14 May Puma Q1 Profit Declines; Backs FY14 Forecast
Puma, which is undergoing a turnaround plan that includes reconnecting with its sports heritage, reported currency-neutral sales slipped 0.5 percent in its first quarter, an improvement over the 4.7 percent slide in the fourth quarter. Earnings slid 25 percent, in line with expectations, but Puma trimmed profit margin forecasts for 2014 due to volatile currencies.
2014 First Quarter Facts
- Stable currency adjusted sales of €726 million
- OPEX improves,reduced by3.8 percent to €298 million
- EBIT at €59 million
- Continued balance sheet focus results in further working capital improvement
Key Sales Figures at a Glance
Top Company Interviews
Bjørn Gulden, Chief Executive Officer of Puma SE:”Puma’s currency adjusted sales and operating margin for the first quarter were in line with our expectations – yet negatively impacted by adverse currency affects. During the quarter, we continued to make progress towards our mission to become the Fastest Sports Brand in the world and achieved all our key project milestones in this pursuit. We know that the repositioning of Puma and the turnaround of the business will take time, but I am convinced that we are progressing well on all our key strategic priorities and that we have initiated the right projects to make 2014 the start of the turnaround.”
Sales performance in line
Puma’s first quarter sales performance in 2014 was in line with our expectations. Currency adjusted sales declined slightly by 0.5 percent to €726 million. This represents a decrease in reported terms of 7.1 percent, as currency volatility in Russia, Turkey, North America, Latin America, India and Japan had a negative impact on sales in Euro terms.
Improved performance in EMEA
Sales rose by0.3 percent currency adjusted to €337 million in the EMEA region. Russia, Turkey and the United Kingdom continued to deliver strong performances in the first quarter of 2014, which offset declines in Scandinavia and France, where wholesale revenues remained weak.
Sales in the Americas declined by 0.5 percent currency adjusted to €235 million. Sales in North America improved slightly, while we recorded mixed sales performances within Latin America with improvements in Chile and Argentina and a major decline in Brazil.
Asia/Pacific sales decreased by 2.1 percent currency adjusted to €153 million. Sales in China were up slightly, but business in Oceania decreased. Japan also declined, impacted by weaker sales in the Golf category.
Mixed segment performance in the first quarter
Footwear sales declined by 7.1 percent currency adjusted to €321 million as the Motorsport business continued to decline in mature markets.The Team sport category was, however, strengthened by the positive global reception of the new evoPOWER football boot during the first quarter of the year.
Ahead of the Football World Cup in June,the launch of Puma’s football jerseys for its eight teams, including Italy, Chile and Ghana, helped Apparel sales increase by 3.0 percent currency adjusted to €246 million.
Accessories performed well in the first quarter, with sales increasing 9.5 percent currency adjusted to €159 million due to continued demand for Puma’s socks and bodywear.
Retail performance
Puma’s first quarter Retail sales were stable on a currency adjusted basis at €124 million, with comparable sales in full-price stores and outlets up,while operating a slightly lower number of stores. Retails sales represented 17.1 percent of total sales compared to 17.3 percent last year.
Gross Profit Margin decreases to 48.5 percent
Puma’s gross profit margin declined by 60 basis points from 49.1 percent to 48.5 percent in the first quarter due to negative currency impacts and changes in the regional and product mixes.The Footwear gross profit margin declined from 46.1 percent to 44.1 percent, as high margin Motorsport Footwear in particular declined. Apparel increased from 51.5 percent to 53.6 percent related to strong Team sport business and Accessories decreased from 52.6 percent to 49.7 percent impacted by negative currency effects.
OPEX improvement in the first quarter
Puma continued to maintain a strict approach to its operating expenditures in the first three months of the year. OPEX declined by 3.8 percent to €298 million inspite of higher marketing investments.
Operating Result (EBIT) declines
Improved first quarter operating expenditures could not fully offset weak currencies in a number of countries, which impacted reported sales,and a softening of the gross profit margin. As a result, Puma’s operating profit decreased from €79 million to €59 million for the first three months of 2014. The EBIT ratio decreased from 10.1 percent to 8.1 percent.
Financial Result improves
The financial result improved from €-4.0 million to €-3.2 million in the first quarter. The result remained negative due mainly to currency conversion impacts.
Net Earnings decrease
Puma’s consolidated net earnings declined by 29.2 percent from €50 million to €36 million. As a result, earnings per share decreased from €3.36 to €2.38 in the first quarter of the year.
Net Assets and Financial Position
Working Capital improves
The company’s continued strong balance sheet management resulted in an 11.5 percent decrease in inventory to €524 million and a 14.8 percent decrease in trade receivables to €506 million. With the decline in trade payables also taken into account, Puma’s working capital improved by 13.1 percent from €775 million to €674 million at the end of March.
Cashflow / Capex
The Free Cashflowbefore acquisitions improved slightly to €-132 million in spite of lower operational cash flows.
Capex increased from €9 million to €12 million, which was mainly invested in the opening and refitting of selected retail stores as well as office and IT equipment.
Cash Position improved
Puma’s net cash position improved from €207 million to €229 million at the end of the first quarter.
Brand Update
In March, Puma revealed the new national kits for its eight national football teams heading to the World Cup in Brazil this summer. The home and away kits for Italy, Switzerland, Algeria, Cameroon, Ghana, Ivory Coast, Chile and Uruguay all feature Puma’s new football apparel innovation PWR ACTV, a first-to-market use of both athletic taping and compression within the apparel.
Cobra Puma Golf athlete Lexi Thompson fulfilled her number one goal for 2014 by winning her first ever major. After taking the lead during the second round,Lexi shot a final round of 68 to win at the Kraft Nabisco Championship. She has been using Cobra Golf equipment and wearing Puma Golf gear on the course since she first turned pro in June 2010.
In Formula 1, Lewis Hamilton of the Puma-supplied Mercedes AMG Petronas team took the world championship lead from his Mercedes teammate Nico Rosberg by winning his fourth race in a row at the Spanish Grand Prix last Sunday. Lewis led from start to finish to win a tense battle with Nico, with the rest of the field far behind. With Puma-partnered Ferrari driver Fernando Alonso currently third in the standings, the current top three F1 drivers are all equipped with Puma products and wear the Puma evoSPEED II Pro.
Strategy Update
In line with Puma’s mission to become the Fastest Sports Brand in the World, we have continued our efforts to make Puma faster and more efficient. This strategy encompasses the repositioning of Puma as the World’s Fastest Sports Brand, the improvement of our product engine, the optimization of our distribution quality, and increasing the speed within our organization and infrastructure.
In terms of our brand repositioning, we have completed the definition of our brand platform and are now translating them into a marketing campaign, which will be launched in August 2014 – the biggest campaign for Puma ever. The campaign will showcase many of our great athletes like Usain Bolt, Mario Balotelli, Rickie Fowler, Marta and Lexi Thompson in their pursuit of our brand mantra Forever Faster.
To improve our product engine, we have adapted our design language in accordance with our new brand platform. Torsten Hochstetter, our Global Creative Director, translated our brand mantra “Forever Faster” into a new distinctive design language for Puma, which takes its clear inspirations from our heritage and our roots in sports. With innovative products and a more commercial focus, we are convinced that we will have a strong product offering in place to excite the market in Spring/Summer 2015.
We have also started to improve the quality of our revenues and distribution. Our current focus is to reestablish the relationships with our Key Accounts using dedicated product and marketing programs. With the Puma Lab at Foot Locker, we have a large scale program in more than 100 doors in the US in place, which provide a great opportunity to showcase our brand and great products in this opinion-leading retailer. We are satisfied with the results as our comparable sales are significantly up. Furthermore, we are currently adapting our direct-to-consumer channels to our new brand direction: Our new unified eCommerce site will be launched in the USA, Europe and Russia by mid 2014 and our new retail format will launch with our new full-price store opening in Dubai in the fourth quarter of 2014.
We have also continued to make our organizational structure and setup faster. As of 2 May, our Puma Village development center in Vietnam is closed. Our developers have moved into the sample rooms of our suppliers’ factories to speed up our development process, while our office employees moved into our new offices in central Ho Chi Minh. The property sale of Puma Village is currently ongoing. Our relocations of the Lifestyle Business Unit from London and of the Global and European Retail Organization from Oensingen, Switzerland, to our headquarters in Herzogenaurach are in process and will be finalized by the end of May and September respectively.
Outlook for the Financial Year 2014
2014 will be a turnaround year for Puma, where the brand will be re-established in the market place and brought back to a path of profitable and sustainable growth in the mid-term. To support this turnaround, Puma will continue to invest strongly in marketing and sports assets, while maintaining tight control on other operating expenditures.
Based on the results of the first quarter and our assumptions at the beginning of the year, which foresaw stable currencies, our expectations for full year net sales (flat), gross profit (slight increase), OPEX (increase due to Marketing Investments) and EBIT/Net Earnings (approx. 5 percent / 3 percent of net sales respectively) remain unchanged. Given the current currency volatility, which is weighing negatively on our results, there may be a correspondingly negative impact of around 50 basis points on the EBIT and Net Earnings margin for the full year.
Rounding differences may be observed in the percentage and numerical values expressed in millions of Euro since the underlying calculations are always based on thousands of Euro.
Rounding differences may be observed in the percentage and numerical values expressed in millions of Euro since the underlying calculations are always based on thousands of Euro.
Rounding differences may be observed in the percentage and numerical values expressed in millions of Euro since the underlying calculations are always based on thousands of Euro.
