Puma SE (PMMAF) Q2 2024 Earnings Call Transcript Highlights: Revenue Growth and Margin Improvement Amid Challenges

• Europe: Up 3%.
• EMEA: Down 23%.
• North America: Up 1%.
• Latin America: Up 24%.
• Greater China: Up 7.6%.

Release Date: August 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Puma SE (PMMAF, Financial) achieved 2.1% currency-adjusted sales growth in Q2, in line with expectations.
• Gross profit margin improved by 200 basis points to 46.8%, despite major currency headwinds.
• Direct-to-consumer (D2C) sales grew almost 20%, driven by strong e-commerce performance.
• Sequential improvement in sales was observed in all regions except EEMEA, which faced geopolitical headwinds.
• Strong order book for H2, with Q4 looking particularly robust, supporting mid-single-digit sales growth outlook.

Negative Points

• Wholesale sales were down by 3%, impacted by one-off effects and warehouse ramp-up delays in Latin America.
• Net income decreased by 23.8% to EUR42 million in Q2, affected by negative FX impacts and higher interest rates.
• Muted consumer sentiment globally, especially in China, continues to pose challenges.
• Higher freight costs and changing duties, particularly in Mexico, are expected to impact gross profit margins in H2.
• Ongoing supply chain constraints and capacity issues, particularly in freight, are causing delays and increased costs.

Q & A Highlights

Q: Could you give us an update on your progress in making adjustments in the off-price channel in the US? Also, could you explain the timing issue with accessories being weak in the quarter?
A: We are focusing on elevating our distribution quality, especially on the performance side, and making progress in reducing dependency on value channels. The weakness in accessories, particularly socks and bodywear, is due to timing differences in big orders, which we expect to return to growth in the second half of the year.

Q: Why did you lower the top end of the EBIT guidance but kept the mid-single-digit topline growth, given the muted consumer environment, especially in China?
A: We feel strong about our topline due to our order book transparency. The muted consumer sentiment impacts EBIT due to ongoing promotions and other factors like increased duties in Mexico and higher freight costs. These factors collectively led us to lower the top end of our EBIT outlook.

Q: Could you quantify the wholesale growth for Q2 excluding EMEA, and is the wholesale channel now back in growth?
A: Excluding EMEA, our wholesale business would have been flattish. The exit rate for wholesale in Q2 was positive, and we saw sequential improvement in all regions except EMEA.

Q: Could you elaborate on the supply chain bottlenecks and their impact on the second half of the year? Also, any changes to the 2025 margin targets?
A: The main constraints are on the freight side, with increased costs and port congestion. We also face challenges with BIS regulations in India. Despite these, we feel confident about achieving our 2025 margin targets, supported by a strong Q1 order book and ongoing strategic initiatives.

Q: What drove the flattish footwear performance in Q2 despite strong trends in performance and Sportstyle core?
A: The flattish performance is due to a high comp base from last year and the transition phase in Sportstyle prime. We are scaling new franchises like Palermo and Suede XL, and expect significant growth from Speedcat starting end of this year into 2025.

Q: Can you provide more details on the strong momentum of Speedcat and its impact on 2025?
A: We are in the igniting phase for Speedcat, with more units and exciting ambassadors. We plan to scale distribution starting end of November and expect six-digit pairs in the market before 2024, with a trajectory to seven-digit numbers in 2025.

Q: How are you managing the off-price channel in the US, and what progress have you made?
A: We aim to keep the off-price business flattish while growing the upper part of the distribution. We expect further progress in 2025, supported by a strong order book and ongoing momentum in performance and family footwear channels.

Q: What is driving the strong order book for Q3, Q4, and into 2025?
A: The strong order book is driven by higher penetration with existing retailers, improved sell-through, and more shelf space. Our D2C strength in Q2 was planned and reflects the brand momentum and reduced promotions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.