 percent from 44.7 percent.

Operating result (EBIT) in the quarter improved 26.7 percent to €38 million.

For the full year, sales increased 17.6 percent currency adjusted to €4.65 billion (up 12.4 percent reported) with double-digit growth in all regions and product segments.

Net earnings grew 38.0 percent to €187.4 million due to the sales gain, a 110-point increase in gross margin and slight operating-expense leverage.

In the EMEA region, sales in the year rose by 11.4 percent currency-adjusted (9.4 percent reported) to €1,8 billion. The main growth drivers in the region were France, Spain, the United Kingdom as well as Russia and Turkey, which all posted double-digit sales growth.

Sales in the Americas region went up by 16.9 percent currency-adjusted (7.9 percent reported) to €1.61  billion. Both North and Latin America contributing double-digit growth rates. The weakness of the Argentinian Peso against the Euro  led to the significant negative currency impact in the region.

Growth was particularly strong in the Asia/Pacific (APAC) region, where currency-adjusted sales rose by 28.8 percent (reported 24.2 percent) to €1.24 billion. The gains were mainly driven by high growth in China and Korea, while sales in Japan increased at a more moderate mid to high single-digit rate.

Footwear continued to be a strong sales driver throughout the year. Sales were up 16.6 percent currency adjusted (10.6 percent reported) to €2.1 billion, exceeding the €2 billion sales mark for the first time. Running and Training as well as Sportstyle were the categories with the strongest growth rates.

In the Apparel segment, sales rose by 22.2 percent currency adjusted (17.1 percent reported) to €1.69 billion. Logo-driven apparel within it Sportstyle category and new product launches in the Teamsport and Motorsport categories contributed to this increase.

Sales in Accessories grew by 11.0 percent currency adjusted (7.8 percent reported) to €776.1 million. This increase was mainly driven by higher sales of legwear and bodywear products.

Including e-commerce, Puma’s retail sales increased 24.0 percent currency-adjusted to €1.13 billion, representing 24.3 percent of total sales in 2018 from 23.2 percent in 2017. Like-for-like sales growth in its physical stores, new stores, and “extensive growth” of e-commerce business contributed to this rise.

“The double-digit growth in all regions is proof that we have strengthened the Puma brand globally and the double-digit growth in all product divisions shows that we have enhanced our product portfolio,” said Bjørn Gulden, CEO, on the year’s performance. “We still have a lot to improve, but we feel we are moving our brand and company in a good direction.”

In the company update for the year, Gulden noted that Puma took several steps to strengthen its positioning in sports performance, including the return to basketball, the signings of A.C. Milan, Olympique de Marseille, Borussia Mönchengladbach and São Paulo based Palmeiras, in football, as well as due to the success of many partnered teams, athletes and federations.

He noted that over the past five years, the focus has been on five strategic priorities: creating brand heat, a competitive product range, a leading offer for women, improved distribution quality and organizational speed. In 2018, a sixth priority, strengthening Puma’s position in the North American sports market, and that was marked by the brand’s reentry into basketball after 20 years.

“Both from a sports and business perspective, Puma’s return to basketball was off to a promising start,” said Gulden. “Together with entrepreneur, business mogul and Puma Basketball Creative Director Jay-Z, we rolled out an exciting campaign, that resonated well with athletes, media and fans.”

He noted that its first basketball shoe release, the Clyde Court Disrupt, “quickly sold out,” as well as a number of player signings that have supported the return. They include Skylar Diggins-Smith, Terry Rozier, Rudy Gay, Danny Green and four-time NBA All-star DeMarcus Cousins, as well as top picks in the 2018 NBA draft: Deandre Ayton, Marvin Bagley III, Kevin Knox, Michael Porter Jr and Zhaire Smith.

In football, Puma had four teams – Uruguay, Switzerland, Serbia and Senegal – in the World Cup and Uruguay and Switzerland reached the knockout stage to support Puma’s branding efforts and its Puma Future Or Puma One football cleats.. Puma players Antoine Griezmann and Romelu Lukaku emerged as two of the top three scorers of the tournament.

Player signings in football last year included Barcelona and Uruguay striker Luis Suarez, Vincent Kompany (Manchester City), Axel Witsel (Borussia Dortmund), David Silva (Manchester City), Dejan Lovren (FC Liverpool) and Davie Selke (Hertha BSC).

In the running and training category, the star ambassador was 19-year-old Cuban Juan Miguel Echevarria, who won Gold at the Diamond League Meeting in Stockholm. Europe’s “fastest man”, French sprinter Jimmy Vicaut, was signed. The Hybrid Runner and Hybrid Rocket, featuring a new midsole technology, were the major launches in running.

In women’s, supermodel Adriana Lima was signed to represent women’s training. The Phenom and Defy models, endorsed by Selena Gomez, saw “ great success” with women.

In Motorsport, championship titles were claimed by Puma-supported Mercedes-AMG Petronas and Lewis Hamilton – representing Lewis’ fifth career title. Puma’s Motorsport lifestyle products saw growing demand last year, particularly in the USA and France. In Golf, Rickie Fowler, Lexi Thompson and Bryson DeChambeau saw numerous victories in support of the Puma and Cobra brands.

In Sportstyle, successful new platforms, Thunder, RS-0 and the RS-X, successfully addressed the re-emergence of the “chunky shoes” sneaker trend from the 1990s. The Suede marked its 50^th anniversary with numerous special editions and collaborations, including with legendary designer Karl Lagerfeld, rock legend Paul Stanley and cartoon character Hello Kitty.

In operations, the focus continued to be on improving the quality of distribution channels. Said Gulden, “We have worked hard to be a flexible and service-oriented business partner in order to strengthen our relationship with key retailers and gain shelf space.”

In DTC, He also pointed to the success opening stores, finding comp growth and expanding sales strongly online.

Further investments were made in its our IT infrastructure with a strong focus on business intelligence, planning and it security to speed decision making. Future plans include a new ERP systems to be rolled out starting in 2019 and a new multichannel distribution center in Geiselwind, Germany to be operational in early 2021.

Gulden also noted that 2018 marked Puma’s return to the M-Dax stock exchange last June after Kering S.A. distributed approximately 70 percent of Puma’s shares to its shareholders.

Looking ahead, Puma said it expects currency-adjusted sales growth of around 10 percent in 2019. Gross margins are expected to show a slight improvement over 48.4 percent just reported and operating expenses (OPEX) to increase at a slightly lower rate than sales. EBIT is expected to improve in a range of 17.0 percent and 23 percent to between €395 million and €415 million and “significant improvement” is projected  in net earnings in 2019.

Image courtesy Puma