Puma upgrades guidance after sharp quarterly uptick

With a widely-spread and footwear-driven increase in demand, Puma's sales expanded faster than anticipated in the second quarter, which led to an upgrade in its full-year guidance for sales as well as operating income.

The company said nine days ahead of the publication of its quarterly results last week that its sales increased by about 16.3 percent in constant currencies to €968.7 million for the quarter, which amounted to a rise of 17.2 percent in reported terms. Its operating result (Ebit) jumped to about €43.4 million, more than three times the €11.9 million reported for the same period last year. Puma added last week that it ended the three months with net profit of €21.9 million, up from just €1.6 million.

Puma thus predicts that its sales will be up by 12 percent to 14 percent in constant currencies for the full year, instead of the previous forecast of a low double-digit rise. The operating profit is set to reach between €205 million and €215 million, against the earlier guidance of €185 million to €200 million, and net profit is still expected to improve significantly.

The demand for Puma products has been strongest in footwear, generating a rise of 27.2 percent in constant currencies for the quarter, compared with 11.4 percent for apparel and just 1.3 percent for accessories. The group reported big gains in the running, training and sports fashion categories, with footwear franchises such as Platform, Suede, Basket Heart and Ignite Limitless. The brand has done well with its Run the Streets concept and the Tsugi franchise. The Netfit lacing technology has been well received for both performance and urban style footwear.

Double-digit sales increases were recorded across all three regional markets. They were led by Europe, the Middle East and Africa (EMEA), where sales amplified by 19.9 percent to €385.1 million, up by 20.1 percent in constant currencies. They were up in large markets such as the U.K., Germany and France, and across the board in Europe, in both the retail and wholesale markets.

In constant currencies, Puma's sales were up by 19.5 percent in Asia-Pacific and 10.5 percent in the Americas. The pace was slower than in the first quarter, but the company insisted that this did not amount to the start of a slowdown, as demand remained firm despite some sluggishness in the U.S. retail market in May.

Björn Gulden, Puma's chief executive, said in a conference call with journalists that the demand had been fueled by women's products, for both performance and fashion items, but it also picked up strongly for men's products in the last three months. The brand continues to ride on the back of its partnerships with Rihanna and other influential personalities such as Big Sean, a recording artist whom Puma signed up as a creative collaborator and global ambassador. But at the same time, Gulden emphasized that Puma continues to invest strongly in sports performance and related marketing, and there is strong upside on this front.

The Puma brand has been particularly prominent on football pitches in the last months, with Borussia Dortmund bagging the German DFB Cup and Arsenal FC claiming the FA Cup on the same weekend, and Cameroon winning the Africa Cup of Nations. The brand should shine again at the athletics World Championships in London from the end of last week. They will probably mark the end of Usain Bolt's active career, although he will remain Puma's ambassador.

Despite unfavorable exchange rate changes, the group's gross margin was up by 0.9 percentage points to 46.5 percent. Gulden explained that the growth in sales was driven by new products, which were engineered to be sold at price points delivering a stronger margin. The company has also improved its sourcing and raised prices in some instances to make up for inflation and currency exchange rate changes.

For the first half of the year, sales were up by 15.8 percent in constant currencies to €1,973.8 million, an increase of 17.6 percent in euros, again driven by footwear and with double-digit sales hikes in all three regions. Puma's own retail sales moved up by 21.8 percent in constant currencies to €430.3 million, with comparable store sales increases as well as strong growth in online sales and extra stores.

The gross profit margin for the six months was up by 0.6 percentage points to 46.8 percent and the operating result more than doubled to €113.6 million. The same applies for net profit, which jumped from €27.4 million to €71.5 million. However, Gulden emphasizes that the operating profit remained under par, with an operating margin of just 5.8 percent in the first half, and that there is room for improvement in many areas.