PUMA HAS A DOWN QUARTER

Puma’s net income declined by 9.9 percent to €45.2 million in the 2nd quarter as net revenues decreased by 0.7 percent to €542.8 million, with a currency-adjusted increase of 3.1 percent. The gross margin increased to 52.2 percent from 51.4 percent, but the operating margin (EBIT) fell to 11.2 percent from 12.7 percent, mainly due to a variety of new investments that are not going to result in higher sales right away. Still, the management confirms a forecast of low single-digit increases in sales and earnings for all of 2007, with an EBIT margin similar to last year’s.

 

 

For the first six months of 2007, consolidated sales were up marginally by 0.8 percent to €1,198.6 million, or up by 5.5 percent on a currency-neutral basis. The gross margin increased to 52.2 percent, but the EBIT margin dropped to 16.3 percent from 16.9 percent. Net income was down by 1.0 percent for the period to €141.7 million.

While it is not as big as it was before, the licensing business was stronger, rising on a currency-adjusted basis by 8.5 percent in the 2nd quarter and by 12.2 percent in the first half. As a result, total sales under the Puma brand increased by 4.2 percent in the 2nd quarter and by 6.7 percent for the six months. In euros, they grew by 0.4 percent and by 2.0 percent, respectively, reaching €1,384.0 million for the first half.

Turnover figures were slightly boosted by improvement in the supply chain that led the company to register earlier shipments in June – a process that should continue over the next few quarters. This had a particularly strong impact on Puma’s sales in Europe, the Middle East and Africa (EMEA), which grew by 9.4 percent on a currency-neutral basis in the 2nd quarter.

EMEA sales grew by 8.7 percent in the first half, but without the earlier shipments they would have been flat as compared to a year ago, when they were boosted by the World Cup of football. In terms of euros, EMEA sales grew by 8.3 percent in the quarter and by 7.2 percent in the first half, reaching €643.8 million for the 6-month period. Reflecting the earlier shipments in June, orders from the region were up by 0.7 percent.

The gross margin remained high in the EMEA region, but it declined to 53.9 percent, compared with 55.0 percent in the same period a year ago, in spite of the softer dollar. According to the management, it was purely due to a different product mix. Instead, the gross margin increased by 190 basis points in the Americas to 49.6 percent, and by 60 basis points in the Asia-Pacific region, touching the level of 51.2 percent.

In local currencies, sales in the Americas declined by 11.1 percent in the quarter and by 3.1 percent for the first half. The drop in euros was obvious higher at 15.3 and 9.6 percent, respectively, leading to a decreased turnover of €319.7 million for the six months. In the U.S. market, sales declined by 20.3 percent to $127.9 million, and they were down by 10.4 percent after six months.

Like Adidas, Puma restricted its U.S. deliveries to Foot Locker, which represents and will continue to represent this year more than 10 percent of its sales in the country. Excluding Foot Locker, Puma’s sales in the USA would have been flat during the first half, and they are expected to be even slightly higher for the full year in spite of an overall drop in orders from the Americas of 11.8 percent in local currencies and 15.3 percent in euros.

Orders from the Asia-Pacific region show increases of 20.4 percent in local currencies and 12.3 percent in euros. Sales in the region increased by 9.1 percent on a currency-neutral basis in the latest quarter, but in reported euros they were up by only 0.7 percent for the period and down by 0.1 percent for the first half, amounting to €235.1 million. The key driver was the Chinese market, but the management declined to break down its sales and added that Japan is also developing well for Puma.

In terms of the different product categories, global sales under the Puma brand showed currency-neutral increases of 5.9 percent in footwear, 7.2 percent in apparel and 10.8 percent in accessories during the first half. Respectively, excluding licenses, they were up by 5.5 percent, 5.8 percent and 3.8 percent.

The company continued to invest heavily on its own retail network, rising from 91 to 101 concept stores during the 6-month period, which saw its global retail sales go up by 20 percent to represent 15 percent of total sales. With PPR as its controlling shareholder, Puma plans to continue to open between 20 and 25 stores per year.

Coupled with the new store openings, investments in a new Korean sales office that will open in 2008, Puma’s new sponsorship deal with the Volvo Ocean Race and expenses related to its acquisition by PPR weighed on the operating results for the 2nd quarter, although they amounted to less than €10 million.

The company generated free cash flow of €64.5 million in the first half, or €69.4 million without acquisition costs, and spent €41.6 million of that to buy back shares, distributing another €39.9 million in dividends. There are no plans to buy more shares for the moment under the new ownership.

Puma and PPR, which began to consolidate the company’s figures into its own accounts for the latest quarter, have started to look at possible qualitative synergies between them, rather than at quantitative ones.

Meanwhile, Puma announced the nomination of a new general manager for Puma Italy. Andrea Rogg, who joined the subsidiary a year ago as sales director, will take over that position from Luigi Fusaro, who has decided to leave the company due to health reasons. Rogg, who is 38 years old, started off at Nintendo France and then went into the sports eyewear business, becoming export area manager at Luxottica Group in 1996, responsible for the Briko and Arnette brands. Four years later he joined Marcolin as global marketing and product director of its subsidiary Cébé and then became sport business unit manager of the whole group.

Separately, Puma has reported that its chairman and chief executive, Jochen Zeitz, has become the first European director on the 10-member board of Harley-Davidson. Zeitz stressed that there are no plans for any kind of cooperation between Puma and Harley-Davidson, but he hopes to gain more insights on the evolution if consumers’ trends.