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Apparel Sales Power Puma’s Strong Q4

The holiday quarter was kind to Puma despite the German footwear and athleticwear brand contending with Covid-related lockdowns across Europe. Sales jumped 9.1 percent on a currency-adjusted basis to 1.52 billion euros ($1.84 billion). Net income increased for the quarter as well, with a 38.8 percent year-over-year boost to 24.7 million euros ($30 million).

With those lockdowns currently closing approximately half of all Europe stores selling Puma products, the company is prepared for these challenges.

“We do expect the negative impact to continue through the first and parts of the second quarter, but expect to see an improvement in the second half of the year,” Bjørn Gulden, CEO of Puma, said in a statement.

Puma also noted that it cancelled less than 1 percent of orders last year, and paid suppliers for any product it nixed.

In a Nutshell: The fourth quarter started with strong sales growth in October, Puma said in its earnings report. However, throughout November, lockdown measures implemented across multiple countries in Europe consequently closed around 35 percent of Puma’s owned and operated retail stores in the region, escalating to 50 percent in December.

The company anticipates that this year “would become what 2020 was initially supposed to be,” potentially characterized by double-digit sales growth compared to the 2019 baseline and a strong improvement in earnings before interest and tax. This means the company expects to improve on the 440.2 million euros ($485.7 million) in operating results from 2019, which declined to 209 million euros ($253.8 million) in 2020.

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Despite negative currency effects, the gross profit margin improved in the fourth quarter by 70 basis points (0.7 percent) to 48 percent. The improvement in gross profit margin was driven by better sell-through, less promotional activity and good inventory management as well as favorable distribution channel and regional mix effects.

Inventories increased only slightly by 2.5 percent from 1.11 billion euros ($1.34 billion) to 1.14 billion euros ($1.38 billion) as a result of disciplined buying and inventory management practices.

Puma saw some big wins for the quarter as far as launches go, debuting a new line of performance running shoes featuring its proprietary Nitro foam, dropping the second iteration of hip-hop star J. Cole’s basketball sneaker, the Dreamer 2 “January 28,” launching the Future Z 1.1 football boot in partnership with international soccer superstar Neymar Jr. and introducing the Fuse strength trainer, designed by a community of athletes including seven-time Formula 1 World Champion Lewis Hamilton.

The athleticwear and footwear company brought in global pop sensation Dua Lipa as the newest brand ambassador for its women’s business, and has partnered with Nintendo for a Super Mario collection to celebrate the video game’s 35th anniversary.

Free cash flow declined from 330 million euros ($400.6 million) in 2019 to 276 million euros ($335 million) in 2020. The decline was caused by the drop in earnings before taxes, while improved working capital, lower tax payments and lower capital expenditures had a positive impact.

Net sales: Sales in the fourth quarter of 2020 increased by 9.1 percent on a currency-adjusted basis) to 1.52 billion euros ($1.84 billion), led by an 11.8 percent sales increase in Asia/Pacific driven by Greater China. The positive development was also supported by the EMEA region at 9.8 percent, despite the repeated lockdown measures in Europe as of November.

In addition, the Americas showed a solid performance with 6.1 percent sales growth across North and Latin America.

All product divisions (measured on a currency-adjusted basis) contributed to the growth, with apparel being the star of the show. The category grew 15.7 percent, compared to 7.3 percent growth in accessories, which performed well mainly due to a strong golf, leg- and bodywear business. Footwear increased 3.8 percent, with Puma highlighting the company’s sustained momentum in basketball.

Even Puma’s wholesale business, which has become a tough channel for major athleticwear and footwear companies, increased by 4.6 percent to 1.02 billion euros ($1.24 billion) in sales, despite lockdowns and store closures in several markets. The direct to consumer business (DTC), which includes owned and operated retail stores as well as e-commerce, increased by 19.3 percent to 502 million euros ($609.7 million), driven by e-commerce growth of 57.2 percent.

Overall, sales for the full 2020 year decreased by 1.4 percent on a currency-adjusted basis to 5.23 billion euros ($6.36 billion) due to the overall negative Covid-19 impact. Of the three major regions, only EMEA saw growth at a 1.5 percent sales increase. The Americas (3 percent dip) and Asia/Pacific (3.2 percent decline) both contracted in sales. And while apparel did well for the fourth quarter, only accessories grew for all of 2020 at a rate of 3.5 percent. Apparel sales declined 1.5 percent, while footwear sank 3.1 percent.

For the full year, DTC sales increased 6.4 percent to 1.42 billion euros ($1.73 billion), while wholesale had a 4 percent decline to 3.8 billion euros ($4.6 billion). E-commerce sales jumped 60 percent in total.

Net earnings: Net income increased by 38.8 percent in the quarter year over year from 17.8 million euros ($21.6 million) to 24.7 million euros ($30 million) and earnings per share went up from 0.12 euros (15 cents) in the fourth quarter of 2019 to 0.16 euros (19 cents) in the fourth quarter of 2020.

For the full year, net earnings saw a significant drop from 262.4 million euros ($318.6 million) in 2019 to 78.9 million euros ($95.8 million) in 2020 and earnings per share also plummet from 1.76 euros ($2.14) to 0.53 (64 cents).

The operating result (earnings before interest and tax, or EBIT) in the fourth quarter increased by 14.6 percent from 55.2 million euros ($67 million) in the year-ago period to 63.3 million euros ($76.8 million) due to sales growth combined with a higher gross profit margin. This resulted in an improved EBIT margin of 4.2 percent in the fourth quarter of 2020, a jump from last year’s 3.7 percent.

EBIT declined from 440 million euros ($485.7 million) in fiscal 2019 to 209 million euros ($253.8 million) in 2020.

CEO’s Take: “The Covid-19 pandemic put us in situations we have never seen before. We feel we have maneuvered through this crisis as well as we could by solving problems day by day without hindering the mid-term momentum of Puma,” Gulden said in a statement. “This was possible because of a fantastic effort by our employees, great support from our retail partners and an unbelievably strong cooperation with all our suppliers. We continued to invest in our infrastructure like logistics and IT and we added partners like Neymar Jr., Dua Lipa and LaMelo Ball to create Brand Heat.”