Puma raised its full-year guidance for the third time this year, as it achieved underlying double-digit sales growth across all regional markets and stronger sell-through in the third quarter, along with robust orders for the fourth quarter.

Puma Consolidated Income Statement
(Million Euros, Quarter ended Sept. 30)

 

2017

2016

%
Change

NET SALES

1,121.8

990.2

13.3

Cost of Sales

581.8

536.4

8.5

Royalty/Commissions

3.9

3.9

0.0

Operating
Expenses

442.6

397.4

11.4

Net Interest Expense

3.4

1.3

-

Pre-Tax

97.8

59.0

65.8

Tax

28.3

17.3

63.6

NET

62.1

39.5

57.2

Euro/Share (Diluted)

4.16

2.64

57.6

The Cat's turnover jumped by 13.3 percent to €1,121.8 million for the quarter, amounting to a rise of 17.4 percent in constant currencies. It was strongly driven by footwear, which yielded a sales rise of 23.2 percent in constant currencies, compared with 7.6 percent for apparel and 23.9 percent for the smaller accessories division.

But the gross margin was better than expected, as it firmed up by 2.3 percentage points to 48.1 percent for the three months, despite negative currency impacts. It enabled Puma to report an operating profit of €101 million, equivalent to an operating margin of 9.0 percent, up from 6.1 percent for the same quarter last year. The group's net profit surged by 57.2 percent to €62.1 million.

Björn Gulden, Puma's chief executive, explained in a conference call with journalists that the company had tweaked products to be able to sell more of them at full price, and that the strategy had worked out particularly well in the quarter. Puma also benefited from improvements in sourcing and selective price adjustments. Gulden added that Puma was unlikely to see the same improvement in the fourth quarter, owing to the promotional retail environment in the U.S. market as well as in Europe, probably due to warm weather.

The quarterly sales rise was driven by Europe, the Middle East and Africa (EMEA), where sales soared by 22.0 percent to €498.3 million, up by 22.7 percent in constant currencies. Gulden said that sales firmed up in the U.K., France and Germany, but less so in the Nordic markets and in southern Europe. The Middle East market has been relatively tough and Turkey was another market where Puma suffered from broader political issues.

Sales in the Americas were up by 9.8 percent to €376.6 million, but this was a rise of 15.6 percent in constant currencies. Asia-Pacific just about managed a double-digit sales rise of 10.2 percent in constant currencies for the quarter, but the reported sales were up by 3.4 percent to €246.9 million.

The quarter was marked by an uptick in the sell-through of football products and Puma is gearing up for the World Cup to be held in Russia next year. Two of its European teams, Italy and Switzerland, are not certain to qualify, but Gulden is confident that four or five Puma-clad teams will make it to Russia.

Women's products have generated disproportionate growth for the brand as well. Gulden said that about 30 percent of the group's products are women-specific, and they account for about the same share of the brand's turnover. The remaining 70 percent consists of products for men and children as well as unisex gear, implying that the share of sales to female consumers is in fact higher than 30 percent. Furthermore, the split has been shifting with more women-specific products and fewer unisex products. One of the motives for the shift is the growth of female sports participation in markets such as India and China.

The strong growth in demand for women's products has been aided by Rihanna, and the launch of a second range by the singer in September, but Gulden emphasized that sales of the Fenty range remained relatively modest. The Basket Heart and Ignite Limitless range were two other popular Puma options.

Puma Sales by Region and Product Segments
(Million Euros, Quarter ended Sept. 30)

 

2017

2016

%
Change

Currency
Adjusted
Growth

EMEA

498.3

408.6

22.0

22.7

Americas

376.6

342.9

9.8

15.6

Asia / Pacific

246.9

238.7

3.4

10.2

         

Footwear

545.3

458.8

18.9

23.2

Apparel

391.8

377.4

3.8

7.6

Accessories

184.7

154.0

19.9

23.9

TOTAL

1,121.8

990.2

13.3

17.4

Puma added to its roster of female entertainment stars by teaming up with Selena Gomez a few weeks ago. Gulden emphasized that the brand would continue to invest more in sports marketing, but the budget has come to be dominated by content creation for social media and partnerships with influencers, be they global stars or local partners. The CEO added that marketing is one of the items of spending where there isn't much leverage to be achieved.

Puma's sales reached €3,096 million for the first nine months of this year, which amounted to an increase of around 16 percent in constant currencies and in reported terms. The company's own retail sales advanced by 22.0 percent in constant currencies, including online sales, to make up about 21.7 percent of its global turnover. The rise came from comparable store sales growth along with store openings and a strong rise in online sales.

The gross margin was up by 1.2 percentage points to 47.3 percent for the nine months. Puma benefited from leverage on sales as its operating expenses increased by 12 percent. This allowed it to report an operating profit of €214.8 million, amounting to an operating margin of 6.9 percent, up by 2.6 percentage points. Puma's net profit for the period nearly doubled to €133.6 million.

The revised guidance calls for Puma's sales to increase by 14 to 16 percent for the full year, compared with a previous forecast of 12 to 14 percent. The gross profit margin should reach about 46.5 percent, while it had previously been forecast to come in at 46.0 percent. Operating expenses should also increase faster than predicted, at a double-digit rate compared with the earlier forecast of a high single-digit rate. As a result Puma should end with an operating profit of €235 million to €245 million, up from the previous guidance of €205 million to €215 million.

The updated guidance was published a few days ahead of the full release of Puma's quarterly results, amid insistent reports that Kering is preparing to divest Puma. Gulden said he was unaware of such moves.