Puma Earnings: On Track to Meet Guidance Despite Weak Euro and Shaky Economy; Shares Fairly Valued

After recent weakness on concerns of unsettled economic conditions in the U.S. and China, Puma’s PUM shares leapt about 8% after its currency-neutral sales increased 6% in 2023′s third quarter. Moreover, it reiterated its full-year guidance for high-single-digit constant-currency sales growth and operating income of EUR 590 million-EUR 670 million. As our forecast is within this range, we do not expect to make any material change to our EUR 49 per share fair value estimate, leaving shares as fully valued. Although we rate Puma as a no-moat firm, we believe it has strengths, including the popularity of its footwear (sales up 11% currency-adjusted in the quarter) and collaborations with popular labels like Rihanna’s Fenty.

Puma’s quarterly sales fell 2%, missing our estimate of a small (0.3%) increase, as the weak euro and economic conditions affected reported results. Its sales in the Americas (37% of total) dropped 8%, missing our negative 2% forecast. Puma has high exposure to the challenged North America wholesale channel, an issue that it intends to address as part of its long-term plan. The firm also needs to improve its standing in China, which we believe is the key market for sportswear growth. We forecast Puma’s long-term annual sales growth rates at 9% in Asia-Pacific, more than double the 4% rates we model in both the Americas and Europe, the Middle East, and Africa.

Puma’s 47.1% quarterly gross margin eclipsed our estimate by 210 basis points as it benefited from lower sourcing and freight costs and price increases. Its inventory soared in 2022 but was down 20% at the end of the third quarter, so less discounting to move excess merchandise should be necessary than in last year’s holiday season. We think Puma can hold gross margins around 47% in the long run.