GERMANY: Puma exceeds expectations, positive on FY
Expansionist sports goods company Puma has exceeded its own expectations by reporting a 2.5% rise in first-quarter net income to EUR93m (US$116.53), topping off a buoyant few months for the company.
Puma, which is second to number one adidas in the European market, has benefited from good demand for its trend-driven sportslifestyle ranges, pushing up consolidated sales by almost 30%.
Worldwide branded sales, which include consolidated and license sales, rose 15.3% to €737m in the first quarter. By sector, footwear sales improved by 12.5%, apparel by 19.1% and accessories by nearly 20%.
Chief Executive Jochen Zeitz said at the company's annual shareholder meeting yesterday (27 April): "We are very happy with the sales of our spring and summer collection".
The company, which is in the process of carrying out a long-term growth plan, also upped its yearly predictions again, saying earnings will drop less than 10% - an improvement on the previous forecast of a 10-15% slump.
Sales, meanwhile, are on line to shoot up 35%, Puma suggests. The company had previously eyed growth of 30%.
The forthcoming World Cup, to be held in Puma's home of Germany, is a reason behind this. Its European business has been cashing in on the growing football frenzy; a trend only likely to increase as the tournament draws nearer.
Puma has even taken over adidas as leading kit provider to teams taking part in the matches, in a welcome coup for the increasingly competitive company.
In addition, the company said recent license take-backs and joint ventures have changed its regional mix, leading to a more balanced geographical portfolio.
The EMEA (Europe, the Middle East and Africa) region now accounts for 52.8% (last year 72.2%), Americas for 28.3% (19%) and Asia/Pacific for 18.9% (8.8%).
Puma said the takeover of the license markets into the consolidated business will lead to a corresponding reduction in royalty and commission income. On top of this, selling, general and administrative expenses will be impacted by disproportionately high marketing expenses relating to the World Cup and other campaigns, as well as by planned expansion of the group's retail operations and higher expenses for infrastructure.
But based on higher top-line growth, management has increased operating profit expectation to around €360m, the company said.
Zeitz concluded: "We are pleased to have catalysed our Phase IV growth plans with a first quarter above our expectations and the smooth integration of former licensee partners into our consolidated business. With the World Cup and other exciting initiatives still to come in 2006, we remain very positive in the outlook for the remainder of the year."
If Puma continues to make progress at the pace it has already done in 2006, it will surely be a pleasing year for the company. It announced this week it would take over its Mexican distribution through a joint venture with Tavistock Mexico Holding, following its purchase of Canadian licensee ATA and its acquisition of a majority stake in Argentinean distribution partner Unisol earlier on this year.
Meanwhile, it announced at the start of this month its intention to set up a new subsidiary to launch goods in India called Puma Sports India Pvt Ltd.
All of the above announcements, in combination with its strong financial results, illustrate the company's success so far in implementing stage four of its strategy, which focuses on expansion.
Puma's head of corporate communications Ulf Santjer told just-style recently it was thinking big as far as acquisitions were concerned: "We are evaluating the possibility of taking over other companies…Any possible acquisitions should have big expansion potential and the capacity for strong global brand potential plus capacity to be worth €100m. Basically, they would be similar to the Puma brand".
The market waits in anticipation to see what move Zeitz has lined up next. But in the meantime the company and its investors should be able to rest easy in the knowledge that its strategy so far is working well, while its competitors will be watching cautiously if it continues this rate of growth.
By Rebecca Danton.
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