Puma prioritizes the wholesale channel

As already indicated in a previous profit warning, Puma ended the second quarter of its current fiscal year with a significant increase in sales. Revenue growth was particularly strong in North America, where the brand is gaining shelf space at some wholesale accounts where Nike and other competitors are pulling back. Significantly, the company is also planning to give priority for its reduced inventory to its wholesale clients over its own direct-to-consumer (DTC) operations in the midst of its new supply chain constraints.

The supply chain issues affected the company’s gross margin during the quarter. At 47.5 percent of sales, it was much lower than the 49.3 percent level achieved in the second quarter of 2019, but still better than the 43.9 percent rate of a year ago, thanks to better sell-through and lower promotional activity. “The gross margin improvement was driven by better sell-through and lower sales promotions, while supply chain inefficiencies, including inbound freight cost increases, had a negative impact,” explained the company’s CEO, Björn Gulden.

Operating profit (Ebit) reached €108.9 million in the second quarter, compared with a loss of €114.8 million in the same period of 2020 and €80.3 million in the same period of 2019. Net income of €48.7 million compared with a loss of €95.6 million in the pandemic-stricken second quarter of 2020.

From April to June, the group generated sales of €1.59 billion, representing an increase of 91.2 percent from the same quarter of last year. Adjusted for foreign exchange, revenues grew by 95.8 percent. The sales increase as compared to the second quarter of 2019 was particularly meaningful: It up by 36.3 percent at constant currencies, with all regions and product areas posting double-digit gains.

The Americas region was the largest contributor to growth in the latest quarter, with currency-adjusted sales up 181.8 percent from the year-ago period to €675.6 million, driven by strong demand for the Puma brand in the North American market. “Demand there has increased substantially over the last four months,” Gulden explained. In fact, he said, it has been greater than the available supply, as Puma has been facing huge shortages for about two weeks because of Covid-19-related factory closures in Vietnam, which have primarily affected exports to the Americas.

Vietnam supplies about one-third of all the company’s products, half from the north and half from the south of the country.

In Europe, the Middle East and Africa (EMEA), Puma’s revenues were up by 85.4 percent at constant currencies to €572.4 million. In Asia-Pacific, they only grew by 29.6 percent at constant currencies to €341.2 million because the boycott on Western goods that began at the end of March had a major impact on the important Chinese market, where sales declined by around 5 percent in the local currency. After an initial drop of 70 percent, which mostly affected online sales, sales in China recovered toward the end of the second quarter, and the management indicated that the situation has improved more recently.

Wholesale revenues more than doubled to €1.2 billion in the latest quarter, and the current order backlog is being described as very strong. DTC revenues impoved by 55 percent to €389.1 million, with increases of 8.5 percent in e-commerce and 107 percent at the company’s physical stores, most of which have reopened. Without the Chinese boycott, the digital channel would have scored a 24 percent increase in the quarter, after rising by 97 percent in the second quarter of last year.

Enjoying the strongest gain, footwear revenues grew by 109 percent to €787.8 million, driven by running and training styles as well as the sportstyle category. Puma’s new line of Nitro-cushioned running shoes has been very well received.

The picture for the first half of 2021 is also positive, with sales of €3.14 billion representing increases at constant currencies of 53.6 percent as compared to the first of half of 2020 and 30 percent as compared to the same period of 2019.

Given these figures, the company confirmed its annual forecasts, which were raised just two weeks ago. According to these, sales should increase by at least 20 percent in 2021 on a currency-adjusted basis. In terms of operating profit, the company is targeting €400 to €500 million. Puma also expects a significant improvement in net profit.

The optimistic outlook has been comforted lately by the recent successes of sponsored teams and athletes, such as the Italian football team winning the delayed UEFA Euro 2020 championship and Manchester City winning the English Premier League again this year.

However, there is still concern over developments in the supply chain. It is not only raw materials such as cotton that are experiencing a shortage, with rising prices as a result. Another bottleneck is logistics, with freight costs rising by up to 600 percent at the moment. For the time being, Puma is trying to absorb the higher costs by generating increased demand as well as through new products that could be offered at higher prices. For 2022, however, “it is clear that Puma and the entire industry will make price adjustments,” Gulden said.

Source: Puma SE

Infographic Puma Q2