PARIS — The looming U.S.-China trade war is proving a distraction for the sporting goods industry, forcing companies to rethink their sourcing strategies, Puma chief executive officer Bjørn Gulden said after the brand reported first-quarter results on Tuesday.
Already the sector is facing a number of uncertainties around the U.S. market, he said, citing the sluggish retail scene and the yet-to-be-seen impact of JD Sports acquiring American footwear retailer Finish Line.
Trade tariffs recently imposed by U.S. President Donald Trump on a number of Chinese imports have pushed the brand to consider relocating production to other countries in Asia, such as Vietnam. Puma produces around one third of its collections in China, just over one third in Vietnam and the rest is spread across five or six markets.
“We have had discussions with all of our vendors and we have started doing some double development, meaning that product lines with big volumes are also now being developed in other markets,” Gulden said on a conference call with reporters and analysts.
“You’re always trying to optimize supply chains and balance the cost of lead times. If you then get a tariff for one of your biggest markets, your optimal structure is not optimal anymore. This kind of situation is never good because it takes a lot of time and energy to see where we develop what product for what country right now,” continued Gulden, adding that in the mid to long-term, producing close to markets is one of the options.
“Five years ago, we were thinking Mexico would be the hub for the U.S., but for obvious reasons that’s not really the case right now,” he said. “We have to look for alternatives. For a company like us, free trade is the best because we won’t need to bother about where to do what.”
As a result, the German sporting goods maker remains cautious in its outlook.
Puma SE increased its full-year guidance only slightly, saying it expects sales for 2018, adjusted for currencies, to rise between 10 and 12 percent, up from its previous forecast of a 10 percent increase.
The Herzogenaurach, Germany-based firm reported net profit advanced 35.8 percent in the first quarter of 2017 versus the same prior-year period. The sporting goods maker’s net earnings reached 67.4 million in the three months ended March 31, versus 49.6 million in 2017.
First-quarter sales rose 12.5 percent to 1.13 billion euros, boosted by brisk business in the Asia-Pacific region, particularly in China, which saw a 34.8 percent spike in the period, boosted by strong sell-throughs in existing stores and a number of “high-quality” store openings by local partners.
The strengthening of the euro continues to impact results, with the sales increase representing 21.5 percent when adjusted for currencies.
Operating results rose to around 112 million euros compared with 70 million euros in the first quarter last year, due to strong sales growth, a higher gross profit margin and improved operating leverage.
Gulden said the imminent departure of Kering as Puma’s majority shareholder would not affect the firm’s strategy.
“The good thing about this transaction is we don’t need to change anything; the strategy is the same, the board stays the same. They have changed from an administrative board to a supervisory board, but it’s the same people, so it’s very consistent,” he said.
With Artémis, the private investment arm of the billionaire Pinault family, and Kering holding 29 percent and 16 percent of shares, respectively, Puma has two anchors and a free float of 55 percent, “which is a healthy mix,” Gulden said, adding that the larger float has attracted big interest from institutional investors.
Puma said it will be the official sponsor of AC Milan for the 2018-19 season and of top Brazilian club Palmeiras for the 2019 season. The brand has also signed long-term agreements with the Senegalese and Serbian national soccer teams, both World Cup qualifiers.
Other upcoming projects certain to boost the brand’s performance over the coming nine months include the launch of a collaboration with Karl Lagerfeld in October, one of a series of hook-ups around the 50th anniversary of the brand’s most iconic shoe, the Suede.
Luxury’s ongoing sneaker obsession can only be good for the market, in Gulden’s eyes.
“I do see that a lot of people who were using expensive, formal shoes are now walking around in Gucci or Balenciaga sneakers at price points approaching 1,000 euros,” he said. “If that trend is pulling the sneaker market up, I think we can only be happy about it.”