Puma has surpassed the €4 billion mark in annual turnover for the first time, after another year of robust sales and margin improvements and ahead of a spin-off from its majority shareholder.

The company upgraded its guidance three times in 2017, as it continued to reap the benefits of the investments started three years ago, with an overhaul of Puma's range, its commercial approach and its supply chain. As detailed below, the year was pivotal for the brand's turnaround strategy and it ended above the latest upgrade, which predicted a high single-digit growth rate in sales.

Puma's sales moved up by 14.5 percent in constant currencies for the last quarter. They jumped by 8.6 percent in reported terms to €1,040.2 million. The group's gross profit margin gained 2.5 percentage points to 47.1 percent. The operating margin remained unimpressive at 2.9 percent but it compared with 1.5 percent in the year-ago period. Puma's profit for the quarter amounted to €2.2 million, compared with a loss of €4.6 million.

The group's turnover soared by 15.9 percent in constant currencies for the full year, with double-digit growth in all geographic areas. It amounted to €4,135.9 million, up by 14.0 percent in reported terms.

Puma's Sales Breakdown

(Million Euros, Year ended Dec. 31)

 

2017

2016

%
change

By regions

EMEA

1,646.2

1,382.7

19.1

Americas

1,494.8

1,339.6

11.6

Asia/Pacific

994.9

904.5

10.0

Total

4,135.9

3,626.8

14.0

By product segments

Footwear

1,974.5

1,627.0

21.4

Apparel

1,441.4

1,333.2

8.1

Accessories

719.9

666.5

8.0

Total

4,135.8

3,626.7

14.0

The uptick was driven by Europe, the Middle East and Africa (EMEA), where sales surged by 19.5 percent in constant currencies. They were up by 19.1 percent in reported terms to €1,646.2 million, with double-digit sales growth in areas ranging from the German-speaking countries to the U.K, Russia and South Africa.

North and Latin America both contributed to a sales increase of 11.6 percent to €1,494.8 million in the Americas, amounting to a rise of 14.3 percent in constant currencies.

China was the engine for the group's growth in Asia-Pacific, where sales rose by 10.0 percent to €994.9 million, up by 12.7 percent in constant currencies. The group said that its sales have stabilized in Japan and Korea, after a change in leadership.

The group put strong emphasis on its partnership with retailers, but its own and operated retail sales advanced faster. They reached €961.0 million, which is an increase of 22.9 percent in constant currencies and a share of 23.2 percent in Puma's global turnover. After several years of closures and cutbacks, the company expanded its retail network again, and reported strong comparable store sales growth for the year. The group ended the year with 703 stores, which was 39 more than at the end of 2016.

The most significant growth came from footwear, which was up by 23.5 percent in constant currencies with more demand in the running, training and sport fashion categories. This was regarded by Bjørn Gulden, Puma's chief executive, as the strongest indication of the renewed appetite for the brand, as he previously said that the turnaround would have to be driven by footwear. The year was also marked by the launch of Netfit, which has turned into a popular lacing system.

The group's apparel sales moved up by 10.0 percent in constant currencies and on the same basis Puma's sales inflated by 9.2 percent in accessories. As Gulden pointed out in a conference call, Puma is the sports apparel and footwear company that is not pulling out of the golf equipment category – as opposed to Nike and Adidas.

Puma's gross profit margin ended 1.6 percentage points higher at 47.3 percent. Although currency exchange rates weren't favorable, the margin was pushed up by more efficient sourcing, more sales of new products with heftier margins, a higher share of own retail sales and selective price adjustments. This particularly applied to footwear, where the gross margin jumped by 3.0 percentage points to 45.5 percent.

Puma Consolidated Income Statement

(Million Euros, Year ended Dec. 31)

 

2017

2015

%
Change

SALES

4,135.9

3,626.7

14.0

Cost of Sales

2,181.5

1,970.3

10.7

Royalty/Commissions

15.8

15.7

0.6

Operating Expenses

1,725.6

1,544.5

11.7

Financial Result

-13.4

-8.7

54.0

Pre-Tax

231.2

118.9

94.4

Tax

63.3

30.5

107.5

Minority Interest

32.2

26.0

23.8

NET

135.8

62.4

117.6

Euro/share (diluted)

9.09

4.17

118.0

Puma continued to spend generously on marketing activities and investments in its own retail business, but it still gained some operating leverage. While its operating margin remains some way off from the targeted range, it improved markedly to 5.9 percent, up by 2.4 percentage points. The group's profit more than doubled to €135.8 million.

As previously reported, Kering, the French luxury group that acquired a majority stake Puma in 2007, is preparing to spin off the sports company by offering Puma shares to its own shareholders as a dividend in kind. The deal would leave 16 percent of Puma in the hands of Kering and another 29 percent with Artemis, the holding company of the Pinault family, which controls Kering. In other words, the Pinault family would continue to directly and indirectly own 45 percent of Puma but the company would have a much higher free float of 55 percent.

Gulden faced sharp questions when outlining its results about a proposal to offer an extraordinary dividend of €12.5 for 2017 at Puma's upcoming shareholders' meeting. It sharply raises Puma's pay-out ratio as compared with €0.75 for the regular dividend last year, and it amounts to a sum in the range of €187 million. But Gulden countered that it was fair to give back to the shareholders that supported the company for many years. The dividend will be financed with cash flow or a very small bank loan, the group said, and it should have almost no impact on its leverage ratio. Gulden insisted that the payout would in no way impede Puma's investments going forward.

Puma anticipates that its sales will advance by about 10 percent in constant currencies in 2018, with plans detailed below. Its gross profit margin is predicted to improve slightly and operating expenses should rise at a mid to high single-digit rate, as Puma continues to invest in marketing, retailing and IT. The management anticipates that Puma's operating profit should reach between €305 million and €325 million, and net earnings will continue to improve significantly in 2018.