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Puma Expects Challenges to Continue in Second Half

Impacted by sluggish performance in several key markets and negative currency effects, net earnings fell 33 percent in the second quarter.

BERLIN — Earnings and sales continued to decline at Puma in the second quarter of 2013, and while the company confirmed its full-year outlook, the sport lifestyle brand expects the second half of 2013 “to remain quite challenging for us,” chief financial officer Michael Laemmermann said Wednesday in a conference call.

Impacted by sluggish performance in several key markets and negative currency effects, net earnings fell 33 percent to 18 million euros, or $23.5 million, in the three-month period ended June 30. Currency-adjusted sales for the quarter slipped 4 percent to 692 million euros, or $903.7 million. Sales in euro terms fell by 8 percent.

Dollar figures are converted from euros at average exchange for the period to which they refer.

Operative earnings were also down, 34 percent to 31 million euros, or $40.5 million. Puma noted that “significant savings” achieved through its ongoing Cost Reduction Program could not offset the decline in sales and gross profit margin. Pressured by negative hedging positions compared with the same period last year and stepped-up promotional activities, the gross profit margin fell from 49.1 percent to 46 percent in the quarter and from 50.2 percent to 47.7 percent in the first half of the year.

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Laemmermann said he did not expect the decline in gross profit margin in the second half of 2013 to be as large as in the first half, but noted that labor costs, rising input prices for cotton and leather, and ongoing currency effects will continue to eat into margins. He also suggested pricing pressure will remain a challenge even into 2014. “We see overstock in lots of markets, and there’s lots of competition in our playing field. I wouldn’t be surprised if this continues into 2014, especially the first six months,” he said.

As for 2013 overall, Puma held to its full-year projections as revised in the first quarter. These call for a low- to mid-single-digit decline in currency-adjusted full-year net sales and continued pressure on the gross profit margin, but an increase in net earnings compared with 2012.

By segment and on a currency-adjusted basis, footwear sales were down 7.3 percent to 330 million euros, or $430.9 million, in the quarter. Apparel sales dropped 6.8 percent to 227 million euros, or $296.4 million, in the period, while accessories moved ahead 10.9 percent to 136 million euros, or $177.6 million. The Herzogenaurach, Germany-based group emphasized its Q2 sales performance was in line with guidance.

In the first half of 2013, footwear sales were down 7.5 percent, apparel slipped 3.8 percent and accessories advanced 11.4 percent.

Regionally, Puma said market conditions were particularly challenging in southern Europe and the Far East, but reported positive sales growth in the U.K., India and Russia.

The company’s retail business, on the other hand, grew 3.4 percent in the quarter and 8.1 percent in the first half of the year, to now represent 19.3 percent of total sales.

New store openings and improvements in Puma’s e-commerce platform helped boost retail sales, according to the firm. At the same time, Puma has been closing nonperforming stores in line with its Transformation and Cost Reduction program. Sixty doors have been shuttered since the beginning of the year.

The program has also borne fruit in terms of reduced operating expenditures, which declined by almost 11 percent in the second quarter and 7 percent in the first six months.