Reaching new records, Puma reported today a 16.6 percent increase to €1,319 million for the first quarter, with a growth of 15.3 percent on a currency-neutral basis. The operating margin (Ebit) rose to 10.8 percent, up from 9.9 percent in the year-ago period, in spite of higher investments in logistics, marketing and retail. Net earnings jumped by 40.1 percent to €94.4 million, and the company confirmed plans for a stock split that should occur around June.
The gross margin improved by 0.8 percentage points to 49.0 percent in the quarter. About 0.2 percentage points stemmed from favorable currencies. The balance came largely from an expansion of the retail business, which grew to 21 percent of sales from 20.4 percent in the first quarter of 2018, and a strong expansion in China, where profit margins are higher than elsewhere.
Puma's sales in China jumped by between 40 and 50 percent, depending on the currency used for the calculation. One-third of the local turnover went through the company's own stores and the rest via e-commerce and the company's two local partners, which are expected to open some 600 new mono-brand stores for Puma this year.
In China, which is a relatively new market for the company as compared to other big brands, Puma's team is responding to strong demand for its products through targeted sports marketing activities in the women's sector and others. It is also using Chinese capacity that has been liberated by a shift in sourcing to Vietnam for footwear and Bangladesh for apparel to supply the local market with special make-ups.
Puma's management feels that it is about to achieve a very healthy balance between the three main regions of the world, which grew at different speeds during the quarter. While the Europe, Middle East and Africa region rose by only 5.7 percent in local currencies, the Americas and Asia-Pacific grew at faster rates of 16.3 percent and 28.6 percent, respectively.
Brexit-induced weakness slowed down Puma's performance in the U.K., where the company has its own stock. As expected, the introduction of basketball in the U.S. created a lot of noise on social networks in the country. The category will be launched elsewhere in the third quarter, with two new models in the pipeline.
Globally, footwear, apparel and accessories also grew at different speeds. Apparel grew the most with a currency-neutral increase of 26.9 percent and particularly good scores in lifestyle and women's products. Footwear was nearly flat in Europe and up by 9.3 percent worldwide, driven by a high number of new product introductions at various price points and the ongoing chunky footwear trend, where Puma had some trouble responding to the high demand. The trend is expected to continue, and the management has also spotted an apparent comeback of the retro running category.Running, training, team sports, motor sports, golf and sportstyle all recorded strong growth during the quarter. The growth was relatively balanced among the women's, men's and kids' categories.
The marketing spend grew in line with sales, and it is being kept within a range of 11 to 11.5 percent of sales. On the other hand, Puma spent heavily on logistics, particularly in order to properly service its still relatively minor e-commerce activities by setting up automated distribution centers at key locations.
Puma's own digital sales are growing faster than its brick-and-mortar sales and are seen as moving from 4.5 percent to 6 percent of sales this year with the roll-out of new mobile-first software in many markets. Adding online sales through third-party websites, the digital business should represent between 17 percent and 18 percent of sales.Keeping up with a long-standing tradition at Puma, the management is maintaining its former guidance for 2019, which calls for currency-adjusted growth of around 10 percent, in spite of the good performance at the start of the year. As previously planned, the gross margin should see a slight improvement, while the net profit should increase significantly, with Ebit in a range of €395 million to €415 million.