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PUMA experienced a better-than-expected Q3 21. The strong demand in the Americas, favourable channel mix and less promotional activity have limited the impact of supply-chain challenges and ongoing COVID-19-related restrictions in Asia.
The ongoing industry-wide supply-chain disruptions and the continued challenging trading environment in China have led the group to upgrade conservatively its FY 21 outlook. The current market expectations were already broadly in line with the updated guidance.
Companies: PUMA SE
PUMA has published its Q2 21 results, in line with the preliminary release.
The robust growth in North America and gradual recovery in EMEA have led the top line to exceed the 2019 level. The trading performance in China has been affected by the “boycott over Xinjiang cotton”, sales slid 5% yoy. The gross margin has significantly improved from last year, despite supply chain constraints.
However, on the back of the strong quarter, the conservative guidance for FY21 leaves some shadow.
Puma recorded a strong start to the year. Encouraging sales growth across all régions and all segments confirmed the pandemic-led surge in the consciousness for healthy living and a rekindled trend in athleisure.
However, the group’s very cautious view on the trading environment for the rest of the year, highlighting the “boycott on Xinjiang cotton issue” in China has started to weigh visibly on the group’s business since the end of March.
Despite the second wave of lockdowns and re-imposed anti-pandemic measures keeping some stores shut, the group achieved top-line and profitability growth in Q4 20.
The group expects the ongoing lockdowns in Europe and uncertainty related to the pandemic to continue to weigh on the group’s business until the end of Q2 21, followed by a strong recovery in H2 21.
The Q2 figures were a little disappointing. Both sales and profitability were hit heavier than expected by the pandemic. In particular, the higher than expected discounts and piling up of seasonal inventory will continue to put pressure on the margin.
However, the trading trend since June is very encouraging, which confirms our confidence that the group is in a good position to benefit from the business recovery after the pandemic crisis is over.
The Q1 20 results have been unsurprisingly impacted by the COVID-19 crisis. With over 50% of the group’s stores closed around the world at present, the group’s business will be even more affected in Q2 20.
However, the group’s sales contraction was less than peers which shows its business has the greater resilience. The pandemic is increasing people’s focus on sports, especially in Asia. The outlook post-COVID-19 remains encouraging.
Puma delivered formidable numbers for 2019. Some of this is supported by the stronger currency tailwind, but the currency-adjusted revenue growth rate also accelerated from +16.7% in 9M19 to +17.0%. On a reported basis, the growth rate accelerated from 17.6% to 20.6%. However, as purchase prices are typically denominated in US dollars, the gross profit margin was up by ‘only’ 0.2pp in Q4 compared to 0.6pp through to September last year.
Puma’s revenue growth continued at full speed in Q3 but the profit margin improvement moderated considerably. The group’s full-year profit outlook suggests that our current projections are too optimistic. The reasons for the moderate outlook are, among other things, new tariffs imposed by the USA on imports from China.
Although sourcing costs are typically denominated in US dollars and as the dollar has appreciated against the euro, Puma has been able to increase the gross margin by 0.7pp to 49.3% in the last quarter and by 0.8pp to 49.2% in H1 19. According to management, a higher share of in-house retail sales, a better product mix, less discounts, and a positive currency impact have all contributed to this very favourable development.
Revenue growth of 16.6% (currency-adjusted +15.3%) and much stronger profit growth has not allowed management to increase its full-year guidance. It continues to see revenue increasing by about 10% (currency-adjusted) and EBIT coming somewhere between €395m and €415m.
Puma replaces Nike and is believed to pay some €750m over a period of ten years. Assuming this speculation is correct, the annual payments represent approximately 1.5% of Puma’s annual turnover of the next years.
Adidas had signed a similar contract with Manchester United in 2014 and that contract was believed to be worth €1bn over a ten-year period. However, this annual amount represents ‘only’ 0.4% of the peer’s annual revenue number.
Puma’s strategy over the last years has been to strengthe
2018 consolidated revenue was up by 12% to €4.65bn (+18% currency-adjusted). Simultaneously, EBIT and net earnings both increased by 38% to €337m and €187m, respectively. Management proposes a dividend of €3.50 for the last fiscal year, whereas we had expected €3.00. Our sales and profit projections had been €4.55bn, €349m, and €203m, respectively.
Puma’s revenue growth was about unchanged in Q3 vs. H1, i.e. turnover was up by 10.7% to €1.24bn in the last quarter which brought the ytd number to 3.42bn, an increase of 10.5%. However, EBIT growth fell to 29% to €130m in Q3 which brought the 9M number to €300m, an increase of 40%. The respective net profit numbers were +25% to €78m and +32% to €176m.
Management’s strategy continued paying off in H1. At a glance, the group’s net cash has fallen considerably in H1 18, but this is exclusively the result of the exceptionally high and farewell dividend paid to all shareholders including Kering.
As Puma sources almost all of its products denominated in US dollar, the euro’s strength had a negative impact on revenue but a positive impact on profits and profit margins.
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