Business news : Puma SE Q2 Profit Falls on Weaker Margins, Higher Expenses
Whereas Footwear sales were flat currency adjusted at €370.9 million ($477 mm), with Teamsport and Running balancing the softening sales in the Motorsport and Fitness categories, Apparel sales increased by 7.9 percent to €256.4 million ($330 mm), fueled in part by higher demand for fan wear in the Teamsport category on the back of EURO 2012. Accessories jumped by 24.3 percent to €125.6 million ($161 mm) with strong results in all regions for our Cobra Golf products and the socks business.
“Despite the poor consumer sentiment and challenging business environment particularly in Europe, PUMA achieved respectable sales growth in the second quarter and first half of this year,” said Franz Koch, CEO of PUMA SE. “However, pressure on gross profit margins and further strategic investments related to our ‘Back on the Attack’ plan in combination with a weakening European business impacted second quarter net earnings. We have therefore taken measures to secure sustainable and profitable growth by broadening the scope of our Transformation Program. This program is designed to reduce complexity and establish a more efficient business model, operating on a leaner cost base.”
The performances of the PUMA supported Italian and Czech teams were resounding successes for our growing football (soccer) category and clearly underline PUMA’s reinforced commitment to strengthen our brand visibility and position as one of the top three football brands. The “Squadra Azzurra” made it all the way to the final, while the Czech Republic put on an excellent display to reach the quarter-finals. PUMA’s main footwear style for the Euro 2012, the new EvoSpeed, worn by German striker Mario Gomez, was launched shortly before the start of the tournament, generating strong sell-through figures.
In PUMA’s Sportlifestyle business, the Archive Lite, an ultra-light shoe with a contemporary look that derives from the Suede and has been fused with performance technology such as the FAAS Foam and mash, continued to resonate well with consumers.
Sales Performance by Region
In regional terms, PUMA continued gains in the Americas with sales growing by 15.0 percent currency adjusted to €278.7 million ($358 mm) in the second quarter. Asia/Pacific posted a gain of 8.6 percent to €190.6 million ($245 mm). Sales in EMEA declined by 3.0 percent to €283.6 million ($364 mm), due to the difficult market environment in Europe and the weaker performance of the footwear category.
Sales Performance Retail
PUMA’s retail operations continue to provide solid growth. Second quarter retail sales were €150 million ($193 mm), 22.3 percent ahead of last year’s €122 million ($176 mm), representing 19.9 percent of total sales. From January to June, retail sales were up 19 percent from €228 million to €272 million, delivering 17.3 percent of total sales. Increased volumes at existing stores, new store openings as well as continued growth in our e-commerce business were responsible for this positive development.
Margins, Expenses and Profitability
PUMA was mostly able to allay the effects of continued input price pressures in the second quarter. The gross profit margin stayed flat at 49.1 percent in the second quarter of 2012, supported by a favorable hedging impact compared to last year. However, the expected slight increase in margin did not materialize and we were therefore not able to offset higher input cost and margin pressure. Footwear rose slightly from 48.1 percent to 48.3 percent and Apparel improved from 48.9 percent to 49.4 percent. Accessories, however, fell back from 53.3 percent to 51.1 percent compared to 2011.
Second quarter operating expenses continued to rise as set out in our growth strategy. OPEX rose by 17.0 percent to €327.4 million ($421 mm) in the second quarter of the year compared to €279.9 million ($403 mm) last year. Increased expenditures were necessary to support the Euro-Cup in Poland and Ukraine and first initiatives for the Olympics in London, while at the same time PUMA has been extending RD&D resources and initiatives in order to strengthen the company’s product pipeline. In addition, PUMA’s increased number of retail stores, currency impacts and the extended scope of consolidation were responsible for a considerable portion of this increase.
Operating profit declined by 15.0 percent to €47.1 million ($61 mm) during the second quarter of 2012.
As a consequence of lower than expected gross profit and increased expenses, consolidated net earnings decreased by 29.2 percent to €26.7 million ($34 mm), coming in weaker than Management had anticipated. Earnings per share fell by 29.0 percent to €1.78 ($2.29).
Looking at assets, inventories rose by 26.1 percent currency adjusted or 32.3 percent in Euro terms to €672.3 million ($846 mm). This is mainly due to the continuing expansion of PUMA’s retail store network and higher average prices per unit on stock. Trade receivables also increased by 7.0 percent currency adjusted or 11.6 percent in Euro terms to €582.7 million ($733 mm), broadly in line with sales growth. Cash Position
The total cash position as of June 30, 2012 was reduced by 19.8 percent from €352 million ($506 mm) to €282 million ($354 mm), affected by the purchase of the remaining Dobotex shares.