German sportswear firm Puma expects its second quarter results to be even worse than the first quarter as more than 50% of global sports and sports lifestyle space being closed.
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Puma started the year with a very positive order book for 2020, with strong and balanced growth in all regions. In China, after a good start to the year with double-digit growth in wholesale, e-commerce and owned and operated stores, the Chinese market shut down in the last week of January. Over the next six weeks, the whole business in China, except for e-commerce, basically disappeared. As China started to recover in mid-March, COVID-19 had started to spread globally and by the end of the month basically 80% of PUMA’s retail doors, both owned and operated as well as partner stores, were closed.
As a result, PUMA’s sales declined in the first quarter of 2020 by 1.3% currency adjusted to € 1,299.8 million (-1.5% reported). China, Japan and Korea were the most severely impacted countries and led to a decline of first quarter sales in the Asia/Pacific region of 12.0% currency adjusted. The EMEA and Americas regions, having been negatively impacted since March 2020, still showed a slightly positive sales development in the first quarter, increasing by 3.5% and 3.1% currency adjusted respectively.
In terms of product divisions, footwear grew by 1.9% in constant currency while apparel and accessories were down 6.3% and 0.2%.
Both wholesale and retail channels were significantly impacted by the store closures instructed by local authorities around the globe. At the end of the first quarter, almost all of Puma’s owned and operated retail stores as well as the stores of retail partners were closed. Sales in e-commerce grew around 40% in the first quarter.
The gross profit margin in the first quarter decreased by 140 basis points from 49.0% to 47.6%. This development was mainly caused by negative currency impacts, lower sales in China, inventory devaluation and return provisions.
Operating expenses (OPEX) rose by 8.3% to € 553.3 million in the first quarter (last year: € 510.7 million). The increase was mainly due to sales and marketing costs to support the originally expected sales growth. In addition, higher costs in e-commerce business and more retail expenses caused by a higher number of owned and operated stores also contributed to the increase. Actions taken to reduce the cost base only had a limited impact in the first quarter.
Due to the negative impact of COVID-19 on business, the operating result (EBIT) decreased by 50.1% from € 142.5 million to € 71.2 million in the first quarter of 2020.
Net earnings went down by 61.6% from € 94.4 million last year to € 36.2 million in the first quarter of 2020. As a consequence, earnings per share decreased from € 0.63 to € 0.24.
An increased number of own retail stores and the loss of sales due to the negative impact of COVID-19 has led to an increase of inventories of 24.5% to € 1,129.9 million. Trade receivables declined by 12.6% to € 672.0 million. On the liabilities side, trade payables increased by 32.7% to € 742.3 million, mainly related to the higher product purchases, but also due to the deferral of payments. In total, working capital decreased by 6.9% to € 788.7 million (last year: 846.9 million).
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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.