Americas’ Momentum Boosts Puma’s Turnaround Efforts

Americas’ Momentum Boosts Puma’s Turnaround Efforts

Led by a healthy double-digit gain in the Americas region, a considerable upwards trend in accessories, and further recovery in footwear sales, Puma SE reported sharp improvement in fourth-quarter profits excluding year-ago restructuring charges.

•    Americas sales jumped 15.0 percent on a c-n (currency-neutral) basis in the fourth quarter, led by Argentina, Brazil and Mexico. The EMEA and Asia both saw meager gains;
•    Footwear expanded 4.3 percent on a c-n basis, the category’s second consecutive quarterly increase;
•    Revenues in the current year are expected to rise in the single-digit range, driven by growth in the second half. Earnings will be pressured by infrastructure expenses and currency fluctuations.

“The fourth quarter developed as we had hoped, with a solid increase in sales and even stronger improvement in EBIT and net earnings,” said Bjørn Gulden, CEO of Puma SE. “ We are especially pleased to see that we again, for the second quarter in a row, had growth in our footwear sales.”

Besides the Puma brand, Puma SE owns Cobra Golf, Tretorn, Dobotex and Brandon.

The quarter’s performance helped full-year results to come in line with expectations. Added Gulden, “We stopped the decline in sales and made progress with all our strategic priorities. We now have a clear positioning, which will be strengthened through increased investment into marketing and a clear use and celebration of our assets.”

In the fourth quarter, revenues grew 7.5 percent to €750.8 million ($1.16 bn) and grew 6.3 percent on a currency-neutral (c-n) basis

In the Americas, sales jumped 19.3 percent to €319.3 million ($491.7 mm) and grew 15.0 percent on a c-n basis. Solid performances in the U.S. and Canada and strong growth rates in Argentina, Brazil and Mexico drove the Americas gain.

Sales in the EMEA region declined 0.5 percent to €224.8 million ($346.2 mm) but inched up 0.6 percent on a c-n basis. Economic conditions in some continental European countries “remained challenging, while the U.K. enjoyed a very solid performance,” Puma said.

In the Asia/Pacific region, revenues gained 1.0 percent to €206.7 million ($318.3 mm) and gained 0.7 percent on a c-n basis. While China and India grew, Korea and Japan performed below last year’s levels.

By category, footwear advanced 6.7 percent to €310.7 million ($478.5 mm) and added 4.3 percent on a c-n basis. Apparel gained 3.2 percent to €293 million ($451.2 mm) and 3.6 on a c-n basis. Accessories jumped 19.4 percent to €147.1 million ($226.5 mm) and 17.1 percent on a c-n basis “despite adverse market developments in the golf category.”

Gross margins in the quarter increased to 45.0 percent from 43.2 percent.
Lower price reductions supported by a better product mix in the quarter helped to improve the margin in footwear and apparel. Footwear gross margins increased to 41.6 percent from 39.5 percent and apparel’s margins improved to 47.1 percent from 44.7 percent. Accessory margins decreased slightly to 47.8 percent from 48.4 percent, impacted by the current weakness within the golf business.

After four consecutive quarters of decline, operating expenses in the quarter of 2014 increased 8.6 percent as a result of heightened marketing activities although Puma maintained its focus on a strict cost management. As a percent of sales, operating expenses increased to 44.3 percent from 43.8 percent.

With the higher sales and the improved gross margins, EBIT (before special items) improved to €10.6 million ($16.3 mm) from €1.1 million a year ago. After a charge of €129.0 million, the operating loss in the year-ago period was €127.9 million.

The net loss in the fourth quarter was €4.6 million ($7.1 mm), which compares with a loss of €115.2 million after the charges a year ago.

For the full year, sales grew 3.3 percent on a c-n basis. All regions contributed to growth, posting currency adjusted growth rates in the year.

The 1.3 percent gain on a c-n basis in the EMEA region in the year was led by strong performance in the U.K. that more than offset weaker French and Italian markets. The 6.7 percent gain on a c-n basis in the Americas for the year was aided by strong demand, particularly from the U.S., Canada, Argentina and Mexico. In Asia/Pacific, sales rose 1.9 percent on a c-n basis reflected strong demand from India and China that helped make up for a decline in Japan, which was mostly related to the weaker golf category.

By category, footwear sales decreased 2.4 percent on a c-n basis in the year due to a weaker first half while the second half showed growth in the segment. On a c-n basis, sales in apparel rose 7.6 percent while accessories jumped 9.3 percent.

Puma’s retail sales grew 3.9 percent in the year on a c-n basis with store openings offsetting closings as part of its rationalization plan. Comparable-stores sales were positive.

Puma’s full-year gross profit margin increased slightly from 46.5 percent to 46.6 percent, driven by positive margin developments in apparel and accessories that were able to more than offset the decline in footwear. Due to the increased marketing expenses for the „Forever Faster“ brand campaign, the football World Cup in Brazil as well as the sponsoring of additional football clubs and athletes, the full-year operating expense grew 4.9 percent.

Before special charges in the year-ago period, operating earnings were down 33.1 percent. Net earnings came to €64.1 million against €5.3 million after the year-ago charges.

Highlighting some of the progress during the year, Gulden noted that August marked the global launch of its Forever Faster brand campaign, the biggest marketing campaign in Puma’s history. The campaign, which seeks to reestablish its sports heritage, reached 35 countries and generated 1 billion TV impressions as well as 31 million online views in the first three months after launching.

The signing of the star singer Rihanna as global ambassador is expected to give the campaign a further boost in 2015.

“The market surveys showed a very positive consumer reception,” said Gulden. “The launch of this campaign marked the start of a long-term marketing strategy, which will be continued in 2015 and run through the Rio de Janeiro Olympic Games in 2016 and beyond.”

Puma also initiated key projects to enhance its product designs, develop more innovative technologies and increase the commercial appeal of its product range. Said Gulden, “The first results have already been implemented for the 2015 collections, and the  feedback from our retail partners make us very confident that we are heading in the right direction.”

A success at retail was the launch of Puma Lab in-store shop jointly developed with Foot Locker in the U.S. Said Gulden, “The success of the PUMA Lab has not only improved our business with Foot Locker USA but also generated a positive spill-over effect onto other key retailers in the US marketplace – both with performance and lifestyle accounts. In 2015, we will continue to foster collaborations and launch further product and marketing programs with our most important key accounts in every region.”

Organizationally, Puma relocated its global and European retail organization from Oensingen, Switzerland, to its headquarters in Herzogenaurach. Three other major consolidations were also completed. For 2015, organizational changes will focus on standardizing and optimizing processes between Puma and its partners, including areas such as order and invoice flows. Adding optimization measures, implementing an ERP system and setting up platforms to improve the design, development and planning processes will be the focus of increase investment technology spending.

For the current year, Puma expects sales to increase in the medium single-digit range. Sales in the first half are expected to be flat with growth occurring in the second half.

Gross margin is expected to improve slightly based on lower discounts and a favorable product mix.

On the cost side, Puma is planning further strong investments in the “Forever Faster” marketing campaign as well as in the upgrade of its current IT. As a result, however, operating expenses will increase in spite of continued efforts to cost controls. Said Gulden. “We are very confident that our investment in IT will lay the foundation for a lean and efficient company in the future.”

The recent negative fluctuations of foreign exchange rates, particularly the strengthening of the U.S. dollar versus nearly all other currencies, “could lead to a significant negative impact on the reported gross profit margin and the overall reported EBIT and net earnings of the Puma.”

Puma indicated that it had already taken and will continue to take countermeasures, which should support a slight increase in reported EBIT and net earnings.

“Last year, Puma has successfully taken the first steps to re-establish the brand in the market place,” concluded Gulden. “2015 will be the year to further enhance and reinforce this brand positioning and to take a further step in getting Puma back to a path of profitable and sustainable growth.”