Puma reported earnings jumped 55.0 percent in the fourth quarter on a 30.6 percent revenue gain. All regions and all product divisions were up by double digits.
2019 Fourth Quarter Facts
- Sales increase by 20.6 percent reported to €1,479 million (+18.3 percent currency adjusted) with double-digit growth in all regions and product divisions;
- Gross profit margin improves to 47.3 percent;
- Operating expenses (OPEX) increase by 19.4 percent reported due to higher sales-related costs as well as higher marketing and retail investments;
- Operating result (EBIT) up by 46.8 percent to €55 million;
- In Formula 1, Puma athlete Lewis Hamilton wins drivers championship for the sixth time and Puma team Mercedes AMG
- Petronas wins the constructors championship;
- Puma and Balmain join together to debut their first collaboration created with supermodel/actress Cara Delevingne;
- Puma partners with Grammy-winning artist J.Cole; and
- Puma announces partnerships with the German Handball Federation (DHB) and football club PSV Eindhoven, both starting July 2020.
2019 Full-Year Facts
- Sales increase by 18.4 percent reported to €5,502 million (+16.7 percent currency adjusted);
- Gross profit margin up by 40 basis points at 48.8 percent;
- Operating expenses (OPEX) increase by 17.8 percent (reported) at a slightly lower rate than reported sales;
- Operating result (EBIT) improves by 30.5 percent from €337 million to €440 million;
- Net earnings increased by 40.0 percent from €187 million last year to €262 million, and earnings per share increased from €1.25 last year to €1.76 correspondingly;
- Proposal for an increased dividend of €0.50 per share for 2019 at the Annual General Meeting (2018: €0.35 per share).
Bjørn Gulden, chief executive officer of Puma SE, said, “2019 ended with a very strong fourth quarter for us with revenues being up 20.6 percent reported (18.3 percent currency adjusted) and EBIT up 47 percent. All regions and all product divisions were up by double-digits. This made 2019 the best year in Puma‘s history with revenue of €5.5 billion (+ 18.4 percent) and an EBIT of €440 million (+30 percent). I am very proud of what the team has achieved and think this performance shows the global potential of the Puma brand.
“After a good start into 2020, February has of course been negatively affected by the outbreak of COVID-19. The business in China is currently heavily impacted due to the restrictions and safety measures implemented by the authorities. Business in other markets, especially in Asia, is suffering from lower numbers of Chinese tourists.
“Given the current uncertainty around the virus, it is, of course, impossible to forecast its impact on the business. We will do everything we can in the short term to minimize the damage and remain very positive in the long term both for our industry and for Puma,” said Gulden.
Fourth Quarter 2019 | Sales
Puma’s strong sales growth continued in the fourth quarter of 2019. Sales increased by 20.6 percent reported to €1,478.6 million (+18.3 percent currency adjusted). All regions and all product divisions contributed with double-digit increases. By region on a currency-neutral basis, sales climbed 17.6 percent to €566 million in the Americas, 23.2 percent to €468.3 million in EMEA and 14.5 percent to €444.3 million in Asia/Pacific.
By product category on a currency-neutral basis, sales were up 22.3 percent to €663.0 million in footwear, 16.0 percent to €583.3 million in apparel and 13.6 percent to €232.2 million in accessories. Sportstyle, Running and Training as well as Motorsport were the categories with the highest growth rates.
Gross Profit Margin and Operating Expenses
The gross profit margin improved to 47.3 percent in the fourth quarter (last year, 47.1 percent). Small positive mix effects, as well as slightly positive currency effects, led to margin improvements.
Operating expenses (OPEX) rose by 19.4 percent to €650.6 million in the fourth quarter. The increase was mainly caused by higher sales-related costs, including logistics costs as well as higher marketing and retail investments.
Operating Result and Net Earnings
The operating result (EBIT) increased by 46.8 percent from €37.6 million last year to €55.2 million due to a strong sales growth combined with an improved gross profit margin and operating leverage.
Net earnings increased by 55.0 percent from €11.5 million to €17.8 million and earnings per share were up from €0.08 in the fourth quarter last year to €0.12 this year.
Full-Year 2019 | Sales
Puma’s sales increased by 18.4 percent reported in the financial year 2019 (+16.7 percent currency adjusted). All regions and product divisions contributed to double-digit growth.
In the EMEA region, sales rose by 11.2 percent reported to €2,001.4 million (+11.2 percent currency adjusted). As a result, the EMEA region exceeded the two billion Euro sales mark for the first time. The main growth drivers were Germany, Spain, Russia, and Turkey.
In the Americas region, sales increased by 20.6 percent reported to €1,944.0 million. Currency adjusted sales increased by 17.9 percent. Both North America and Latin America contributed to double-digit growth rates. Currency exchange effects for North America were positive, while especially the weakness of the Argentinian Peso led to a negative currency effect on sales for Latin America.
The Asia/Pacific region delivered the strongest sales growth of 26.0 percent reported to €1,556.9 million. This corresponds to a currency-adjusted increase of 22.8 percent. Growth in the region was mainly driven by China and India.
In the Footwear division, sales increased by 16.8 percent reported to €2,552.5 million. Currency adjusted sales increased by 15.6 percent. The strongest growth was achieved in the Sportstyle, Running and Training, and Motorsport categories.
In the Apparel division, sales increased by 22.6 percent reported to €2,068.7 million (+20.5 percent currency adjusted) and was also driven by strong growth in Sportstyle, Running and Training as well as Motorsport categories. As a result, sales in the Apparel division exceeded the two billion Euro sales mark for the first time.
The Accessories division showed a sales increase of 13.5 percent reported to €881.1 million. This corresponds to a currency-adjusted sales growth of 11.1 percent. Higher sales of legwear, bodywear and Cobra golf clubs contributed to the increase.
Wholesale continued to drive growth with an increase of 15.0 percent, currency-adjusted, supported by a strong performance of key accounts. Puma’s direct-to-consumer sales (DTC) (owned and operated retail stores and eCommerce) increased by 22.0 percent currency adjusted to €1,395.3 million. This was driven by like-for-like sales growth in Puma-owned stores, the expansion of its retail store network and continued strong growth of eCommerce business. DTC sales represented a share of 25.4 percent of total sales in 2019 compared to 24.3 percent in 2018.
Gross Profit Margin and Operating Expenses
Puma’s gross profit in the financial year 2019 increased by 19.4 percent from €2,249.4 million to €2,686.4 million. The gross profit margin improved by 40 basis points from 48.4 percent to 48.8 percent. The main drivers were product mix, regional mix and channel mix as well as a slightly positive currency effect. Gross profit margin improved in Footwear from 45.8 percent in 2018 to 46.4 percent in 2019, in Apparel from 50.9 percent to 51.1 percent and in Accessories from 50.3 percent to 50.5 percent respectively.
Operating expenses (OPEX) increased by 17.8 percent and amounted to €2,271.3 million. The increase was driven by higher sales-related variable costs as well as costs related to IT infrastructure, marketing and owned retail business. The OPEX ratio, in percent of total sales, decreased from 41.5 percent in 2018 to 41.3 percent in 2019.
Operating Result and Net Earnings
The operating result (EBIT) improved by 30.5 percent from €337.4 million in 2018 to €440.2 million in 2019. This was slightly above the upper end of the revised EBIT guidance of €420 million to €430 million. This result was achieved through strong sales growth combined with a higher gross profit margin and operating leverage. EBIT margin went up from 7.3 percent in 2018 to 8.0 percent in 2019.
Despite the additional interest expense of €29.7 million related to the new accounting standard for leases (IFRS 16), the financial result improved slightly from €-24.0 million in 2018 to €-22.6 million in 2019. The positive development is primarily the result of gains from currency conversion differences of €10.2 million in 2019, compared to a loss from the currency conversion of €-14.4 million last year.
The tax rate for the full-year 2019 amounted to 26.0 percent compared to 26.7 percent last year and the total tax expense increased from €83.6 million in 2018 to €108.6 million in 2019.
Net earnings rose by 40.0 percent from €187.4 million last year to €262.4 million in 2019. This translated into improved earnings per share of €1.76 compared to €1.25 in 2018, considering the 1:10 stock split.
Despite the significant growth in sales and an increased number of own retail stores, working capital rose only by 9.0 percent from €503.9 million to €549.4 million. Inventories grew by 21.3 percent from €915.1 million in 2018 to €1,110.2 in 2019. Earlier purchase of products to balance supplier capacities and secure product availability, more retail stores and the expected sales growth, led to the increase. Trade receivables rose by 10.5 percent from €553.7 to €611.7 million due to active receivables management. On the liabilities side, trade payables increased by 19.6 percent from €705.3 million to €843.7 million, mainly related to purchases of product.
The free cash flow (before acquisitions) improved by €181.8 million to €331.2 million in 2019. This development was a result of considerably higher earnings before taxes (EBT €+104.2 million) and the only moderate increase in working capital. In addition, the first-time application of the new lease accounting standard (IFRS 16) in the financial year 2019 had a positive effect of €170.5 million. Without this positive effect, the free cash flow (before acquisitions) in 2019 would have improved by €11.3 million, despite a significant increase of investments in fixed assets of €88.2 million in 2019 compared to last year.
As of December 31, 2019, Puma’s cash position amounted to €518.1 million compared to €463.7 million at the balance sheet date last year.
Puma said, “Our business developed strongly in 2019, both in terms of sales and profitability. We are confident that the positive development will continue in 2020.
“For the full-year 2020, we, therefore, expect currency-adjusted sales growth of around 10 percent. We forecast the gross profit margin to show a slight improvement compared to last year (2019, 48.8 percent) and operating expenses (OPEX) to increase at a slightly lower rate than sales. Based on the current exchange rate levels, we expect an operating result (EBIT) for the financial year 2020 in a range between €500 million and €520 million (2019, €440.2 million). We also expect a significant improvement in net earnings in 2020.
“The coronavirus has negatively impacted our business since the beginning of February. This is especially true in China where more than half of both owned and operated and partner stores are temporarily closed due to restrictions by the local authorities. Business is further impacted in other markets, especially in Asia, due to the decline of the Chinese tourism business. We expect this also to have a negative impact on our total sales and EBIT for the first quarter 2020.
“The uncertainty regarding the duration of the COVID-19 outbreak and the total impact it could have makes it difficult to forecast the business, but we are currently working under the assumption that the situation will normalize in the short term and that we then will be able to achieve our full-year targets.”
Photo courtesy Puma