Puma Earnings: Strong Results in Europe but Other Regions Remain Works in Progress

No-moat Puma’s PUM second-quarter results were in line with our expectations as 20% sales growth in Europe, the Middle East, and Africa more than offset an 8% sales decline in the Americas. Moreover, the firm reaffirmed its full-year guidance of high-single-digit percentage currency-neutral sales growth and an operating margin of EUR 590 million-EUR 670 million. We may lift our respective 6% and EUR 621 million estimates to account for the brand’s solid momentum in Europe and upcoming product releases (including its Fenty collaboration) but would look for a more attractive entry point given that shares trade above our EUR 49 fair value estimate (which we may revisit).

Puma’s total sales increased 6% in the quarter, outpacing our 1% forecast. Its 44.8% gross margin missed our estimate by 70 basis points due to unfavorable currency movement and sourcing costs, but its 5.4% operating margin beat our estimate by 20 basis points due to the sales outperformance. While this year’s operating margin is expected to decline from 2022′s 7.6%, we anticipate a recovery to above 8% in 2024 and then to 10% by the end of this decade as its distribution (including stronger direct-to-consumer), cost, and product initiatives take hold.

Puma’s outperformance in Europe (39.9% of the quarter’s total sales) puts it on track to exceed our 6% sales growth forecast for the region in the full year, especially as it should get a boost from the FIFA Women’s World Cup and other major sporting events. Over the past decade, the firm has gained about 10 points of share (to about 16%) in football boots in Europe, which we think has improved its market position. In contrast, our forecast for a 1% sales increase for 2023 in the Americas (40.6% of sales) may be out of reach given Puma’s exposure to wholesale and the off-price channel, elevated inventory in the market, and the strong U.S. dollar. Apart from the near-term issues, we think Puma needs to improve its standing in key North American sports.