A beat but it''s not enough Puma shares fell today on Q1 results which beat top-end expectations. This was in part because the impact on the brand from political tensions in China appears to be greater than the market had expected. We bank the Q1 beat and see upside risk to earnings, but forecast cautiously given the risks over the next quarter. Another strong quarter Q1 constant currency sales growth of +25.8% was above top-end expectations (Exane +23.1%, Visible Alpha Consensus +19.5%). Q1 EBIT beat by EUR 15m and we bank this, now forecasting full year EBIT of EUR 457m. Our FY20 cFX sales growth of +19% is above ''mid-teens'' guidance. Political risks add to the challenges Puma has c.15% of its stores closed worldwide and shipment delays have also presented a challenge in recent months. In China, 15% of group sales, traffic appears to have slowed by c.30% due to rising political tensions. We take 20%ppts off our China growth rate for the whole of Q2 to reflect the uncertainty of the situation. Thanks to soft comps, we expect Q2 group cFX growth of +64%, though this is ''only'' +14% on a two year basis, slower than Q1''s two-year stack (+24%). Operational leverage We discuss the key takeaways from the analyst call inside and note that operating leverage was a key focus: management acknowledged that the situation was creating unique inefficiencies (closed stores, unusual shift to e-commerce) and were pleased to have returned Q1 EBIT margins to 2019 levels of 10.0%. Our Q2 estimates assume that margins are below 2019 levels because of China. Short term risks but eyes on the prize Puma''s strong brand momentum is not in doubt and the company''s products and initiatives give us confidence that when external factors become more favourable then margin expansion will come through. We maintain our Outperform and EUR 105 target, based on a low-teen long term margin.