Puma reported net earnings rose 13.0 percent as sales recovered to show a 13.3 percent gain on a currency-neutral basis. Cost-control measures also helped offset margin pressures. Puma again declined to provide a full-year outlook due to uncertainty in the marketplace due to COVID-19.
Bjørn Gulden, CEO, Puma SE, said, “The third quarter developed much better than I expected. Retail stores reopened, sports events resumed, consumer confidence improved and our sales increased week by week. I feel this strong performance confirms the strength of both Puma as a brand and the sporting goods industry in general. Despite a very promotional market environment and currency developments that put pressure on our margins, we were even able to improve our EBIT compared to last year. This was achieved by continued strong cost control that we initiated in the extremely weak second quarter and through less but more efficient marketing activities. October started well, but the recent development of COVID-19 and the number of infections we are seeing globally make us cautious for the rest of the year. We will continue to maneuver through this pandemic in the short-term without hindering Puma’s mid-term momentum. Investments in new partnerships with Neymar Jr and LaMelo Ball underline our belief in the strong future of our brand.”
Third Quarter 2020
Puma’s sales rebounded in the third quarter of 2020 and increased by 13.3 percent currency adjusted to €1,583.4 million (+7.2 percent reported). Supported by additional demand following a weak second quarter ( down 30.7 percent currency adjusted), sales accelerated throughout the third quarter and were better than expected. This development was led by a strong sales increase in the Americas (+20.7 percent) and EMEA (+17.7 percent). Sales in Asia/Pacific declined by 1.9 percent, caused by slower growth in Greater China and a sales decline in India, Korea and South East Asia. Footwear, Apparel and Accessories all showed strong growth in the third quarter, improving by 13.9 percent, 8.8 percent and 23.0 percent respectively. Performance categories such as Basketball, Motorsport, Golf, and Teamsport showed the highest growth rates.
The Wholesale business increased by 12.3 percent currency adjusted to €1,202.5 million. Puma’s Direct-to-Consumer business (DTC), which includes owned and operated retail stores as well as e-commerce, increased by 16.7 percent currency adjusted to €380.9 million, driven by strong growth in e-commerce of 60.9 percent.
The gross profit margin declined by 270 basis points to 47.0 percent mainly caused by negative currency impacts, more promotional activities and an unfavorable regional mix effect.
Operating expenses (OPEX) decreased by 3.3 percent to €559.6 million. The continuation of various cost-saving measures initiated at the end of the first and during the second quarter resulted in operating leverage in the third quarter.
The operating result (EBIT) increased by 16.8 percent from €162.2 million last year to €189.5 million due to strong sales growth combined with operating leverage and despite a lower gross profit margin. This corresponds to an improvement of the EBIT margin from 11.0 percent last year to 12.0 percent in the third quarter of 2020.
Net earnings increased by 13.0 percent from €100.5 million to €113.6 million and earnings per share were up from €0.67 in the third quarter last year to €0.76 correspondingly.
Nine Months 2020
Sales in the first nine months of 2020 decreased by 5.1 percent currency adjusted to €3,714.3 million (-7.7 percent reported). Despite the sales growth in the third quarter, all regions showed a decline in sales on a nine-month basis, with EMEA being down 1.0 percent currency adjusted, Americas 6.5 percent and Asia/Pacific 9.1 percent. Sales in Footwear declined by 5.4 percent currency adjusted and in Apparel by 8.0 percent, while sales in Accessories grew by 2.2 percent.
The Wholesale business decreased by 6.8 percent currency adjusted to €2,791.8 million. Puma’s DTC business, which includes owned and operated retail stores as well as e-commerce, increased by 0.4 percent currency adjusted to €922.5 million. This represented a share of 24.8 percent of total sales for the first nine months of 2020 (a share of 23.5 percent in the previous year). Supported by an intensified shift into performance marketing and successful promotions, our e-commerce business increased strongly by 66.5 percent currency adjusted.
The gross profit margin declined by 280 basis points from 49.4 percent to 46.5 percent in the first nine months of 2020, mainly caused by negative currency impacts but also due to more promotional activities as well as higher inventory provisions due to the impact of COVID-19.
As a result of the cost savings in the second and the third quarter, operating expenses (OPEX) decreased by 1.5 percent on a nine months basis and amounted to €1,596.4 million. The operating result (EBIT) decreased from €385.0 million last year to €145.9 million in the first nine months of 2020 due to the negative result in the first half of 2020, caused by COVID-19; therefore, net earnings declined to €54.2 million (last year: €244.6 million). This translated into earnings per share of €0.36 compared to €1.64 in the first nine months of 2019.
Puma said it was able to decrease its working capital by 23.2 percent to €703.2 million (last year: €915.7 million). Despite the negative impact of COVID-19 on its sales, Puma’s inventories only increased by 7.1 percent to €1,222.4 million, while trade receivables declined by 4.2 percent to €761.5 million. On the liabilities side, trade payables increased by 29.8 percent to €937.0 million due to extended payment terms with its suppliers.
Puma said in its statement, “The year 2020 has been, and will continue to be, a very difficult year for the sporting goods industry due to the COVID-19 pandemic. Puma‘s mantra is to manage this crisis short-term without hindering our positive mid-term momentum. Following a weak second quarter, we saw very strong development in sales and EBIT in the third quarter. We feel this confirms the strength of the Puma brand and are optimistic about our mid- and long-term perspective. Even though the business in the third quarter developed better than we had expected, the uncertainty for the fourth quarter remains very high. Globally, the number of COVID-19 infections is at the highest level since the outbreak of the pandemic, many regions are re-implementing restrictions and the consumer sentiment is again turning negative. As the development for the coming weeks continues to be unpredictable, we cannot provide a reliable financial outlook for the full year 2020.”
Image courtesy Puma