Puma maintains FY23 outlook despite margin, profitability pressures

Strong growth in Greater China and the direct-to-consumer channel were key contributors to Puma’s 14.4 percent revenue growth to €2,187.7 million from €1,912.2 million in Q1, but the group suffered a 70-basis point drop in gross margin to 46.5 percent on impacts from the higher promotional activity and sourcing and freight costs coupled with currency impacts. 

With the results, fueled by ongoing brand momentum and new product launches, Puma retained its FY23 outlook that calls for high-single-digit, currency-adjusted sales growth and an Ebit range of €590-670 million (+4.5% to -8.0% versus FY22) as it cited macroeconomic and trade challenges in the market. These issues include high inflation and interest rates, which have weighed on consumer sentiment and unpredictable retail demand, and elevated industry inventory levels that are currently contributing to a slower sell-in rate in the wholesale channel. Currency, promotional activity in key markets and raw material prices are predicted to dilute profitability throughout FY23. Sales are forecast to rise by low- to mid-single digits in Q2.

“We consider 2023 to be a year of transition,” said CEO Arne Freundt in a statement. “In line with our expectations, the year has started with pressure on gross profit margin and profitability,” later adding, “With our continued momentum, we are fully on track to normalize our inventory levels and to achieve our full-year guidance.”

As the brand returned to growth in Greater China after more than two years, Puma ended Q1 with a 33 percent year-over-year inventory increase to €2,147 million, which included a 60 percent jump in on-hand merchandise at €1,610 million. High overall inventory levels in the North American off-price channel contributed to a 0.8 percent decline in currency-adjusted Americas’ revenues to €827.9 million in the period. The company said the situation underlies the importance of Puma’s need to strengthen its business with “more desirable” retailers in the market and lower its dependency on off-price partners.

In Q1, Puma’s Ebit fell 10.5 percent to €175.5 million as the year-over-year Ebit margin contracted to 8.0 percent from 10.3 percent. Net income declined by 3.4 percent to €117.3 million. The EMEA was the fastest-growing region for sales expansion, rising 25.4 percent to €883.8 million. Asia/Pacific revenues, bolstered by the gain in China, increased by 27.4 percent on a currency-adjusted basis to €476.0 million. Wholesale revenues lifted 12.4 percent higher to €1,722.1 million despite higher inventory levels in the trade. Direct-to-consumer sales, meanwhile, jumped by 22.5 percent to €465.5 million as own-store sales gained 17.3 percent and e-commerce sales improved by 32.7 percent year-over-year. 

By product category, footwear remained the dominant sector with a 28.8 percent currency-adjusted increase to €1,210.4 million from €941.3 million. Apparel sales inched up by 1.5 percent year-over-year to €647.7 million from €638.7 million, and accessories revenues declined by 1.7 percent to €329.5 million.