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Puma Just One-Upped Adidas

Puma raised its full-year outlook Wednesday in the face of rising recession fears and continuing Covid lockdowns in China.

In a Nutshell: With companies like Walmart and Adidas slashing their 2022 ambitions this week, Puma bucked the trend and raised its sales target. After previously projecting a revenue increase of “at least 10 percent” with “upside potential,” the German sportswear company now anticipates growth in the mid-teens.

Though Puma bragged of the “strong” sales and earnings before interest and taxes (EBIT) growth it has seen so far this year, it also acknowledged increasing geopolitical and macroeconomic uncertainties and challenges. Supply chain constraints and price increases in sourcing and freight have limited product availability and put pressure on margins, it said. The crisis in Ukraine, high inflation and ongoing Covid restrictions, meanwhile, are negatively impacting consumer confidence and demand, it added.

In Greater China, continued Covid-related lockdown measures coincided with a 43 percent drop in sales in the second quarter. Revenue from the world’s most populous country has fallen at an ever-increasing rate at Puma since the second quarter of last year, when consumers revolted against Western brands for the public stances they had taken on Xinjiang cotton. With the pandemic easing in the Americas and Europe, Puma saw no further widespread closures in either region.

Due to the “increased uncertainties,” Puma reiterated its prior EBIT forecast of between 600 million euros ($609 million) and 700 million euros ($711 million). The development of its gross profit margin and OPEX-ratio depend “largely” on the extent and duration of the broader global trends, with the inflationary pressures from higher freight rates and raw material prices, and inefficiencies from Covid and the Ukraine crisis expected to dilute profitability this year.

“Despite increasing costs, we will continue to focus on keeping our prices competitive and will prioritize sales growth and market share gains above short-term profitability,” CEO Bjørn Gulden said.

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As of June 30, Puma’s inventories totaled 1.98 billion euros ($2.02 billion), a 42.9 percent jump from the prior-year period.

Net Sales: Puma recorded 2 billion euros ($2.03 billion) in net sales during the second quarter, a 26 percent increase from the year-ago period’s 1.59 billion euros ($1.61 billion). On a currency-adjusted basis, revenue grew 18.4 percent.

The Americas led the way with currency-adjusted sales up 25.6 percent. In Europe, the Middle East and Africa, revenue grew 21.5 percent, driven by strong growth across “all key markets” in Europe, Puma said.

Sales in the Asia-Pacific region, however, dropped 1.8 percent. Excluding China, the Puma’s APAC sales jumped 41 percent year over year in the second quarter.

All product divisions recorded double-digit growth in Q2, with apparel up 20.2 percent on a currency-adjusted basis to 665.7 million euros ($676 million). Footwear followed close behind with adjusted revenue up 19.7 percent at 1.01 billion euros ($1.02 billion). Accessories grew 11.2 percent to 329 million euros ($334 million). Like prior quarters, strong demand for performance categories like running and training, team sports, golf and basketball drove growth, Puma said.

Year-to-date, accessories are up 20.9 percent, followed by footwear and apparel, which are up 18.9 percent and 18.1 percent, respectively.

Its wholesale business easily outpaced direct-to-consumer with the former improving 22.6 percent on a currency-adjusted basis to 1.56 billion euros ($1.59 billion), while the latter inched up 5.5 percent to 439 million euros ($446 million). Revenue from owned and operated retail stores increased 11.3 percent, while e-commerce declined 4.1 percent, “mainly due to lockdown measures in Greater China,” Puma said.

Looking at the first half of the year, sales grew 24.7 percent on a reported basis—19 percent on a currency-adjusted basis—to 3.91 billion euros ($3.97 billion).

Net Earnings: Puma’s gross profit margin decreased to 46.5 percent from 47.5 percent in the second quarter of 2021, “mainly due to an unfavorable geographical and channel mix as well as the higher freight rates,” Gulden said.

Operating expenses increased 21.6 percent to 791 million euros ($803 million) as a result of higher marketing expenses, more open retail stores and higher sales-related distribution and warehousing costs. Puma’s second-quarter OPEX ratio, however, dropped from 40.9 percent to 39.5 percent thanks to higher sales growth and “continued OPEX control” and despite Covid-related operating inefficiencies, particularly in the supply chain, it said.

“Strong sales growth” offset increased investments in marketing and sales and higher warehousing costs, driving EBIT up 34.4 percent to 146 million euros ($148 million), Gulden said. EBIT margin climbed 40 basis points to 7.3 percent.

Net earnings improved 73.2 percent in the second quarter to 84 million euros ($85 million), or 0.56 euros (57 cents) per share. Year-to-date, Puma’s net earnings are up 30.3 percent at 206 million euros ($209 million).

CEO’s Take: “We do see an increased level of uncertainty around the world: Covid-19 is still around us, the crisis in Ukraine is worse than ever and there is high inflationary pressure in almost all our markets,” Gulden said in a statement. “The Puma family means more than short-term profitability. I remain optimistic for our sector in general and the Puma brand in particular.”