11 Nov Puma Lifts Guidance After Robust Q3
Puma reported its net earnings nearly doubled in the third quarter. Sales grew 10.7 percent on a currency-neutral basis, led by gains of 12.2 percent in the Americas region and 11.9 percent in the EMEA region.
The company’s third-quarter highlights included an 11 percent sales increase, currency adjusted to €990 million (+8 percent reported), with growth across all regions, along with improved sell-through at Puma-owned retail and key retail partner locations. Gross profit margin, however, lay flat at 45.8 percent, despite a stronger U.S. dollar. Meanwhile the company charted a moderate increase in OpEx of 4 percent, a 47 percent improvement in operating results (EBIT) to €60 million and basked in the successful performance of Puma athletes at the Rio Olympics, with sprint star Usain Bolt dominating the event and winning three gold medals for the third consecutive time in 2016.
As for Puma’s nine months earnings, sales were up 10 percent to currency adjusted €2.669 billion (+6 percent reported) based on growth across all regions and product segments. The strong U.S. dollar in 2016 compared to a year ago led to a slight decrease of gross profit margin to 46.1 percent. Improved operating leverage with OpEx increased by only 3 percent, but operating results (EBIT) were up 33 percent to €114 million. Earnings per share sit at €4.48 compared to €2.77 last year, and continued strong visibility of Puma’s women’s category through Fenty Puma by Rihanna fashion shows in New York and Paris and the launch of the “Do You” communication platform with model, actress and activist Cara Delevingne look promising for the remainder of the year.
Sales Development
Bjørn Gulden, CEO of Puma SE, stated, “We have seen a solid improvement in the sell-through of our products at retail in the third quarter. New product lines like the Fierce, the Platform, the Ignite Dual and the Fenty lines have shown to be “right” for the consumers and our marketing with personalities like Rihanna, Kylie Jenner, Cara Delevingne and, of course the unbelievable performance of Usain Bolt, have increased our brand heat. More consumers are buying our new products at full price and retailers are therefore more satisfied with us. It is now our job to use this momentum to get more of the right Puma products on their shelves. Sales developed a little better than expected, gross margin came in as expected and this combined with a strong discipline on the cost side resulted in a nice improvement in our earnings. With three months to go we feel confident in fulfilling our guidance and do now expect our full-year EBIT to be in the upper half of the already communicated range of €115 million to €125 million.”
Third Quarter 2016
Sales
Puma continued on its growth path in the third quarter 2016. Sales increased by 10.7 percent currency adjusted to €990.2 million (+8.3 percent reported). All regions contributed to this growth with EMEA and the Americas being the main drivers. Footwear once again performed particularly well with a currency adjusted increase of 16.4 percent.
The EMEA region continued its growth, supported by strong demand for footwear products. Sales rose by 11.9 percent currency adjusted to €408.6 million (+8.7 percent reported) with France and Germany being particularly strong.
Sales in the Americas region improved by 12.2 percent currency adjusted to €342.9 million (+5.5 percent reported). Solid growth was delivered by both North and Latin America. However, the weakness of Latin currencies, notably the Argentine Peso, continued to impact the sales development in Euro terms.
The Asia/Pacific (APAC) region achieved sales of €238.7 million, representing a rise of 6.9 percent currency adjusted (+11.7 percent reported). China and India delivered double-digit growth.
Footwear continued to drive the strongest growth among the three product segments, showing an improvement of sales for the ninth quarter in a row. Sales were up 16.4 percent currency adjusted (+12.3 percent reported) and amounted to €458.8 million, with success coming from the Ignite franchise as well as Fierce and Fenty products within the Running, Training and Sportstyle categories.
Coming in at €377.4 million, sales in the Apparel segment increased by 10.3 percent currency adjusted (+8.8 percent reported). Major gains were achieved in the Sportstyle category supported by its women’s business.
The development of Accessories was impacted by a weaker performance of Puma’s accessories business in the United States. Sales decreased by 2.4 percent currency adjusted to €154 million (-3.2 percent reported).
Gross Profit Margin And Operating Expenses
In spite of the ongoing negative currency impact from a stronger U.S. dollar, Puma managed to maintain the gross profit margin at 45.8 percent. This was achieved mainly through sourcing improvements, selective price adjustments, and an improved Footwear product mix. The Footwear margin increased by 190 basis points from 41.2 percent to 43.1 percent. The Apparel margin decreased from 49.8 percent to 48.2 percent and the Accessories margin fell from 49.1 percent to 48.4 percent.
Operating expenses (OPEX) rose moderately by 4.1 percent to €397.4 million. This increase is mainly due to additional marketing costs associated with the Olympic Games in Rio as well as the expansion of owned and operated retail store network. Other operating functions maintained strict cost control and kept costs stable.
Operating Result And Net Earnings
The operating result (EBIT) went up by 46.7 percent to €60.3 million. This is mainly due to the operating leverage as sales grew stronger than operating expenses, while the gross profit margin remained flat. Net earnings nearly doubled compared to last year´s result coming in at €39.5 million, representing an increase of 98 percent. This result translates into earnings per share of €2.64 compared to €1.34 in the third quarter of 2015.
Nine Months 2016
Sales
As Puma was able to keep up the strong momentum seen in the first half-year 2016, sales for the nine-month period improved by 10.2 percent currency adjusted to €2.6685 billion (+6.4 percent reported). The main drivers behind this positive development were EMEA and APAC and in segment terms Footwear and Apparel.
The growth dynamic in the EMEA region was particularly high, where sales went up 13.2 percent currency adjusted to €1.0843 billion (+9.8 percent reported). This increase is largely due to the performance of France and the DACH area (Germany, Austria, Switzerland) which achieved a double-digit growth. Within the EEMEA region, Russia and South Africa performed very well. Apparel achieved major gains, partly driven by the football business.
In the Americas region, both North and Latin America posted a solid upturn in currency adjusted sales, increasing by 7.6 percent to €946.6 million. In Euro terms, however, sales grew only by 0.4 percent, as the weakness of currencies in Latin America, notably in Argentina, continued to have a negative impact on reported sales.
The development of sales in the Asia/Pacific (APAC) region was particularly positively influenced by China, which performed strongly across all distribution channels. The region’s sales improved by 9.3 percent currency adjusted to €637.7 million (+10.3 percent reported). All product segments performed well in the nine-month period.
Footwear improved by 11 percent currency adjusted to €1.211 billion (+5.7 percent reported). This development was based on strong demand in the Running, Training, Sportstyle and Fundamentals categories.
Apparel delivered the highest growth rate among the three product segments. Sales came in at €966.6 million, representing an increase of 12 percent currency adjusted or 8.6 percent in Euro terms. All product categories contributed to this success.
Accessories were up 5.4 percent currency adjusted to €491 million (+3.8 percent reported). EMEA and Asia/Pacific showed higher sales in this product segment, while the development was negative in the Americas, caused by the U.S.
In the nine-month period, Puma generated own and operated retail sales (including e-commerce) of €551.1 million. This is equivalent to an increase of 11.9 percent currency adjusted and represents a share of 20.6 percent of total sales versus last year’s figure of 20.4 percent. The sales increase is based on a healthy like-for-like sales growth, a higher number of retail stores in operation as well as a significant momentum of the e-commerce business.
Gross Profit Margin And Operating Expenses
The gross profit margin of 46.1 percent represents a slight decrease of 30 basis points compared to 46.4 percent in the first nine months of 2015. This is solely due to the negative currency impact on cost of sales from the stronger U.S. dollar. The negative currency effect was partly offset by sourcing improvements, selective price adjustments and an improved product mix in the Footwear segment. In Footwear, the gross profit margin was up 70 basis points at 42.8 percent (last year 42.1 percent), while in the Apparel and Accessories segment, the margins decreased from 50.4 percent to 49.1 percent and from 49.6 percent to 48.1 percent respectively.
Operating expenses (OPEX) increased only slightly by 3.4 percent and amounted to €1.1279 billion. This is the result of intensified marketing activities for the UEFA Euro 2016 and the Olympic Games in Rio, as well as an extended network of own and operated retail stores. All other operating functions managed to keep costs stable.
Operating Result And Net Earnings
The operating result (EBIT) improved significantly by 32.9 percent and amounted to €113.5 million. With sales growing faster than operating expenses, Puma was able to benefit from operating leverage.
Net earnings improved by 61.5 percent and came in at €67.0 million (last year: €41.5 million). This result translates into earnings per share of €4.48 compared to €2.77 in 2015.
Working Capital
Puma’s working capital increased by only 2.8 percent to €731.2 million despite higher sales and business volumes as well as the extension of the retail store network. Inventories were up 3.7 percent at €715.0 million and trade receivables increased by 3.3 percent to €584.1 million, underpinning a strong performance of working capital management.
Outlook 2016
With Puma’s positive performance over the first nine months of 2016, it continues to expect a currency adjusted high single-digit increase of net sales, a gross profit margin on previous year’s level (45.5 percent), and an increase of currency adjusted operating expenses in a mid to high single-digit range for the full-year. In light of the operating result (EBIT) achieved in the first nine months, we now expect the full-year EBIT to be within the upper half of the already communicated range of €115 million to €125 million.
Brand And Marketing
In July, the company unveiled the first Puma home and away kits for Mexican football club Chivas, officially called Club Deportivo Guadalajara, one of Mexico’s two biggest clubs.
At the Summer Olympics in Rio, Puma sprint star Usain Bolt accomplished his “Triple Triple” by winning an Olympic Gold medal in each of the three sprinting events. In total, ten Gold, five Silver and nine Bronze medals were the yield of the Puma equipped Olympic teams of Jamaica, Bahamas, Cuba and Grenada alongside the Track & Field teams of Switzerland, the Dominican Republic and Barbados.
In September, the first and much-awaited Fenty Puma by Rihanna collection came into stores worldwide. Later that month, Rihanna presented her Spring/Summer 2017 Fenty Puma by Rihanna collection at the Paris Fashion Week. This second collection takes inspiration from 18th century France during the time period of Louis XVI and fuses with a street style vibe.
In the Women’s category, Puma launched the campaign “Do You”, which aims to inspire confidence in women around the world. The campaign is spearheaded by international model, actress, and activist Cara Delevingne who joined Puma’s growing list of influential female ambassadors. It features a cross-category product range from Puma’s Running and Training and Sportstyle collections.
The company also announced a new partnership with Abel Tesfaye also known as The Weeknd as a new Global Brand ambassador and creative collaborator. The Grammy-winning artist and style icon is the perfect fit to headline Puma’s latest Sportstyle campaign, ‘Run The Streets’ at the beginning of this month.
In Motorsport, the company partnered Formula 1 team Mercedes AMG Petronas won the Constructors’ Championship for the third time in a row. Nico Rosberg is in the pole position to clinch his first world championship crown at the end of the season and is followed by the rest of Puma-equipped drivers from Red Bull and Ferrari in the drivers’ standings.