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Puma CEO Warns of ‘Very Difficult Market’ in China

Coming off “another very strong quarter,” Puma raised its full-year growth forecast Wednesday to at least 25 percent.

The German footwear company saw global revenue climb 20 percent in the third quarter to 1.9 billion euros, or $2.2 billion. The Americas led the way with 23 percent growth in North America and a 61 percent improvement in Latin America producing a 31 percent bump in the region. Europe, the Middle East and Africa also saw a notable increase, with sales up 22 percent.

In Asia/Pacific, however, revenue inched up just 2 percent as the company contends with what CEO Bjørn Gulden described as “a very difficult market situation in China.” After achieving four straight quarters of year-over-year growth, Puma’s Greater China sales had dropped 5 percent in the second quarter. In the third quarter, they fell even further, 16 percent. Though every other region also saw year-over-year comps weaken in the third quarter, Greater China was the only one to see sales growth slacken from the second to third quarter last year as well.

Puma, though not the highest-profile target, was wrapped up in the same boycott that excoriated Western companies like Nike, H&M and Adidas for expressing concerns about reports of forced labor in Xinjiang. When analysts with China Market Research (CMR) reported on the immediate aftermath in April, they noted that Nike and Adidas appeared to have been the most severely affected footwear brands. Companies like Puma, Skechers and Under Armour, however, simply did not have the same “cachet” with Chinese consumers, according to Kerstin Brolsma, and so they seemed to be faring better. At the same time, however, Brolsma said that store checks showed that Puma was pushing product promotions “much more visibly” than others, suggesting something was amiss.

Puma has directly tied its faltering China sales to the boycotts that began this spring. Seven months later, Gulden said the company is still unable to market with Chinese celebrities and shopper traffic is down, according to Reuters. Still, the CEO said he is optimistic about China’s “Single’s Day” event next month and a medium-term recovery.

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Earlier this month, Chinese athletes received a preview of what awaits them should they partner with a Western brand when up-and-comer basketball player Hu Mingxuan signed with Adidas. After withering criticism in the local media, the 23-year-old CBA Finals MVP award recipient reportedly lost 20 percent of his champion bonus. His team, the Guangdong Southern Tigers, have since introduced a new rule requiring that players seek approval from the club before signing as a spokesperson for a foreign brand. Failing to do so could deprive them of 50 percent of their salary and apply a 15-game suspension.

Though some may have hoped that the situation in China would improve with time, Puma is not alone in seeing sales weaken over the course of the year. In the three months ended May 31, Nike’s sales climbed 9 percent year-over-year in Greater China. During the period ended Aug. 31, it registered a 1 percent increase.

Puma wrestles with supply chain backlogs

Dipping sales in China are not the only headwinds buffeting Puma, with Gulden also noting the impact of the Covid-related lockdown in Vietnam, port congestion and an “overheated” freight market with high rates and lack of capacity.

Gulden told the press Wednesday that factories in Vietnam closed for 10 to 11 weeks due to Covid outbreaks, Reuters reported. The facilities have since reopened and should resume full production by the end of November, Gulden said. The closures’ impact, however, will likely last through the end of the year and into the first quarter of 2022. Higher prices caused by supply chain issues and the higher cost of raw materials could mean that elevated prices last into the second half of next year.

“If you want to buy Christmas presents, you should buy now,” Gulden said, according to Reuters.

Puma recorded a gross profit margin of 47.4 percent in the third quarter, up from 47 percent a year ago. The company attributed the 40-basis-point improvement to better sell-through and less promotional activity, while currency, geographic and channel mix effects and higher freight rates had a negative impact.

Net earnings increased from 114 million euros, or $132 million, a year ago to 144 million euros, or $167 million.

Year-to-date, Puma has seen net sales rise 39 percent in constant currency to 5.04 billion euros, or $5.85 billion. Wholesale has led the way during the first nine months of the year, climbing 42 percent year-over-year, while e-commerce increased just 22.5 percent as it came up against last year’s strong digital gains.

For the first nine months of the year, Puma’s net earnings totaled 302 million euros, or $350 million, a massive increase from last year’s 54.2 million euros, $62.9 million.

“We foresee the high demand for our products to continue, but we also see supply constraints continue to be a problem for the rest of the year,” Gulden said in a statement. “We will continue to maneuver through the operational problems as well as possible, but we will also continue to invest in our brand, products and infrastructure for the mid and long term. The outlook for our industry in general and for Puma in particular is in my opinion very positive.”