Two weeks after raising its full-year 2021 outlook, Puma saw sales increase 96 percent on a currency-adjusted basis to the tune of $1.89 billion in the second quarter. On a two-year basis, Puma saw sales increase a currency-adjusted 36.3 percent over 2019 totals, with all regions and product divisions delivering double-digit increases.
The Germany-based athleticwear and footwear company also reported 48.7 million euros ($57.9 million) in quarterly profits.
In a Nutshell: The Vietnam government’s recent Covid-19 lockdown measures forced some of Puma’s South Vietnam suppliers to suspend operations, which represent approximately half the production the sportswear seller has in the country, CEO Bjørn Gulden confirmed in an earnings call.
Vietnam represents roughly 30 percent of Puma’s sourcing, and the closures represent 15 percent of global production, Gulden said. Goods produced in Vietnam are bound for the U.S. market.
“There will be a decision Monday next week if the 10-day closures (as July 29) will be prolonged,” Gulden said in the call. “We have been trying to solve this by accepting delays, but also re-sourcing product in North Vietnam and also moving some of the developments into China, Indonesia and other markets. There are stronger indications that this will last longer than two weeks, and of course that puts a risk in our supply.”
Gulden noted that most of Puma’s partners source products from multiple countries, which benefits the brand when factories shut down in a specific market. But he acknowledged that some products that would have traditionally been shipped from South Vietnam will be delayed for at least 10 days, saying “there’s a bigger danger…that there will be bigger volumes that will be delayed.”
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Amid the increasing freight rates and lower container capacity, Puma entered a long-term contract that assures freight costs until May 2022, at a rate of double the container cost it paid in 2020.
Gulden said that ocean freight capacity combined with only a limited increase in passenger jets for overseas travel has made the decision to ship via air freight more difficult.
“There isn’t a lot of free capacity in air freight to be honest. We are utilizing air freight when we can, but it’s not like you can ship a lot of volume in the air right now, because it’s already taken,” he said.
On a currency-adjusted basis, footwear outperformed all categories, improving 114 percent to 787.8 million euros ($936.3 million) in sales, based on continued strong performance of the brand’s running, training and sportstyle categories. The category now represents 50 percent of total sales at Puma.
Apparel saw an 85.5 percent jump, while accessories also improved 72.2 percent in the quarter.
Inventories were up by 7.7 percent to $1.39 billion ($1.65 billion) despite the supply chain constraints due to container shortages and port congestion. As a result of the strong sales development in the second quarter, trade receivables—the amount billed to wholesale business—rose by 62.6 percent to 931.1 million euros ($1.1 billion). On the liabilities side, trade payables—the amount Puma owes its suppliers—jumped by 39.9 percent to 1.3 billion euros ($1.5 billion).
Gulden said that although inventory was “very healthy” he was hoping the inventory increase would be higher.
“That’s probably the first and hopefully last time I say that,” Gulden said. “We would have liked to have more inventory, because currently the demand is actually higher than supply.”
Gross profit margin in the second quarter improved by 360 basis points (3.6 percentage points year over year to 47.5 percent, but remain behind the 2019 period’s 49.3 percent. The one-year improvement was driven by better sell-through and less promotional activity, while inefficiencies in the supply chain including inbound freight had a negative impact of 35 basis points (.35 percentage points), Gulden said.
In light of the strong second-quarter growth in sales and profitability, Puma now expects the currency-adjusted sales to increase by at least 20 percent for 2021, well ahead of the previous outlook of “mid-teens” sales growth.
Puma’s outlook for the operating earnings before interest and taxes (EBIT) is now anticipated to come in between 400 million euros ($475.4 million) and 500 million euros ($594.3 million), instead of prior guidance for a “significant” improvement over last year.
In line with the previous outlook, Puma is not providing a detailed outlook on its gross profit margin and operating expense-ratio. Net earnings are still expected to improve significantly in 2021.
Reaching the projected totals is subject to continued manufacturing operations in Puma’s key sourcing countries such as Vietnam and China, as well as no major Covid-related interruptions.
Puma’s cash and cash equivalents as of June 30, 2021 amounted to 755.2 million euros ($897.9 million), well ahead of the 437 million euros ($519.6 million) at the midway point of 2020. In addition, at the end of the second quarter, Puma had unused credit facilities amounting to a total of 934 million euros ($1.1 billion).
Working capital increased by 6.1 percent year over year to 691.9 million euros ($822.6 million).
During the quarter, Puma opened its new logistics center in Geiselwind, Germany, with the footwear and athleticwear company expecting it to be fully operational towards the end of 2021. Puma also launched two new online stores in the United Arab Emirates and Mexico.
Net Sales: Net sales at Puma increased by a 91.2 percent on a reported basis and 95.8 percent on a currency-adjusted basis to 1.59 billion euros ($1.89 billion).
On a currency-adjusted regional basis, Americas reported the strongest growth of 181.8 percent to 675.6 million euros ($803 million), driven by strong demand in North America. EMEA saw sales growth of 85.4 percent to 572.4 million euros ($680.3 million), while Asia/Pacific sales rose 29.6 percent to 341.2 euros ($405.5 million).
Puma’s wholesale business grew by 114.2 percent currency-adjusted to 1.2 billion euros ($1.42 billion), while the footwear company’s DTC business increased by 54.7 percent currency-adjusted to 389.1 million euros ($462.5 million) with growth in owned and operated retail stores (107 percent) and e-commerce (8.5 percent).
Net Earnings: Net income increased to 48.7 million euros ($57.9 million) in the second quarter, from a loss of 95.6 million euros ($113.6 million) in the year-ago period. Earnings per share improved to 0.33 euros (39 cents) in the second quarter, well ahead of last year’s 0.64-euro (76 cents) loss.
Operating profits (EBIT) increased to 108.9 million euros ($129.5 million) over the 114.8-million-euro ($136.5 million) loss in the 2020 second quarter. The results were also an improvement over 2019 totals of 80.3 million euros ($95.5 million), due to strong sales growth, higher gross profit margin and continued operating expense control. This resulted in an improved EBIT margin of 6.9 percent, well ahead of the -13.8 percent in the 2020 second quarter and the 6.5 percent margin from two years ago.
CEO’s Take: Gulden also pointed out that after a 40 percent increase in the first quarter, China sales plummeted to a 5 percent loss in the second quarter, attributing that to recent boycotts of certain Western brands in recent months.
But across markets, Gulden was bullish about the company’s growth, noting that “demand has never been higher for us globally. All markets except for Korea are up in sales compared to 2019, and under those circumstances that indicates that Puma is doing well and also that the sector is doing well.”