Puma reported stronger than expected second-quarter results as healthy double-digit growth in the Americas and the EMEA region offset weakness in China.
Puma raised its annual sales guidance but maintained its EPS outlook due to potential margin pressures.
On a media call, Bjørn Gulden, CEO, Puma noted that Puma racked up four strong quarters in 2021 to end with a 30 percent gain year-over-year compared to 2019, the last pre-pandemic year. The momentum continued in the first quarter with an increase of almost 20 percent and again in the second quarter, with an increase of 18 percent.
“I am very proud to see the momentum is also there, in a more-cloudy environment.”
In the quarter ended June 30, sales climbed 18.4 percent (currency-adjusted (ca) to €2,002.0 million and gained 26.0 percent on a reported basis. The period marked the first time Puma exceeded €2 billion in quarterly sales.
Continued high demand for the Puma brand in the Americas region resulted in sales growth of 25.6 percent (ca). Sales in the EMEA grew 21.5 percent (ca), driven by growth across all European key markets. Sales in the Asia/Pacific declined 1.8 percent (ca) due to COVID-19-related lockdown measures in China, while other major markets in the Asia/Pacific region recorded strong growth.
All product divisions grew double-digits, with Footwear expanding 19.7 percent (ca), Apparel up 20.2 percent (ca) and Accessories up 11.2 percent (ca). In line with previous quarters, growth was driven by continued demand for its Performance categories Running and Training, Teamsports, Golf, and Basketball, and its Sportstyle category.
Puma’s Wholesale business climbed 22.6 percent (ca) to €1.56 billion, while the brand’s DTC business was up 5.5 percent (ca) to €438.8 million.
Gulden said Puma continues to prioritize inventory to support its wholesale partners rather than its owned DTC operations amid a continued strained supply chain.
Sales in owned and operated retail stores increased 11.3 percent (ca), while e-commerce declined 4.1 percent (ca), mainly due to lockdown measures in China.
Gross margin in the quarter decreased 100 basis points to 46.5 percent, mainly caused by an unfavorable geographical and channel mix and higher freight rates, while currencies had a positive effect.
Operating expenses grew 21.6 percent to €791.2 million due to higher marketing expenses, more retail stores operating and higher sales-related distribution and warehousing costs. Despite ongoing operating inefficiencies due to COVID-19, especially in the supply chain, operating expenses, as a percent of sales, decreased to 39.5 percent from 40.9 percent a year ago due to higher sales growth and continued operating expense control.
EBIT increased 34.4 percent to €146.3 million from €108.9 million a year ago. Top-line growth and an improved operating expense ratio resulted in an EBIT margin increase by 40 basis points to 7.3 percent.
Net earnings jumped 73.2 percent from €84.3 million, and earnings per share were up from €33 cents in the second quarter of 2021 to €56 cents in the second quarter of 2022.
Gulden said Puma again saw strong growth in performance categories, including Running, Training, Teamsports, Golf, and Basketball. He added, “We feel that the increased investments into R&D, innovation and product development over the past years are starting to pay off.”
However, he noted that Puma’s gross margin is currently under pressure, declining by 100 basis points in the quarter mainly due to an unfavorable geographical and channel mix and the higher freight rates. The CEO said, “There is no doubt that gross margin is under pressure, and there’s no doubt that we, and other players in the market, need to raise prices to compensate for that.”
He noted that the EBIT growth is driven by the sales growth and came despite increased investments in marketing and sales and higher warehousing costs.
Looking ahead, Puma raised its outlook from at least ten percent currency-adjusted sales growth, with upside potential, to mid-teens currency-adjusted sales growth for the current fiscal year.
Due to the increased uncertainties, Puma is reiterating its EBIT target in a range of €600 million to €700 million for 2022, an increase about 8 percent from €557 million in 2020, with a corresponding improvement in net earnings. Gulden said the better-than-expected top-line growth would offset higher gross margin pressures.
Gulden also said that many of the uncertainties identified at the beginning of the year have continued, citing the negative impact of the continuation of COVID, supply chain issues, China’s challenges, geopolitical tensions, and cost pressures, including inflation.
“It’s mostly measurable that there is a huge pressure on costs—raw materials, production, freight, energy is going up—and that means that we, and other brands and other companies need to raise prices,” Gulden continued.
So far, he said Puma has only raised prices about mid-single-digits in the first half. He said, “We will continue to try to raise prices, and that means adding new price points, not making existing shoes or existing apparel more expensive.”
Gulden expects to see mid-to-high single-digit price increases in the second half and double-digit price increases in most markets in 2023. Gulden said the price increases would depend on the local inflationary rate in each region.
Photo courtesy Puma
