Puma SE reported a quarterly net loss of 95.6 million euros ($112.1 million) amid a currency adjusted net sales decline of 30.7 percent to 831.1 million euros ($979.81 million). But despite the rough sales tumble, month-over-month sales continued to show major improvements throughout the quarter and were flat on a year-over-year basis in July.
As of the end of June, 85 percent of Puma’s owned and operated stores have reopened since being closed down due to the COVID-19 pandemic.
In a Nutshell: In the first half, Puma determined three key objectives to survive and manage the COVID-19 crisis in the short term without hindering its mid-term momentum: mitigate sales impact wherever possible, secure the supply chain and ensure financing while managing costs.
To ensure that its manufacturing partners could continue to operate in the first half, Puma cancelled “as few orders as possible,” while securing more favorable payment terms. The footwear company also worked with both retail partners and manufacturers to slow down shipments and extend payment terms to share the burden across the whole value chain.
Total inventory tallied in the half increased 21.2 percent year over year from 1.06 billion euros ($1.25 billion) to 1.29 billion euros ($1.52 billion). In accordance with shifting shopper preferences, Puma increased investments in performance marketing, adapting e-commerce to devote more space to leisurewear as well as sports apparel.
During Q2, Puma opened a new Indianapolis distribution center, enabling the athletic company to now reach 90 percent of U.S. customers within two days.
Puma decreased its working capital in the quarter by 16.2 percent from 201.6 million euros ($237.5 million) to 168.9 million euros ($198.9 million).
In May, the company secured an additional 900 million euros ($1.06 billion) revolving credit facility through a consortium of 12 banks to help it prepare for a potentially longer-lasting impact from the COVID-19 pandemic.
Puma’s cash and cash equivalents in the first half amounted to 437 million euros ($514.7 million), 19.3 percent ahead of the 366.2 million euros ($431.3 million) it had last year.
Puma will not be offering a full-year outlook due to the continued uncertainty surrounding COVID-19, with the company noting that while the current trajectory could suggest a full recovery before year end, the risk of a second wave with major lockdowns remains high.
Net Sales: Sales in the second quarter decreased by 30.7 percent currency adjusted to 831.1 million euros ($979.81 million) with sales declining in all regions and all product divisions. Online sales grew 97.1 percent in the quarter, adding up to 139 million euros ($163.9 million) in sales.
Puma said April sales were down 55.2 percent year over year while May sales sagged 37.5 percent. Since then, business improved to being down 6 percent in June while July has been flat, indicating that a turnaround might be underway.
The Americas generated 462.8 million euros ($545.1 million) in sales. This total tanked 43.1 percent on a currency adjusted basis to 254.3 million euros ($299.5 million) in the quarter, representing both the largest drop by region and the lowest sales total as well.
EMEA sales dropped 30 percent on a currency adjusted basis from 449.2 million euros ($529.1 million) to 308.5 million euros ($363.4 million), while APAC sales dipped 14.2 percent from 314.8 million euros ($370.8 million) to 268.3 million euros ($316 million) despite a 15.6 percent recovery in China.
All product divisions showed a double-digit decline in currency adjusted sales, with footwear being down 34.1 percent, apparel 32.2 percent and accessories 18.2 percent.
Net Earnings: Net earnings declined from 49.7 million euros ($58.6 million) to a loss of 95.6 million euros ($112.1 million) and earnings per share were down from 0.33 euros (39 cents) in the second quarter last year to a loss of 0.64 euros (75 cents) correspondingly.
The gross profit declined by 540 basis points from 49.3 percent to 43.9 percent year over year caused by higher discounts, inventory devaluation and return provisions due to COVID-19 as well as negative currency impacts.
Operating income (earnings before interest and taxes) decreased from an 80.3 million euros ($94.6 million) profit in the second quarter of 2019 to a 114.8 million euros ($135.2 million) loss in this year’s quarter due to the sizeable decline in sales and gross profit margin.
CEO’s Take: “The second quarter of 2020 was the most difficult quarter I have ever experienced,” said Bjørn Gulden, CEO of Puma SE. “A virus that shut down 85 percent of all global sports and fashion retail business was an experience that I had never expected. Priority number one was the health and safety of our people, number two to ensure financing and liquidity to survive the crisis and finally to run the business short-term as well as possible without destroying the mid-term momentum of our brand.
“Flexibility with our wholesale partners, promotional activities in our own retail stores and a larger focus on e-commerce have been the short-term strategy,” Gulden continued. “Full investment in product development for 2021, continued investment in marketing, digital sell-in meetings with our retail partners and a high degree of local decision-making is the current strategy for the mid-term.”