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Trade War Headwinds Prompt Puma Action in China

Puma raised its annual guidance on better-than-expected quarterly sales, especially in the Asia-Pacific region, after releasing its Q2 earnings results on Wednesday morning.

Meanwhile, the brand said it raised inventory levels throughout the quarter in preparation for trade war headwinds as it continues to move away from Chinese production.

In a Nutshell: Logistics was a big focus for Puma in the second quarter as the brand focused on investments designed to improve its global production capacity. Operating expenses increased by 16.5 percent over the comparable period a year ago due to “higher marketing and retail investments” along with higher sales costs.

In the brand’s quarterly earnings conference call with analysts, Puma CEO Bjorn Gulden said that his team had already been working on pulling out of China. However, Gulden admitted that no amount of foresight could prevent the price sensitivity that additional duties on Chinese footwear would bring.

“Should the duties come, I am convinced prices will go up because you cannot move all production out of China,” Gulden explained during the call, according to Reuters.

Puma also increased its inventory by 19.4 percent over the quarter after a 19.3 percent increase in Q1, now totaling 1.063 billion euros ($1.177 billion). The German sportswear brand said this was to better manage supplier capacities in preparation for a more challenging sourcing climate.

Additionally, Puma opened 33 new owned and operated retail locations in the first half of the year—with “around 200” more locations launched by Puma partners in China. The brand also broke ground on a multichannel distribution center in Germany and expects to open a new flagship location on New York City’s Fifth Avenue in August.

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Sales: Riding a wave of revenue that saw its quarterly sales increase by 15.7 percent in Q2, Puma pulled in 1.227 billion euros ($1.36 billion) and beat average analyst projections by about $30 million. The brand was helped by double-digit increases in revenue for both the Asia/Pacific and Americas regions, with EMEA trailing with high single-digit growth.

Apparel sales grew by 22.7 percent, overall, followed by footwear with 14.5 percent growth.

Puma said Chinese shoppers contributed to the increase in sales for those categories. The brand raised its guidance for revenue for the rest of the year based on these results, saying that sales should grow by around 13 percent after setting the previous mark at 10 percent.

Earnings: Puma beat analyst expectations by about 8 cents, recording earnings per share of 23 cents in Q2. Net earnings totaled 49.7 million euros ($55.04 million) for the quarter, beating the comparable period’s earnings of 31.3 million euros ($34.44 million).

Management held to its previous guidance of “significant” earnings improvement for the full fiscal year.

CEO’s Take: Gulden applauded his team, from design to logistics, for delivering a complete quarter and setting up the business for strength in the long run.

“All divisions and all regions saw healthy improvement,” Gulden said. “New styles of footwear sold well, apparel continued to be strong, replenishment orders for both apparel and footwear developed well and our direct-to-consumer business also performed well.”