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April 27, 2022

Strong Q1 for Puma but concerns weigh on market challenges

Puma has reported a jump in net sales and earnings during the first quarter, but has issued a cautious FY outlook on market uncertainties.

By Hannah Abdulla

Puma said despite market uncertainties, demand for its products was high and a doubling down of its operations people through a tight supply chain helped fulfil this, but it is exercising caution in its future outlook.

  • Sales for the first quarter rose by 19.7% on a currency adjusted basis to EUR1.91bn.
  • Operating EBIT grew 27% to EUR196m.
  • Net earnings during the period rose 11.2%

Sales were lifted by strong growth in the Americas and EMEA regions. Sales in Asia/Pacific declined due to the current market environment in Greater China as a result of Covid restrictions and geopolitical tensions.

In terms of product categories, all divisions grew double digits.

PUMA’s wholesale business increased by 23.3% to EUR1,53m and the Direct-to-Consumer (DTC) business was up by 7.1% to EUR384m. E-commerce declined by 13.2%.

Bjorn Gulden, CEO of Puma, said: “We have had a very good start into 2022. The demand for our products was high, both from retailers and consumers, and our operations people were able to move enough product through a tight supply chain to partly fulfill this increasing demand. I am very happy to see that the growth is coming from all product divisions and all business units.

“Based on such a strong first quarter, we would normally raise our outlook for the full year. But given the increased uncertainty in the world, we have decided to stick to our initial outlook from the beginning of this year. The COVID-19 outbreak in China, the crisis in Ukraine, a very tight freight situation and inflationary pressures are all uncertainties that force us to remain very flexible and to manage our business as well as possible in the short-term without hindering Puma’s mid-term momentum.

“We see further upside on the revenue side, but also increased pressure on our OPEX and gross margin due to all the uncertainties. In this situation, we will continue to prioritize market share gains and our mid-term growth potential over short-term profit optimization. We will also continue to prioritise the health and safety of our people and not save on anything here. Now, this is especially important for all our employees and their families in Ukraine. The Puma Family means more than profitability.”

Going forward Puma notes the high level of market uncertainty that 2022 has started with as a result of further Covid restrictions and that the supply chain situation remains challenging due to port congestions, limited shipping capacities and continued freight rate increases.

“The crisis in Ukraine is having a direct negative impact – leading to lost sales and EBIT – and an indirect impact through the general tense geopolitical situation and increasing uncertainty worldwide. As a result, we continue to see inflationary pressures in all markets,” the sports giant said in its statement.

Cautious outlook on market uncertainties

  • Confirmed a currency-adjusted sales growth of at least 10% – with upside potential – in the financial year 2022.
  • Operating result (EBIT) outlook maintained to be in a range of EUR600m and EUR700m (2021: EUR557m) and net earnings to improve correspondingly.

“While we will stay focused on our growth momentum by servicing our retail partners and consumers in the best possible way, we expect inflationary pressures from higher freight rates and raw material prices, as well as operational inefficiencies due to COVID-19 and the Ukraine crisis to dilute our profitability in 2022. The achievement of this outlook is subject to continued manufacturing operations in our key sourcing countries in Asia and no major business interruptions due to COVID-19,” the sports giant said in its statement.

Analyst reaction

Commenting on the numbers, Emily Salter, retail analyst at GlobalData said: “Puma stated that after such a good quarter it would normally raise its FY guidance, which stands at currency-adjusted revenue growth of at least 10%, but 2022 is proving to be anything but normal. Numerous factors have the potential to disrupt sales with COVID-19 lockdowns in China (indeed its sales in APAC dragged down total growth), the Russian invasion of Ukraine, supply chain pressures (which are only likely to worsen due to port and manufacturing closures in China), and inflationary pressures on consumers.

“The outlook for the brand’s profitability is less rosy than its sales growth prospects, as it expects higher freight and raw material costs, as well as operational inefficiencies due to COVID-19 and the Ukraine crisis to reduce its profitability.

“As is currently the case for many Western brands, APAC was the thorn in Puma’s side, with currency-adjusted sales declining by 17.0% and revenue 3.4% lower than pre-pandemic levels as COVID-19 lockdowns wreak havoc with demand for apparel in China, although its sportswear specialism should have protected it to some extent. This underperformance is in direct contrast to the Americas, where currency-adjusted sales rose 44.1% and sales were a whopping 95.8% higher on a three-year comparative.

“Unlike Nike and Adidas, Puma’s wholesale channels outperformed direct-to-consumer (DTC), with wholesale up 23.3% on a currency-adjusted basis while DTC only increased 7.1%. Though this approach seems to be working well for Puma currently, it would be wise to drive a greater proportion of revenue through its own channels so that it has greater control over its brand image, interaction with consumers and pricing strategies.

“The brand’s DTC online sales declined 13.2% on a currency-adjusted basis during Q1, though this was against a strong comparative of 74.9% growth in Q1 FY2021. Declining online sales would normally be cause for concern due to the permanent shift of apparel spend to the online channel, so this is something Puma should keep an eye on even though it seems to be having little impact currently.”

In recent months Puma has doubled down on its sustainability efforts. Earlier this week it announced it has now started to distribute 500 pairs of its experimental Re:Suede sneaker to participants in Germany after recording ‘strong interest’ for its latest biodegradability project.

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