Puma has big growth plans for the years ahead — with a 10 billion euro sales target in its sights.
Currently Puma makes about half of that annually. At current growth rates, the company should be at 10 billion euros by 2025.
“But that’s only if the market agrees,” chief executive officer Bjørn Gulden told a press conference Wednesday after the sportswear company reported strong third-quarter results. “It’s better to be smart and humble right now. Still, I think it’s obvious that the sector will grow and that Puma should grow quicker than the sector. That’s why I think we are all very optimistic.”
In keeping with that sentiment, Puma adjusted its outlook upward again. It had already done this in the second quarter when it said it expected currency-adjusted sales to rise 20 percent this year, instead of in the midteens. Now Puma says it expects currency-adjusted sales to increase 25 percent over 2021.
The company forecasts that its EBIT, or earnings before interest and taxes, will come in somewhere between 450 million euros and 500 million euros. That’s 50 million euros more than Puma was predicting earlier in the year.
Sales and earnings in the third quarter rose above the average analysts’ expectations and the company, which climbed onto Germany’s blue chip Dax stock market index in September, has been growing faster than its bigger competitors, Nike and Adidas. Puma’s net sales rose 20.4 percent to 1.9 billion euros versus the same quarter last year, in terms of constant currency, and 35.4 percent versus the third quarter of 2019, before the pandemic.
During the press conference, the CEO was buoyant about the results, boasting that it had been the brand’s best third quarter ever, one that would eventually result in the brand’s best earnings ever.
During the quarter, Puma’s EBIT rose 12 percent to 228.9 million euros. Despite the pandemic, the company’s EBIT has been on a steady upward trajectory.
But Gulden cautioned the brand’s strong results had been achieved despite a multitude of “operational problems.”
These included recent pandemic-related shutdowns in south Vietnam where Puma does a lot of manufacturing.
Because of sudden lockdowns between late July and October, factories there literally left materials lying where they were, Gulden said, before being forced to close down. The Vietnamese lockdown has since eased and Puma’s apparel suppliers are operating at about 70 percent of capacity and footwear manufacturers are operating at about 60 percent, Gulden said. By November things should be back to normal.
But this has also led to delays in product launches as factories finish what they were making back when they closed. “New products are coming a quarter later than expected,” Gulden noted. The fourth quarter would continue to see delays and the executive advised shoppers to get their Christmas gifts now.
Like other big Western brands, Puma has been dealing with a difficult market in China, where a boycott saw consumers eschewing Western brands. “I think it’s fair to say that this boycott has cost us and other Western brands.”
The slowdown in China had a detrimental impact on overall sales in the Asia-Pacific region, with total growth there at only 1.7 percent over the third quarter to 386.6 million euros. That figure is actually lower than third-quarter sales in 2019, the company’s last pre-pandemic year for sales in the region.
Sales, in constant currency, fell by 16 percent in greater China in the third quarter even as they rose 6 percent elsewhere in the region. The Asia-Pacific market also struggled with long-term lockdowns in places like Australia and Japan and a lack of Chinese tourists.
As a result of tension in China, Puma has not been able to be “as flexible as before,” Gulden said. “We still are not in the position to do marketing with Chinese celebrities and traffic in stores is still less than it should be.”
But, he added, there is some optimism, especially as Nov. 11, the Asian shopping festival known as Singles Day, nears. “We have done some trials where consumers can prebook merchandise and that doesn’t look so bad, to be honest,” Gulden reported. “11.11 could be the first light in the tunnel.”
“We were used to sales growth of between 40 and 50 percent in China before,” Gulden added. “But the growth we all took for granted is not there anymore.”
The story in other markets was much more positive. Although Europe remains Puma’s biggest market, sales in the Americas are catching up. Puma has previously said this is the result of a long-term marketing focus on U.S. customers that is now paying off.
Currency-adjusted sales in the Americas grew 31.2 percent over the third quarter to 700.1 million euros, with North America growing 23 percent and Latin America, 61 percent. In Europe, Puma’s sales, currency-adjusted, advanced 22.3 percent to 813.7 million euros.
In U.S. markets, though, the company had the “tightest supply,” port congestion and spiraling freight costs to deal with. Gulden noted that of Puma’s 1.4 billion euros worth of inventory, around a quarter of it was “in transit” and unavailable to shoppers. The company expects these freighting delays to continue for the next three to five months.
All of this is adding to Puma’s costs. Operating expenses in the third quarter jumped significantly, up 21.2 percent to 678 million euros. This meant that over the past nine months, Puma’s expenses have increased 20.9 percent to hit 1.93 billion euros.
So far, Puma has tried to avoid passing on the added expense to customers. This may prove impossible in the second half of 2022, though, Gulden cautioned. A combination of more demand than supply, rising prices for raw materials and rocketing freight costs all indicate inflationary pressure, he said.
In terms of sales channels, growth in Puma’s own e-commerce has slowed after huge leaps of more than 74 percent earlier in the year, during pandemic-related lockdowns when brick-and-mortar stores were closed. Although e-commerce slipped to just 4 percent growth, the year-to-date increase in this channel was 22.5 percent, a number Gulden described as satisfactory and on par with global trends.
Footwear makes up most of Puma’s sales and increased 21.6 percent to total 846.9 million euros in the third quarter. Apparel sales rose 21.3 percent to net the brand 735.2 million euros in sales.
Market analysts from the likes of Goldman Sachs, Jeffries, Royal Bank of Canada and J.P. Morgan confirmed that the results were better than expected, describing the company as “solid” despite logistical problems.