Puma’s Resilient Q3 Surprises, but Puma Boss Says He Doesn’t Have an Offer From Adidas
While competitors like Nike and Adidas have spoken about their problems over the past few weeks, German sportswear brand Puma has continued to break its own records.
In the July-to-September period, Puma’s sales rose 16.9 percent, currency adjusted, to hit 2.35 billion euros. The third-largest sportswear company in the world even saw a return to growth in its Asia Pacific territory, despite problems in the Chinese market. This means Puma’s total sales for the year to date are 6.27 billion euros, reflecting growth of 18.2 percent.
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During the company’s press conference announcing third-quartert results on Wednesday, one of the most frequently asked questions was whether Puma boss, Bjorn Gulden, who has steered the company over the past nine years, was in the running to take over his far-larger hometown competitor, Adidas.
In August, Adidas — which brings in more than 20 billion euros in annual sales, more than double what Puma makes — said it was releasing its current boss, Kasper Rorsted, from his contract early. Rorsted has led Adidas since 2016, but a new chief executive officer was to be appointed in 2023.
As Puma continues to rack up positive results in difficult times, Gulden seems like an obvious contender to replace Rorsted — but the Puma CEO was having none of it. “You need to talk to Adi[das] about that,” he told reporters. “I don’t have any offer from them and that’s why I shouldn’t talk about it.”
Instead, Gulden preferred to concentrate on his own company’s achievements.
“Despite all the global uncertainties the third quarter was…the best quarter in Puma’s history,” the Puma boss said in a statement.
Market analysts from JP Morgan, Jefferies and UBS said results were better than expected and that the company looked “robust.” This quarter was also the second time Puma has broken the 2 billion-euro barrier. The first time was this summer.
Puma’s home market of Europe continued to be the German brand’s best territory, and its sales there rose 18.5 percent, currency adjusted, over the third quarter to 971.7 million euros.
North America has been a major focus for Puma over the past few years, with the brand completing its first full basketball season in 2019, together with the help of music mogul Jay-Z, the brand’s creative director for the dedicated line Puma Hoops.
The company’s relationship with NBA player LaMelo Ball saw his first signature shoe sell out in every colorway with a second version hitting the market earlier this month. Puma also released a signature shoe for female basketballer, Breanna Stewart, recently, and Gulden noted that currently, the women’s side of the Hoops line was growing faster than the men’s.
On the back of these successes, Puma sales grew 18.8 percent, currency adjusted, in the Americas to hit 931.8 million euros. During this year so far, Puma’s sales in the Americas have increased 28.1 percent to 2.69 billion euros.
The situation looked different in the Asia Pacific. Unlike Adidas, Puma is not quite as exposed to the Chinese market. Previously, about one-fifth of its sales came from the Asia Pacific region.
Ongoing COVID-19 lockdowns and a Chinese consumer boycott of Western goods has caused Adidas various problems, and the bigger German brand issued a profit warning late last week. Meanwhile, Puma’s sales in the Asia Pacific region actually improved for the first time this year, rising 9.8 percent, currency adjusted, over the third quarter to hit 450.9 million euros.
This was mainly due to an increase of 25 percent in sales throughout the rest of the Asia Pacific territory. Sales in China were still falling, down 26 percent in the third quarter. However, Chinese numbers were improving, Gulden said. In previous quarters of this year when they were, on average, 40 percent down. “And we think this [positive trend] will continue,” Gulden said. “But,” he added, “we are not counting on a real rebound in China in the short term.”
Around a tenth of the brand’s stores have been closed in China at various times during the third quarter due to ongoing COVID-19 lockdowns. But Gulden believes the real problem there is the ongoing consumer boycott of Western goods, noting that it was still impossible for a Western brand to work with high-profile Chinese athletes, celebrities or influencers.
The only negatives in the brand’s announcement came in terms of costs and the fact that Puma’s sales growth rate had slowed slightly over the year. In earlier quarters of 2022, Puma had averaged growth of around 19 percent.
Inflation had an impact, with raw materials, freight, production and sales and marketing costs all going up. Puma’s operating expenses rose 25.8 percent and cost the company 853.2 million euros between July and September.
The company had slowly been increasing the prices on its products and will continue to do so in 2023, Gulden explained, even though the price increases were still lagging slightly behind inflation right now. “We are trying to increase prices as much as we think the consumers can handle it,” Gulden said. “But we feel we have it under control. We just want to make sure that we continue to grow and don’t overprice.”
Besides that, the company also said it was dealing with higher inventories that would likely need to be discounted.
Inventory levels are a difficult science to perfect, Gulden explained. “You never get it exactly right, especially in a volatile environment like this,” he stated.
The pandemic resulted in a lag in manufacturing and then when stores reopened, other crises — like the war in Ukraine, energy prices and inflation — had dampened consumer demand, which now meant most sportswear brands were sitting on too much stock. And when giant brands like Nike and Adidas have too much inventory, the whole market becomes more competitive, Gulden pointed out, including for smaller brands like Puma.
Gulden was happy to have a little too much footwear in stock but was worried about apparel. “There’s a lot of apparel on the market…and I think that’s going to be more competitive,” he said, noting a high stock of body and legwear in the U.S. market that was already problematic. Puma’s order books reflected this too, Gulden said, with footwear orders steady but apparel starting to stagnate.
In the third quarter, Puma’s footwear sales had increased 33 percent to bring in 1.19 billion euros, while apparel only rose 9.9 percent, totaling 855 million euros.
“I personally think we will see more discounting in apparel than footwear, and probably more [discounting] in America than Europe,” the Puma boss added. “But that’s just my personal opinion.”
Asked why, Gulden told WWD that, “footwear is generally more resilient and less cyclical than apparel. That is even more so for performance products, such as running shoes.”
On the positive side of the ledger, the brand’s earnings before interest and taxes improved 12.6 percent to 257.7 million euros. It is the largest EBIT the company has ever had, Gulden said.
On the back of the confident third-quarter results, the company reconfirmed its guidance for the year. Puma expects sales to improve in mid-teen percentages during 2022 and for EBIT to end up somewhere between 600 million euros and 700 million euros.
Gulden acknowledged that the latter number left a lot of uncertainty but, given everything that was going on in the world, Puma could not be more specific, he said.
At the same time, Gulden didn’t think that his brand’s momentum was about to slow. Trends for more casual clothing, including sneakers, and increased participation in sports were still going strong. As of the end of September the company had a strong order book and positive feedback from retailers and was also looking forward to its 75th birthday next year, he said.
The upcoming soccer World Cup in Qatar in November and December might also provide retailers with an extra boost at Christmas, Gulden suggested. “I think a lot of parents will buy football shoes at Christmas,” he posited. “A year ago, there were no soccer shoes on the market because [manufacturing hub] Vietnam was locked down so I would not be surprised if retailers have a very good [fourth quarter].”
