Puma sticks to full-year profit forecast despite Q3 earnings drop

By Helen Reid, Linda Pasquini and Ozan Ergenay

(Reuters) -Puma stood by its full-year outlook on Tuesday and reported a stronger than expected third-quarter profit margin, reassuring investors and boosting its shares after a stronger euro dented the German sportswear brand’s quarterly earnings.

Shares in the company gained 4% in early trading. The stock dropped 10% in a day earlier this month after analysts said the sportswear company’s third-quarter earnings might miss market expectations due to the currency impact.

“Ahead of the results there was a lot of caution especially on the top line and on margin, but things were a bit better than expected,” said Damien Lanternier, portfolio manager at DNCA in Paris, who holds shares in Puma.

Puma’s operating profit was 236.3 million euros ($252.3 million) for the quarter, down from 257.7 million a year earlier, but revenue beat analysts’ expectations with 6% growth in currency-adjusted terms, coming in at 2.31 billion euros.

Gross margin also came in stronger than expected, at 47.1%, up from 46.8% a year ago. Analysts had expected gross margin to fall.

Puma confirmed its target for annual operating profit between 590 million and 670 million euros, saying it expected “strong improvement in profitability” in the fourth quarter helped by lower marketing, sourcing and freight costs, despite a gloomy backdrop for consumer demand.

“We stay, let’s say, very conservative and very cautious because we just see too many moving parts currently in the world,” CEO Arne Freundt told reporters on a call.

Currency effects had a negative impact on sales in euro terms, Puma said. The euro was much stronger over the third quarter compared to the same period last year, impacting the translation of dollar sales into Puma’s home currency.

A$AP ROCKY SIGNING

In currency-adjusted terms, the EMEA region was the strongest for Puma with 9.9% growth in the third quarter, while sales in Asia-Pacific grew by 4.6% and sales in the Americas gained just 2.5%.

“The single biggest issue for Puma is that in the big markets, like the U.S. and China, its brand perception is not as strong,” said Deutsche Bank analyst Adam Cochrane.

In the United States, Puma is trying to place more of its products in higher-end stores, said Cochrane.

Puma is also using celebrity partnerships to elevate its brand in the United States, announcing American rapper A$AP Rocky as creative director for its Formula 1 partnership, as the sporting world becomes more enmeshed with music and culture.

“Celebrity partnerships have always been part of Puma’s DNA, and they have done it quite well, but this also shows the specific strength of Puma in motorsport, where they are clearly number one and it’s a growing category,” said Lanternier.

As retailers try to recover from overstocking that has led to discounting in the United States, Puma said its inventories fell by 20.3% compared to their level on Sept. 30 last year.

($1 = 0.9366 euros)