PUMA’s Third Quarter Sales Improve
Negative impact of volatile currencies continues
Herzogenaurach, 7 November 2014
2014 Third Quarter Facts
- Currency adjusted sales increase by 6.4% to € 843 million
- Footwear sales return to growth
- OPEX increase due to Forever Faster marketing campaign
- EBIT of € 46 million
- Net Earnings of € 29 million
- Strategic equity investment made in Borussia Dortmund
2014 Nine Month Facts
- Currency adjusted sales increase by 2.4% to € 2.22 billion
- Slight gross profit margin decline to 47.2%
- OPEX increased by 3.7%
- EBIT of € 117 million
- EPS amounts to € 4.59
- Successful launch of worldwide Forever Faster brand campaign
Bjørn Gulden, Chief Executive Officer of PUMA SE: “In a good third quarter, PUMA achieved sales that were slightly better than expected. Footwear sales were up for the first time in seven quarters, and operating profits met our expectations. The launch of the Forever Faster marketing campaign was well received by both consumers and retailers. We told our consumers that PUMA is back and showed our retail partners that we deliver on our promises by investing in media campaigns. We feel that things are moving in the right direction, but as we have said all along: We know that the repositioning of PUMA and the turnaround of the business will take time as we need to continue to build confidence in the marketplace. I am convinced that our efforts have already translated into better products, better marketing and more efficient operations. In addition, we have now defined the key priorities which will mark the start of our IT infrastructure upgrade, laying the foundations for a fast, lean and efficient company in the future.”
Third Quarter 2014
PUMA’s 2014 third quarter sales performance was positive, as consolidated sales rose by 6.4% currency adjusted to € 843 million. This represents an increase of 3.7% in Euro terms, as continuing currency effects from various countries had a negative impact on sales.
Sales performance stronger in all regions and markets in Q3
Sales in the EMEA region increased by 4.4% currency adjusted to € 388 million. Performance improved in Western Europe, notably in Germany, where the new Borussia Dortmund jerseys were well received, as well as Switzerland and France, as sales of Teamsport and Lifestyle products rose.
Sales increased by 6.3% currency adjusted to € 265 million in the Americas, as North America continued to benefit from improved wholesale business, including key account initiatives like the PUMA Labs at Foot Locker. Sales in Latin America also rose, supported by a strong Teamsport business within the region.
Asia/Pacific sales increased by 10.7% currency adjusted to € 191 million due to growth in all key markets, including India, China, Korea and Japan. This growth was supported by the successful start of the Forever Faster brand campaign, the positive reception of PUMA’s new Arsenal jerseys and a strong Accessories business.
All product segments positive
Third quarter Footwear sales rose by 2.0% currency adjusted to € 374 million as Teamsport sales, particularly the PUMA evoSPEED boot, continued to improve.
PUMA’s third quarter Apparel sales rose by 11.4% currency adjusted to € 323 million, supported by strong demand for our Teamsport products, especially Arsenal jerseys and kit.
Accessories sales also improved by 7.5% currency adjusted to € 147 million due to continued demand for socks and bodywear. However, Golf equipment sales declined in the quarter as the golfing environment remained very weak.
Gross profit margin lower
PUMA’s gross profit margin declined from 47.1% to 46.3% for the third quarter of 2014 on the back of adverse currency impacts as well as shifts within the product mix which influenced the margin negatively. In addition, stronger sales in our distribution business within Latin America, particularly in Footwear, led to a decline in the Footwear margin from 44.4% to 41.9%. Apparel margin decreased slightly from 49.9% to 49.6%. However, the margin for Accessories improved from 48.6% to 50.3%.
PUMA’s operating expenditures increased as expected in the third quarter, from € 309 million to € 349 million, due to the higher marketing expenditures associated with the Arsenal partnership and the launch of the Forever Faster brand campaign ahead of the back-to-school season.
Operating Result (EBIT) decreased
The decline in PUMA’s operating result (EBIT) from € 80 million to € 46 million in the third quarter of 2014 is mainly due to significantly higher marketing expenditures within the OPEX.
The financial result improved from € -1.5 million to € -0.7 million in the third quarter. The result remained negative due mainly to currency conversion impacts.
PUMA’s consolidated net earnings declined from € 53 million to € 29 million. As a result, earnings per share decreased from € 3.53 to € 1.93 in the third quarter of the year.
Nine Months 2014
Currency adjusted sales rose by 2.4% for the first nine months of the year to € 2.2 billion. As currency volatility continued to have a negative impact in the third quarter, albeit to a lesser extent, nine month sales in Euro terms declined by 2.9%.
Regional performances positive
Currency adjusted sales in the EMEA region rose by 1.4% to € 981 million, thanks to improvements in the United Kingdom and throughout Eastern Europe, the Middle East and Africa.
Sales in the Americas increased by 3.5% currency adjusted to € 751 million, with sales growth evenly spread over North America and Latin America.
Asia/Pacific sales rose by 2.5% currency adjusted to € 490 million, with positive performances throughout the region except in Japan, where the business climate in the first half of the year prevented a better result.
Apparel and Accessories sales increased
In terms of product segments, Footwear sales declined by 4.4% currency adjusted to € 972 million in the first nine months of 2014. Sales in Apparel increased by 9.1% currency adjusted to € 810 million, and Accessories sales also rose by 6.9% currency adjusted to € 439 million.
PUMA’s Retail sales rose
PUMA’s own and operated retail sales for the first nine months of the year increased by 3.4% currency adjusted to € 432 million, equal to 19.5% of total sales, as comparable sales in our stores improved during the period.
Gross Profit Margin down slightly
PUMA’s nine month gross profit margin declined slightly to 47.2% due to negative impacts from currency/hedging. The decline in the Footwear gross profit margin from 44.9% to 42.9% was almost offset by increases in the Apparel margin, from 49.6% to 50.4%, and in the Accessories margin, from 50.2% to 50.7%.
OPEX increase for the first nine months of the year
PUMA’s operating expenditure increased due to increased marketing costs associated with the launch of the Forever Faster brand campaign and the Arsenal partnership. However, tight control was maintained on all other areas of expenditure. OPEX rose by 3.7% from € 911 million to € 944 million compared to the same period last year.
Operating Result (EBIT) lower
Continued currency weakness in a number of countries had a negative impact on sales and gross profit. In addition, marketing spending increased due to our Forever Faster Campaign and new assets like Arsenal. As a result, PUMA’s EBIT declined as expected from € 190 million to € 117 million for the first nine months of the year, equivalent to 5.3% of sales.
Improved Financial Result
PUMA’s financial result improved from € -9.5 million to € -5.2 million. The negative result was caused mainly by the impact of foreign currency fluctuations.
Net Earnings / Earnings per share decline
Consolidated net earnings fell from € 121 million to € 69 million for the first nine months of 2014, with earnings per share declining from € 8.07 to € 4.59.
Net Assets and Financial Position
Focus on Working Capital continues
PUMA retained its focus on working capital management in the third quarter. As a result, Inventories were broadly flat at € 573 million and trade receivables increased by 4.6% to € 547 million, in line with the sales growth.
Cashflow / Capex
PUMA’s Free Cashflow (before acquisitions) moved from € -75 million to € -91 million for the first nine months of 2014, due to lower Earnings but supported by a much improved working capital position.
Capital expenditure rose from € 34 million to € 48 million as PUMA continued to invest in the opening and refurbishment of selected retail stores, as well as office and IT equipment.
Net Cash Position
PUMA’s Net Cash Position at the end of September 2014 declined slightly from € 246 million to € 231 million, also impacted by the payment for a 5.0% equity stake in Borussia Dortmund.
In September, PUMA participated in the capital increase of its strategic partner Borussia Dortmund GmbH & Co. KGaA (BVB) by acquiring 4,600,000 shares of the club, representing 5.0% of the voting rights. As Borussia Dortmund’s technical supplier since July 2012, we look forward to continuing our successful partnership with BVB as its close partner and shareholder. As one of the top clubs in Germany and Europe, Borussia Dortmund is a perfect fit for PUMA, increasing our brand awareness on a national and international level.
In addition to Borussia Dortmund, PUMA also added top English Premier League club Arsenal FC to its list of Teamsport partners at the start of the quarter. Our sales of replica jerseys, fanwear and associated accessories have been very satisfying since the new kits were launched in July.
In Motorsports, the PUMA partnered Mercedes AMG Petronas F1 team showed that they are truly Forever Faster, sealing the 2014 Constructor’s Championship with 3 races to go and thereby confirming their status as the fastest team in the world’s fastest sport. It has been a superb season for the team, with Lewis Hamilton and Nico Rosberg dominating the sport. PUMA has also extended its partnership with BMW Motorsport as the Official Supplier of Team and Racewear for all BMW Motorsport racing operations. With a relationship dating back to 2004 when PUMA first partnered the BMW Williams Formula One team, BMW Motorsport is PUMA’s longest standing partner in Motorsport and remains a core part of our Sports Marketing portfolio.
Our strategy encompasses the repositioning of PUMA as the World’s Fastest Sports Brand, the improvement of our product engine, the optimization of our distribution quality and increasing the speed within our organization and infrastructure. In the third quarter we continued to progress well on all our key strategic priorities that are crucial to ensuring that 2014 marks the start of the turnaround.
In terms of our brand repositioning, August saw the launch of the biggest marketing campaign in PUMA’s history, which marked the start of our repositioning as a true Sports Brand to our consumers and retail partners. The objective of the campaign was to demonstrate that PUMA is back in sports and that our brand has great assets and a distinctive attitude: Brave, confident, determined, and joyful. We achieved this objective as our campaign reached our consumers in 35 countries, generating 1 billion TV impressions in our target group as well as 31 million online views. The market surveys showed a very positive consumer reception. The launch of this campaign marks the start of a long-term marketing strategy, with continuous investment up to the Rio de Janeiro Olympic Games in 2016 and beyond.
To improve our product engine, we initiated key projects to improve our product designs, develop more innovative technologies and increase the commerciality of our product range. The first results have already been implemented for the coming Spring/Summer 2015 season, and the feedback from our retail partners make us very confident that we are heading in the right direction. With the continued positive feedback received for our Autumn/Winter 2015 collection, we are positive that we are on the right path.
In order to improve the quality of our revenues and distribution, we have developed joint product and marketing programs with our key retailers to showcase our brand in the right retail environment and push sell-through with our partners. Our most prominent example is currently the PUMA Lab at Foot Locker, which we launched in Feb 2014 and has developed very positively as we have expanded our presence in the US throughout the year. The success of the PUMA Lab has not only improved our business with Foot Locker but also generated a positive spill-over effect on to other key retailers in the US marketplace – both with performance and lifestyle accounts. In 2015, we will continue to foster our collaborations and will launch further product and marketing programs with our most important key accounts in every Region.
We have also continued to optimize our organizational structure and setup by making it faster. With the finalization of the relocation of our Global and European Retail Organization from Oensingen, Switzerland, to our Headquarters in Herzogenaurach as of September 30th, we finalized the last out of our three major consolidation projects in 2014. This relocation followed the closure of our PUMA Village Development Center in Vietnam as of May 2nd and the relocation of our Lifestyle Business Unit from London to our Headquarters in Herzogenaurach as of May 31st.
Going forward, our strategic priorities will be complemented with a further objective: the upgrade of our current IT infrastructure to match the industry’s best practice benchmark. The process and system due diligence of our new COO revealed significant improvement potential in our IT and process landscape and we have now defined the key priorities which will mark the start of our IT infrastructure upgrade. We are very confident that our investment in these areas will lay the foundations for a lean and efficient company in the future.
Outlook for the Financial Year 2014
2014 continues to be a turnaround year for PUMA, where the brand will be re-established in the market place and brought back to a path of profitable and sustainable growth in the mid-term. To support this turnaround, PUMA will continue to invest strongly in marketing and sports assets as well as start investing in IT infrastructure, while maintaining tight control on other operating expenditures.
Given PUMA’s results through the first nine months of the year, we now expect a low single digit increase in currency adjusted net sales (previously flat) and a stable gross profit margin (previously slight increase) for the full year. As planned, OPEX will increase significantly based on increased Marketing investments throughout the second half of the year. PUMA’s full year guidance for EBIT and Net Earnings (approx. 5% and 3% of net sales respectively) remains unchanged; we reiterate that the continued volatile currency movements will have a negative impact of around 50 basis points on the EBIT and Net Earnings margin for the year.
Kerstin Neuber - Corporate Communications - PUMA SE - +49 9132 81 2984 - email@example.com
Carl Baker – Finance - PUMA SE - +49 9132 81 3188 – firstname.lastname@example.org
Notes to the editors:
- This press release and financial reports are posted on www.about.puma.com.
- PUMA SE stock symbol:
Reuters: PUMG.DE, Bloomberg: PUM GY, Börse Frankfurt: ISIN: DE0006969603– WKN: 6969603
Notes relating to forward-looking statements:
This document contains forward-looking information about the Company’s financial status and strategic initiatives. Such information is subject to a certain level of risk and uncertainty that could cause the Company's actual results to differ significantly from the information discussed in this document. The forward-looking information is based on the current expectations and prognosis of the management team. Therefore, this document is further subject to the risk that such expectations or prognosis, or the premise of such underlying expectations or prognosis, become erroneous. Circumstances that could alter the Company's actual results and procure such results to differ significantly from those contained in forward-looking statements made by or on behalf of the Company include, but are not limited to those discussed be above.