Puma Says U.S. Led Third Quarter Growth

Puma Says U.S. Led Third Quarter Growth

Puma reported consolidated sales grew 3.1 percent in currency-neutral (c-n) terms in the third quarter driven by the running and training footwear categories and the Americas, where its collaboration with pop star Rihanna is revitalizing sales.

The German company said sales rose 8.4 percent in reported terms to €914.4 million.

“Puma’s sales in the third quarter developed as expected with growth in all product categories,” said Bjørn Gulden, Chief Executive Officer of Puma SE. “I am happy to see that our footwear category has increased for the fifth quarter in a row. I am especially pleased to see that also the sell-out at retail to the end consumer is continuously improving in all categories. The launch of the first Puma By Rihanna shoe, the ‘Creeper,’ has been extremely successful and most retailers have sold out within hours or days. We have generally seen a very positive development in our Women’s business and we will put even more focus on the female consumer going forward.”

Gulden said the continued volatile currency trends in some markets and the weakness of the Euro, especially towards the U.S. Dollar, continues to put pressure on gross profit margin, OPEX, and net earnings.

“We have taken and will continue to take countermeasures but, as already indicated in the last two quarters, we cannot fully offset these negative impacts on our earnings,” he said. “Good feedback from retailers, better sell-out and a solid order book validate our outlook for the fourth quarter and allow us to confirm our full-year guidance.”

Sales by region
Sales in the EMEA region (Europe, Middle East, and Africa) declined slightly by 3.6 percent currency adjusted to € 375.7 million. This result compares against high prior year figures, when last year’s performance was positively impacted by the Arsenal launch in the third quarter and included sales of Tretorn (the trademark rights were sold in the second quarter 2015). Without these effects, sales in the EMEA region would have been flat in the third quarter.

Growth in the Americas continued, with North and Latin America both showing strong performances, with sales up 10.8 percent currency adjusted to € 325.1 million. The United States were one of the key growth drivers with sales increasing double-digit.

In Asia/Pacific (APAC), sales were up 5.0 percent currency adjusted to € 213.6 million. While China and India showed substantial growth within the region, sales in Korea declined.

Sales by category
Footwear continued to grow as in the last quarters and is the main driver of Puma’s total increase in net sales: Sales of € 408.4 million represent a rise of 3.5 percent currency adjusted. This development is mainly due to the growth of our Running and Training category with the IGNITE and Descendant product platforms.

In the Apparel segment, the sales growth of 2.5 percent currency adjusted to € 346.9 million was mainly attributable to the success of the Training products.

Sales with Accessories went up 3.7 percent currency adjusted to € 159.1 million, supported by strong sales in Europe and North America.

Gross profit margin impacted by currency effects
At 45.8 percent, gross profit margin fell short of last year’s figure by 50 basis points, due to negative currency effects impacting cost of goods sold. The footwear gross profit margin decreased from 41.9 percent to 41.2 percent, the apparel margin rose from 49.6 percent to 49.8 percent and the margin for accessories fell from 50.3 percent to 49.1 percent.

OPEX in line with expectations
Operating expenditures (OPEX) amounted to € 381.9 million in the third quarter. This represents an increase of 9.3 percent in reported terms versus the third quarter in 2014. As in previous quarters, OPEX was again impacted by negative currency effects, while Puma continued to invest in marketing activities to further strengthen the brand’s positioning as the Fastest Sports Brand in the World. Ongoing campaigns as well as an increased number of own retail stores in operation also contributed to the higher OPEX. At constant currencies, the increase in OPEX is limited to 4.3 percent versus last year, reflecting tight underlying cost control.

At € 41.1 million, the operating result was 11.2 percent below the last year’s figure. Unfavorable differences from currency conversions continued to weigh on non-ooperating, or financial income, which came in at € -5.1 million.

Net earnings reached € 20.0 million (compared to € 28.9 million in the third quarter last year), resulting in earnings per share of € 1.34 (compared to € 1.93 last year).

Balance sheet
To support sales growth and serving the higher demand from new retail stores as well as ensuring product availability, inventories increased by 20.2 percent to € 689.5 million. Trade receivables went up by 3.3 percent to € 565.6 million. Trade payables were at € 509.0 million, rising 10.9 percent compared to last year’s figure. In total, working capital rose 11.8 percent to € 711.4 million.

Cash and cash equivalents were also impacted by the higher working capital requirements and decreased by 12.1 percent to 269.6 million, while borrowing increased as part of Puma’s short term financing activities.
Outlook for the Financial Year 2015

Cashflow / CAPEX
As a result of the higher working capital requirements, the free cashflow went down to € -248.0 million for the nine-month-period 2015 compared to € -114.4 million as of September 30, 2014. The free cashflow was also impacted by higher CAPEX, which grew from € 47.8 million last year to € 54.6 million. This reflects our increased investment in IT and retail stores.

Thanks to the countermeasures implemented to offset the impact of the strong U.S. dollar, Puma now expects the decline in full-year gross margin to come in at the lower end of the range of  its previous forecast of 100-to-150 basis points versus last year. The improvement in gross profit margin due to these countermeasures, however, comes at a slight negative effect on net sales. Nonetheless, Puma  continues to expect an increase in the medium single-digit range for full-year currency-adjusted net sales and reiterated its expectation for a full-year EBIT in a range between € 80 million and € 100 million, with net earnings impacted accordingly.