Puma expects margin pressures to persist in 2023

By Alexander Hübner and Linda Pasquini

(Reuters) - German sportswear maker Puma on Wednesday highlighted the pressures on its profit margins for the current year from higher costs and currency effects despite an expected recovery in China.

Rising materials and freight costs along with a stronger U.S. dollar, inventory markdowns and higher promotion expenses have hit margins in the sporting goods sector, which is now betting on recovery in China to alleviate the margin pressures.

Puma expects Greater China to return to growth in 2023, newly appointed Chief Executive Arne Freundt said at a news conference, adding its market share in the country was "significantly too low", especially compared with rivals Adidas and Nike.

Freundt said the company plans to expand the contribution from the region to the group's revenue, which so far stands at about 5%.

Puma's results on Wednesday showed that full-year currency-adjusted sales in Greater China dropped 36% year-on-year.

Freundt said the United States and China were "must-wins" for Puma, with a focus to a more upscale strategy in the United States.

The company forecast annual operating profit (EBIT) for 2023 in a range of 590 million to 670 million euros ($626 million to $711 million), with currency-adjusted sales expected to grow in a high-single-digit percentage rate.

The guidance midpoint of 630 million euros compares with EBIT of 641 million euros Puma reported for 2022.

"We presume this guidance assumes limited benefit from a reopening of China," Jefferies analysts wrote in a note.

Puma's shares were down 2% at 1132 GMT.

Gross profit margin decreased by 420 basis points to 44% in the fourth quarter of 2022, the company said, citing an industry-wide increase in promotional activity amid high inventory levels.

"We expect the gross profit margin to be under more pressure in the first half of the year than in the second half," Puma said in a statement, as it expects currencies, higher freight rates and raw material prices to again dilute profitability in 2023.

($1 = 0.9425 euros)

(Reporting by Linda Pasquini, Ozan Ergenay in Gdansk and Alexander Hübner in Herzogenaurach; editing by Milla Nissi, Bernadette Baum and Jane Merriman)