PARIS — Footwear has saved the day for Puma.
The German activewear firm, which is controlled by French group Kering, said it registered a loss of 3.3 million euros, or $3.6 million, in second-quarter net earnings. This compares to a profit of 4.2 million euros, or $5.8 million, in the same prior-year period.
However, its total sales for the quarter ended June 30 jumped 18.5 percent to 772.7 million euros, or $854.6 million, driven by strong footwear sales across all regions.
In currency-adjusted terms, the increase stood at 7.6 percent.
“We are especially happy about the growth in footwear. We saw a continued positive development of our sales in Q2. We have said that growth in [the category] is key for us to turn the company around and feel that the investment in new and innovative products is starting to pay off,” lauded chief executive officer of Puma SE Bjørn Gulden, during a conference call with journalists on Friday.
The sales uptick stemmed mainly from the running, training and sport-style categories. Ignite, the new running technology that Puma launched in the first three months of this year, emerged as a bestseller, flanked by better floor presence and more aggressive marketing measures.
“Ignite has delivered very solid sell-in and sell-through performance in both wholesale and own retail. In the second quarter, we have further nurtured this product platform with the introduction of Ignite Pwr Cool,” able to draw sweat away from the skin and regulate body temperature, according to the brand.
Footwear sales rose 16.2 percent in Q2. Accessories also advanced, up 3.6 percent, while apparel was flat against high comparables related to the sales of replica jerseys during the soccer World Cup.
By geography, the Americas region positioned itself as the front-runner, logging an increase of 11.6 percent, mainly thanks to above-average sales in Argentina and Mexico.
In China, untouched by slowing sales, which have plagued luxury players in the region, the activewear specialist saw its best like-for-like performance yet, reporting a double-digit growth.
Puma nevertheless remains under pressure, mainly due to strong currency headwinds and high marketing spend.
The company’s gross profit margin declined 90 basis points to 46.8 percent in the first six months of the year.
Puma, which sources its goods in Asia using American currency, but resells them in many other nondollar markets, warned back in May that currency fluctuations would dent its profitability for the year.
During the call, Gulden lamented “the negative effect of currencies is continuing to hurt our gross profit margin and increases our operational expenses, thus reducing our earnings.”
“We are, of course, working to offset the impact of this by gradually increasing sales prices in markets that are hurt by the negative effects, and we are, when possible, moving some of the sourcing to the local markets. These measures are currently not enough to totally offset the loss in reported gross profit margin,” he acknowledged.
Pressed for details, the executive said price increases have been implemented in markets with big changes in currency. “In Russia, the ruble halved in value, so we had to increase — both in retail stores and in the wholesale business. Funnily, our retail there is very stable, and we have not lost any business with the end-consumer.”
In Mexico, he divulged, price changes have become necessary “almost on a monthly basis to catch up with the currency situation.”
“It’s very difficult when you are coming from a weak position. When you have your own stores you can simply change the price tags, but 80 percent of our business is wholesale,” the executive noted.
Puma is also looking into more opportunities of moving manufacturing out of Asia and into local markets such as Mexico for the Americas region, and Europe.
“Turkey is growing as a manufacturing hub, and Eastern European countries are being looked upon for apparel. Footwear [production] is difficult in Europe because of a lack of factories, but we have some projects going on to move footwear here as well,” said Gulden, citing a new Ignite model fully “Made in Europe.”
“The knitted upper piece is done in Germany by a company that produces car seats with very sophisticated knitting machines, while the sole is injected in Italy,” he explained, without giving a launch date for the novel pair.
Despite the pressure on margins, the company is committed to further investments into marketing, IT and the overhaul of its retail network.
Higher media spend and partnerships with soccer club Arsenal as well as Puma’s latest brand ambassador Rihanna, who has started appearing in an in-store marketing campaign, have weighed on its profits, especially.
The brand revealed that while the first Rihanna-inspired styles are already being launched in the second half of 2015, her own collection will be in stores in 2016.
A lifestyle apparel collection designed in collaboration with Usain Bolt is slated to hit stores July 28.
For the first six months, the company reported a decline in net profits of 45.9 percent to 21.5 million euros, or $24 million. Sales rose 15.7 percent to 1.6 billion euros, or $1.8 billion, again buoyed by double-digit footwear advances. Currency-adjusted, the first-half gain stood at 5.9 percent.
All dollar rates are calculated at average exchange rates for the period concerned.
Puma upheld its forecast for a full-year earnings before interest and taxes coming in at a range between 80 million euros, or $109 million, and 100 million euros, or $136 million, with net earnings impacted accordingly.
Share closed at 161.5 euros, or $220.3, up 4.9, percent buoyed by the strong sales momentum.