PARIS — Puma SE built on its financial momentum with swift sales and margin improvement over the third quarter, adding to pressure on its owner Kering to offload the asset.
The quarterly results highlighted the success of the German sportswear company’s strategy, which includes teaming with stars like Rihanna, running champion Usain Bolt and Instagram wunderkind Selena Gomez to bolster its image.
Puma posted a gross profit margin increase of 230 basis points to 48.1 percent over the period, despite currency headwinds. Improvements in sourcing, sales of higher-margin products and price adjustments contributed to the performance, the company said.
Known for its leaping cat logo, the company’s continued upward earnings trajectory has thrust the spotlight on its owner as analysts consider how the French luxury conglomerate could shed the asset to concentrate solely on the high-end sector.
“Kering has deemed Puma a non-core asset and the group has stated clearly its ambition to become a pure luxury player,” Bernstein said in a research note earlier this month.
The analysts say it is unlikely an industrial or financial buyer would step forward purchase the company, and expect to see a distribution-in-kind of Puma shares in the coming months or year.
This would allow Kering to offload the asset by offering shares to its own shareholders before the sportswear company becomes larger, thus reducing its exposure to Puma in a process that sidesteps haggling over prices with a potential buyer.
“I think every quarter there is another article or a report saying that Kering’s selling, there’s nothing new,” Puma chief executive Bjørn Gulden said in a conference call with journalists on Tuesday. “I haven’t heard anything about it, so for me nothing has changed,” he added.
Under Gulden’s leadership, the sportswear company has positioned itself clearly as a sports brand, while drawing on fashion to shore up its appeal with younger generations. Puma plans to continue to emphasize sports compared to fashion when it comes to marketing spending, while continuing to blend the two.
“We also know that the kids of today are influenced by all things, not only the athletes, and that’s why models, singers, entertainers, social media is so important. It’s about finding the right mix,” said Gulden.
The collaboration with Rihanna, who designs the Fenty Puma line, has been key to the strategy, lifting the company’s image, even if sales from those products may not account for a large proportion of overall revenues.
Last year, Puma said Rihanna’s Fenty Puma version of the brand’s thick-soled Creeper shoes sold out worldwide within hours of hitting stores.
Four collections into the partnership, which has also included several other footwear designs, it has proven positive for the company, both in terms of sales and image, Gulden said on Tuesday.
“The relationship with her has been great, not only on her collection, but the influence that she’s had in general on the Puma brand,” he said.
“We’re all surprised on how much she was selling,” he added, noting that while sales of the Fenty line were “substantial,” they were not “major” in the context of nearly four billion euros in annual sales.
“It’s not like the company total revenue is dependent on it,” he explained.
Questioned about whether the addition of Gomez, which was announced last month, signaled a phasing out of the Rihanna collaboration, Gulden said that it had nothing to do with their relationship, noting that adding other female partners has been a normal development for the company and citing past work with Cara Delevingne.
“Rihanna is an icon, she’s one of the most creative people on this planet,” he said.
Gomez will work with Puma on different levels, using its products and helping define the company’s business with women. While the company does not track product sales in terms of gender, with much of its sportswear being unisex, Gulden estimated that it has seen growth in products specifically geared to women over the past year.
“Selena, in her function as a singer, as an actor, as a model, is very influential in the target group and we all know how important social media is,” noted Gulden.
Marketing spending at Puma will continue to grow long-term in real figures, but remain at between 10 percent and 12 percent, Gulden estimated. Trailing its larger rivals Nike and Adidas, the company has to “try to be smarter how we spend it,” he said of the marketing investments.
Bolt, who is angling to get into soccer and is not running competitively anymore, may have more time to dedicate to Puma, the company said. “I think he will be visible for the consumer now more than he has ever been before,” noted Gulden.
Sportswear companies expect global demand for their products to be fueled by the increasing popularity of sports in vast markets like China.
“We tend to speak about the Western world, but if you go to China, if you go to India, and you go to other countries with huge populations, more and more people are doing sports,” noted Gulden.
“It’s difficult to overstate the China opportunity for Adidas and Nike,” said UBS in a research note in September, citing the sportswear giants’ positions as Western status symbols, a government fitness campaign and the growing popularity of blending athletics and leisure styles that has swept markets across the world.
Puma reported 101.2 million euros in earnings before interest and tax for the third quarter, spurred by brisk sales and improved profit margins over the third quarter.
The figures, which were pre-released last week, beat analyst expectations, according to Barclays, highlighting the company’s ability to tap into the market for the athletics and leisure style mixes. “Within this context, Puma has found strong brand momentum and is taking market share,” Barclays said.
Operating expenses rose 11.4 percent over the period, due to higher marketing, selling and retail expenses, the company said.
Puma last week raised its guidance for the third time this year as it reported a 13 percent rise in third-quarter sales. Revenues totaled 1.12 billion, up 17.4 percent when adjusted for currencies, with fast growth in all regions.
The Herzogenaurach, Germany-based company targets a 14 percent to 16 percent rise in sales for the year, adjusted for currencies, as well as a significant improvement in net earnings.