DGAP-News: PUMA SE / Key word(s): Half Year Results/Quarter Results
PRESS RELEASE Q2 2020
Herzogenaurach, July 29, 2020
2020 Second Quarter Facts
- Sales decrease by 30.7% currency adjusted to € 831 million (-32.3% reported)
- Gross profit margin declines to 43.9%, caused by higher discounts, inventory devaluation and return provisions due to COVID-19 as well as negative currency impacts
- Operating expenses (OPEX) are reduced by 9.0% to € 484 million (last year: € 532 million) due to actions taken at the end of the first and during the second quarter
- Operating result (EBIT) decreases to € -114.8 million (last year: € 80.3 million)
- Net earnings decline to € -95.6 million and earnings per share to € -0.64 respectively
- PUMA announces international supermodel Winnie Harlow as new brand ambassador
- As an initiative of PUMA's #REFORM platform (launched 2018 to fight for equality, respect and fairness), PUMA and Formula 1 partner Mercedes-AMG Petronas unveil black race gear as statement against racism and discrimination
- PUMA signs long-term partnerships with the football federations of Iceland and Paraguay
2020 Half-Year Facts
- Sales decrease by 15.4% currency adjusted to € 2,131 million (-16.3% reported)
- Gross profit margin declines to 46.2% (last year 49.2%), caused by higher discounts, inventory devaluation and return provisions due to COVID-19 as well as negative currency impacts
- Operating expenses (OPEX) decrease by 0.5% to € 1,037 million (last year: € 1,042 million) due to cost savings in the second quarter
- Operating result (EBIT) decreases to € -43.6 million (last year: € 222.8 million)
- Net earnings decline to € -59.4 million and earnings per share to € -0.40 respectively
- PUMA secures additional € 900 million revolving credit facility in May to be prepared for a potentially longer-lasting impact of the COVID-19 pandemic
- PUMA announces new sustainability targets 10FOR25
Bjørn Gulden, Chief Executive Officer of PUMA SE:
Second Quarter 2020
The gross profit margin declined by 540 basis points to 43.9% in the second quarter (last year: 49.3%) caused by higher discounts, inventory devaluation and return provisions due to COVID-19 as well as negative currency impacts.
Operating expenses (OPEX) decreased by 9.0% to € 483.5 million due to various actions taken to adjust the cost base to the current market situation. However, general and administrative expenses increased due to higher provisions for expected credit losses of trade receivables.
The operating result (EBIT) decreased from € 80.3 million last year to € -114.8 million due to a strong decline in sales and gross profit margin, which could not be compensated by the reduction of OPEX.
First Half-Year 2020
Overall, sales in the first half-year of 2020 decreased by 15.4% currency adjusted to € 2,130.9 million (-16.3% reported). All regions showed a double-digit decline in sales with EMEA being down 12.1%, Americas 20.9% and Asia/Pacific 13.0%. Sales also declined in all product divisions with a currency adjusted decrease in Footwear of 15.2%, in Apparel of 18.6% and in Accessories of 9.0%.
The Wholesale business decreased by 17.5% currency adjusted to € 1,589.3 million. PUMA's Direct to Consumer business (DTC), which includes owned and operated stores as well as e-commerce, declined by 8.5% currency adjusted to € 541.6 million. This represented a share of 25.4% of total sales for the first half of 2020 (23.6% in the previous year). Supported by intensified performance marketing and successful promotions, our e-commerce business increased strongly by 70% currency adjusted.
The gross profit margin declined by 300 basis points from 49.2% to 46.2% in the first half of 2020, caused by higher discounts, inventory devaluation and return provisions due to COVID-19 as well as negative currency impacts.
As a consequence of the cost savings in the second quarter, operating expenses (OPEX) in the first half of 2020 decreased by 0.5% and amounted to € 1,036.8 million.
The operating result (EBIT) decreased from € 222.8 million last year to € -43.6 million in the first half of 2020 due to a strong decline in sales and gross profit margin while OPEX were slightly reduced.
Cash Flow and Liquidity Situation
PUMA's mantra is to manage the crisis short-term without hindering the mid-term momentum. 2020 is and will continue to be a difficult year, where the goal for PUMA is to survive, recover and then emerge stronger with growth again. Different markets will go through these phases at different times and execution therefore must be very locally driven. Management still continues to expect markets to recover by the end of the year 2020 and 2021 to be a year of growth again. The sporting goods industry is expected to be in a strong position after this crisis. People have already now started doing more sports wherever it is possible, even under difficult circumstances. There are many indications that health and sports will be even more important than before. The casualization trends and the influence of sports brands are also expected to strengthen further. PUMA is well positioned to continue its growth and will continue to invest in full new product ranges for 2021.
Brand and Strategy Update
The COVID-19 pandemic presented PUMA with several challenges that affected different parts of our business. When the pandemic started in China in January, some of our factories there had to shut down or could not operate on full capacity. As the virus spread to other parts of the world, large sporting events were either cancelled or postponed and most of our owned and operated stores had to be closed at some point in the second quarter. We had to quickly react to these changes. PUMA's strategic focus in the first half of 2020 has clearly been on surviving and managing the crisis short-term without hindering our mid-term momentum. Therefore, we have determined three key objectives: mitigate sales impact wherever possible, secure supply chain as well ensure financing and manage costs.
We maintained a strong dialogue with all of our manufacturers, customers, landlords, banks and all other partners to ensure that we took measures together to sustain the entire value chain. To ensure that our manufacturing partners could continue to operate, we cancelled as few orders as possible, while securing more favorable payment terms. We also worked with both our retail partners and manufacturers to slow down shipments and extend payment terms to share the burden across the whole value chain.
To further strengthen our e-commerce business in this exceptional time, we quickly and strongly increased investments into performance marketing. We responded quickly to the increased demand on our e-commerce store, adapted our offering to the stay-at-home situation by giving more space to leisurewear as well as sports apparel and also improved the speed of our e-commerce platform puma.com. Our e-commerce business delivered very strong growth in the first two quarters.
We also made good progress with the upgrade of our logistics network, as we opened our new distribution center in Indianapolis, USA. The center will speed up delivery times, as 90% of US customers can now be reached within two days. We continued to work on our central European warehouse in Geiselwind, Germany, which is on track to be operational in the second quarter of 2021.
The strong decline in sales in the first half of 2020 led to a significantly higher demand for financing and a clear focus on costs. We reduced costs and cash outflow wherever possible and secured additional financing to ensure that we, together with our partners, could survive the crisis. In May 2020, PUMA secured a new revolving credit facility of € 900 million through a banking consortium of twelve banks, including a direct participation of the Kreditanstalt für Wiederaufbau (KfW) of € 625 million. We used short-time work programs, furlough and temporary lay-offs to reduce costs. The suspension of dividend payments and the suspension of 100% of the Management Board's salary as well as the reduction of salaries of our senior management by 25%-35% in April and May were essential measures to reduce cash outflow.
With many of our ambassadors and consumers being confined at home, we looked for new ways of engaging with our audience. We created a series of live videos on social media platforms, which we called #StrongerTogether. These live videos included talks with our football ambassadors Sergio Agüero and Nikita Parris, yoga sessions with sportstyle ambassador Cara Delevingne, interviews with Formula 1 driver Max Verstappen or workouts with pole vaulter Mondo Duplantis and others. Apart from supporting PUMA's social media channels and e-commerce, these videos also created significant coverage in traditional media outlets.
We welcomed several new partners during the first six months of 2020. At the start of the year, PUMA signed a multi-year partnership with Grammy Award winning artist J. Cole, who combines the worlds of music and sports and will create products and marketing campaigns for the brand. We also welcomed Canadian model Winnie Harlow as an ambassador, who already headed the marketing campaigns for two new footwear franchises, the Kyron and the Mile Rider. In football, Dutch football club PSV Eindhoven as well as the national federations of Iceland and Paraguay joined the PUMA family. In other teamsports, we expanded our presence by signing the German Handball Federation. In track and field, we signed a partnership with the South African Athletics Federation and long-jump World Champion Tajay Gayle. PUMA also signed Jamaican Omar McLeod, the reigning Olympic Champion in 110m hurdles and the 2017 World Champion.
Even though regular competitions were cut short in the first half of 2020, our track and field athletes still entered the history books. PUMA athlete Armand "Mondo" Duplantis broke the indoor pole vault world record in February by clearing 6m18cm. In June, Norwegian hurdler Karsten Warholm ran the fastest 300m hurdles in history in a solo race.
In the first half of the year, product highlights included our Rudolf Dassler Legacy Collection, which features some of the most iconic shoes from PUMA's history, such as the Fast Rider, the Ralph Sampson and the Roma. Alongside PUMA ambassador and LGBTQ+ activist Cara Delevingne, we launched the "From PUMA with Love" pack to celebrate Pride Month. The Rider, which was re-introduced in late 2019, became one of our most important footwear styles in the first half of 2020. This year, it was launched in several new styles and colors.
We also presented new collections with a focus on sustainability. Our sportswear collection with First Mile is made with recycled yarn that is manufactured from plastic bottles collected in the First Mile network. Our collaboration with London-based design school Central Saint Martins implemented cutting edge dyeing technologies such as "Dope Dye" and digital printing, to reduce the use of chemicals and water. Still at an experimental stage, our innovation department presented the "Design to Fade" biodesign project, which explored sustainable alternatives for dyeing and making textiles. On a corporate level, we have set ten new sustainability targets for 2025, which will further improve the social and environmental aspects of our supply chain. Examples of these targets include PUMA's commitment to further lower its CO2 emissions and using 75% recycled polyester across all apparel and accessories products by 2025. We are also in the process of phasing out plastic bags from all of our retail stores globally.
The pandemic has once more confirmed that local relevance is key and the market situation can vary significantly between regions. To reflect this, we empowered decision-making by local management even more. Additionally, different countries have different sports that people follow and participate in. One of the best examples of local relevance is our partnership with Virat Kohli, the captain of the Indian cricket team. Cricket is by far the most relevant sport in India and by partnering with Virat, PUMA gains credibility as a sports brand in the Indian market.
We have taken decisive action to face the challenges presented by the COVID-19 pandemic. With our strong business model and supporting fundamental industry trends, such as casualization and an increased focus on health, we are well positioned to emerge stronger from the crisis and continue our growth.
The financial releases and other financial information are available on the Internet at "about.puma.com".
Notes to the editors:
- The financial reports are posted on www.about.puma.com.
- PUMA SE stock symbol:
Reuters: PUMG.DE, Bloomberg: PUM GY,
Notes relating to forward-looking statements:
PUMA is one of the world's leading Sports Brands, designing, developing, selling and marketing footwear, apparel and accessories. For 70 years, PUMA has relentlessly pushed sport and culture forward by creating fast products for the world's fastest athletes. PUMA offers performance and sport-inspired lifestyle products in categories such as Football, Running and Training, Basketball, Golf, and Motorsports. It collaborates with renowned designers and brands to bring sport influences into street culture and fashion. The PUMA Group owns the brands PUMA, Cobra Golf and stichd. The company distributes its products in more than 120 countries, employs more than 13,000 people worldwide, and is headquartered in Herzogenaurach/Germany.
29.07.2020 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
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