LONDON — Puma is powering ahead in the wake of its split from parent Kering, reporting adjusted second-quarter sales up 15 percent and sounding a cautiously optimistic note despite complicated global trading conditions.
The company is focusing on diversifying production outside of China, meeting demand from consumers hankering after bulky soled shoes and pushing into basketball with rap star Jay Z as creative director.
While uncertainty continues to grip markets, the immediate threat felt by Puma executives earlier in the year has eased as the sneaker brand’s products have been spared the current tariff hikes in the U.S. and as the company bulks up production outside of China.
“We are less concerned for 2018,” chief executive officer Bjørn Gulden said in a conference call with journalists, addressing a specific question about the issue.
“We have half of the year behind us and it doesn’t look like something will come this year that makes it more difficult,” he added, while cautioning that the environment continues to be unpredictable.
The company’s so-called double development plan — adding production sites for large volume products — has changed the balance of exports to the U.S. to include countries other than China, he explained.
Puma has been increasing its production by nearly 20 percent, and is turning to suppliers that operate in several countries, he added, citing groups that work in China and Vietnam or China and Indonesia as an example.
Turkey is similarly challenging the company with the threat of punishing measures on goods from China, he noted.
“We also have an issue with Turkey where it looks like Turkey will be much more difficult to export from China, so you have the same development there, and that goes into the same basket of making sure we have then alternative countries,” for production, he said.
The Herzogenaurach, Germany-based firm posted an 8 percent uptick in second-quarter sales to 1.05 billion euros, and double-digit organic growth across all regions and product categories. At adjusted exchange rates, sales were up 15 percent.
Puma also confirmed that its full-year guidance for EBIT, or earnings before interest and taxes, remains unchanged, and will range between 310 million euros and 330 million euros, 30 percent higher than last year. Net earnings are set to improve “significantly,” according to the company which released its second-quarter and first-half results on Thursday.
Analysts said the report broadly met expectations but noted investor disappointment that earnings guidance was not raised. In late trading, shares were down nearly 8.8 percent to 433 euros per share.
Analysts at UBS noted that earnings matched their estimates but expected a negative reaction from investors positioned for full-year earnings guidance to be raised.
In the first half, sales increased by 18.3 percent on an adjusted basis to 2.18 billion euros, with reported growth 10.5 percent. EBIT improved by 50 percent to 170 million euros, while net earnings increased 37.8 percent to 98.5 million euros.
For the full year, the company raised its guidance for currency-adjusted, net sales growth to 12-14 percent, and said there would be a high-single-digit rate increase in operating expenses related to additional investments in sports marketing and higher sales-related variable costs.
In the second quarter, gross profit margin improved to 48.6 percent, due mainly to more sales of new products carrying a higher margin and to positive currency effects. EBIT in the quarter was up by 33 percent to 57.6 million euros. Operating expenses increased 11 percent due to higher sales-related variable costs, higher marketing and retail investments
Gulden said that while currency headwinds dented reported sales growth in the quarter, they boosted gross margin. He argued that the company’s nimble nature and ability to react quickly to market trends has been helping it grow.
The popularity of chunky-soled footwear is gaining traction, following a long spell of simplified and minimalist designs, he noted. The company has moved quickly to meet demand from retailers for products in this realm, he said, noting the company had noticed a shift in consumers from Eighties and Nineties style court shoes to more aggressive designs in recent months.
Reaction to Puma’s reentry into basketball — with Jay Z as creative director — has been positive, Gulden added. The label plans to start with the U.S. market to launch its basketball offer, likely at the end of the third quarter, adding a small line of apparel to the shoe line before eventually including a related accessories. A limited launch in Europe may take place in February, likely followed by China in the second quarter next year, he added.
Benefits of the world soccer cup mostly came in the form generating interest in the brand, however, while the positive effect from World Cup usually translates to higher soccer shoe sales in the fall, the executive also explained. The group had bet on the Italian team which failed to qualify for the event, but Puma athletes Antoine Griezmann and Romelu Lukaku claimed second and third Top Scorer rank at World Cup in Russia, which wrapped up earlier this month. Puma expects collections for European soccer teams AC Milan, Olympique de Marseille and Borussia Mönchengladbach to drum up sales in the category.
The company also said that following the distribution of approximately 70 percent of Puma shares by Kering to its shareholders, the brand’s free float on the Frankfurt stock exchange increased to 55 percent. The distribution took place on May 16 and Puma said the feedback from the financial community was positive with regard to the brand’s strategy and opportunities.
The company earlier this month registered its new dual management system run separately, with a management board run by Gulden and a supervisory board with Kering group managing director Jean-François Palus as chairman.