Puma strongly rebounded in Europe in the second quarter, pushed up by the European football championships as well as a broader uptick in sales across many countries and distribution channels.
Puma's turnover in Europe, the Middle East and Africa (EMEA) jumped by 18.8 percent to €321.3 million for the three months, amounting to an increase of 23.5 percent in constant currencies. Bjørn Gulden, the group's chief executive, said in a conference call that sales had moved up strongly in the German-speaking countries and France, along with the Nordics and Italy, among others. Amid wider economic uncertainty and weakness in retailing, the U.K. was one of the few countries where sales were “flattish.”
Gulden said that the European football championships accounted for about one third of the growth in Europe. Puma gained exposure at the Euro 2016 with its sponsorship of five national teams, including Italy, and its dual-colored Tricks boots were worn by the tournament's top scorer, the Frenchman Antoine Griezmann. However, sales related to the football championships were spread over the three quarters, and the impact on football boots could be felt more strongly in the current quarter. Apart from the European championships, Puma gladly shared in the euphoria around Leicester's Premier League title, while Arsenal came second and both thus qualified for the Uefa Champions League.
Among the retailers that supported the European sales rise, Gulden pointed to large sports retailing groups such as Intersport, Sport 2000 and XXL, as well as more footwear-driven accounts such as Courir, Snipes and FootLocker.
A crucial factor was the outstanding sell-out of women's products, which is enabling Puma to expand distribution in Europe and the U.S. market. The latest sales drive for women's products started with the Creeper, the fashion product launched with Rihanna, but the demand has been widened to include more functional apparel and footwear – such as the Fierce performance trainer and an improved range of fitness tights and bras. Puma's partnership with the New York City Ballet, starting in October as their off-stage active wear partner, is another investment in this category.
The entire Puma group's sales were up by 7.0 percent to €826.5 million for the quarter, which was a rise of 12.8 percent in constant currencies, with growth across nearly all categories – other than motorsports. The brand saw increased sales of performance products, which included improvements in golf.
Gulden acknowledged that some other brands were growing faster, but he said that the growth was aligned with the group's plans to expand cautiously and sustainably, making sure that sell-through remained strong.
| Puma Consolidated Income Statement | |||
| (Million Euros, Quarter ended June 30) | |||
| 2016 | 2015 | % | |
| Footwear | 360.2 | 358.8 | 0.4 |
| Apparel | 299.1 | 263.3 | 13.6 |
| Accessories | 167.1 | 150.7 | 10.9 |
| NET SALES | 826.5 | 772.7 | 7.0 |
| Cost Of Sales | 449.8 | 412.2 | 9.1 |
| Royalty/Commissions | 4.0 | 3.7 | 8.1 |
| Operating Expenses | 368.8 | 357.4 | 3.2 |
| Net Interest (Expense) | (4.0) | (5.7) | -29.8 |
| Pre-Tax | 8.0 | 1.1 | 627.3 |
| Tax | (2.3) | 2.4 | - |
| Minority Interest | (4.0) | (6.8) | -41.2 |
| NET | 1.6 | (3.3) | - |
| Euro/Share (Diluted) | 0.11 | (0.22) | - |
Although the group has been putting more emphasis on footwear, team sports stimulated the apparel category in the quarter, leading to an apparel sales increase of 19.5 percent in constant currencies. This compares with an underlying sales rise of 7.3 percent for footwear, which was driven by sport style, fundamentals and team sports. Sales of accessories firmed up by 14.1 percent in constant currencies, with strong demand for backpacks and headwear.
Puma's sales slipped by 3.9 percent to €315.6 million in the Americas but this was due to weak currencies in Latin America, mostly the Argentine peso. The group's regional turnover advanced by 5.0 percent in constant currencies, growing in North and Latin America.
China accounted for much of Puma's growth in Asia-Pacific, where sales were up by 9.1 percent to €189.6 million, and by 10.3 percent in constant currencies.
The group's gross profit margin declined by 1.1 percentage points to 45.6 percent for the quarter, affected by exchange rate changes. That hit the gross margin in all categories, but accessories were most strongly affected due to the tough golf market. With an increase of just 3.2 percent in operating expenses, chiefly due to investments in stores and football marketing, Puma's operating profit (Ebit) shot up by 75.1 percent to €11.9 million. While Puma suffered a loss of €3.3 million in the second quarter of 2015, it managed a profit of €1.6 million this time around.
Puma's sales for the half-year are up by 5.3 percent to €1,678.4 million, and up by 9.9 percent in constant currencies. The group chalked up increases in all regions and product segments but the growth was driven by constant-currency sales increases of 14.0 percent in EMEA and 10.8 percent in Asia-Pacific, with a double-digit increase in China and a strong uptick in Japan. Apparel sales jumped by 13.0 percent in constant currencies, against 7.9 percent for apparel.
Puma's own and operated retail sales climbed by 12.2 percent to €344.7 million for the six months, amounting to 20.5 percent of its turnover. The rise comprises organic sales growth as well as openings and more online retail sales.
The gross profit margin was off by 0.6 percentage points to 46.2 percent, again due to unfavorable currency exchange rate changes. Owing to operational leverage, the group's operating profit surged by 20.1 percent to €53.2 million and it ended the six months with net profit of €27.4 million, up by 27.6 percent.
Puma upheld its forecast of high single-digit sales growth for the full year in constant currencies. The gross margin is predicted to be at the previous year's level of 45.5 percent, while the operating expenses should move up at a mid to high single-digit rate in constant currencies, and operating profit should reach between €115 million and €125 million.
The company should gain further exposure in the coming days in Rio de Janeiro, which may well be the last Olympic Games for Usain Bolt. While there has been much talk about a potential retirement, Gulden said he was unconcerned either way, as Puma had a long-term partnership with Bolt. The Jamaican athlete could work with the brand in many ways, Gulden said, supporting other athletes or helping with development in the Caribbean. In the run-up to the Olympics, Puma signed a partnership with the Athletics Association of Barbados, adding to a Puma stable that already includes Jamaica, Cuba, Grenada, the Dominican Republic and the Bahamas.
