By Helen Reid, Linda Pasquini and Ozan Ergenay
(Reuters) -Puma stood by its full-year profit outlook on Tuesday thanks to lower costs, reassuring investors and boosting its shares after the German sportswear brand reported a drop in quarterly earnings caused in part by a stronger euro.
Shares in the company gained 4% in early trading.
The stock dropped 10% in a day earlier this month after analysts said the sportswear company’s third-quarter earnings might miss market expectations due to the currency impact.
Puma’s operating profit was 236.3 million euros ($252.3 million) for the quarter, down from 257.7 million a year earlier, but revenue beat analysts’ expectations with 6% growth in currency-adjusted terms, coming in at 2.31 billion euros.
It confirmed its target for annual operating profit between 590 million and 670 million euros, saying it expected “strong improvement in profitability” in the fourth quarter helped by lower marketing, sourcing and freight costs, despite a gloomy backdrop for consumer demand.
“While the market continues to experience significant macroeconomic headwinds and 2023 remains a transition year, we outgrew the market,” Puma CEO Arne Freundt said in a statement.
Currency effects had a negative impact on sales in euro terms, Puma said.
The euro was much stronger over the third quarter compared to the same period last year, impacting the translation of dollar sales into Puma’s home currency.
A$AP ROCKY SIGNING
In currency-adjusted terms, the EMEA region was the strongest for Puma with 9.9% growth in the third quarter, while sales in Asia-Pacific grew by 4.6% and sales in the Americas gained just 2.5%.
“The single biggest issue for Puma is that in the big markets, like the U.S. and China, its brand perception is not as strong,” said Deutsche Bank analyst Adam Cochrane.
In the United States, Puma is trying to place more of its products in higher-end stores after initially selling through discounters and other lower-price retailers when it was first trying to build brand awareness there, said Cochrane.
Puma is also using celebrity partnerships to elevate its brand in the United States, announcing on Monday American rapper A$AP Rocky as creative director for its Formula 1 partnership, as the sporting world becomes more enmeshed with music and culture.
Puma, which makes most of its revenue by selling through multi-brand retailers, said its wholesale business increased by 3.1% in currency-adjusted terms, while sales from its own stores and websites grew by 17.4%.
Puma had taken shelf space from Adidas and Nike when those two brands were pulling back from the wholesale channel to focus on their own stores, UBS analyst Zuzanna Pusz said, but now that the two bigger companies were turning their focus back onto wholesale, competition was more intense.
As retailers try to recover from overstocking that has led to discounting in the United States, Puma said its inventories fell by 20.3% compared to their level on Sept.
30 last year.
($1 = 0.9366 euros)
(Reporting by Linda Pasquini and Ozan Ergenay in Gdansk, Helen Reid in London; Editing by Kirsten Donovan, Shri Navaratnam and Emelia Sithole-Matarise)
