Puma shares plunged more than 18% on Thursday after the German sportswear company reported weaker-than-expected fourth-quarter sales and a decline in annual profit. The results, released late Wednesday, have raised concerns about Puma’s ability to compete with larger rivals Adidas and Nike. The weak performance contrasts sharply with Adidas’ recent report of strong sales and profitability, underscoring the challenges Puma faces in gaining a larger share of the $400 billion global sportswear market.
On a currency-adjusted basis, Puma’s quarterly sales grew by 6.6% to €8.601.7 million, driven by strong growth in the Asia-Pacific region and a double-digit increase in Europe, the Middle East, and Africa. However, sales in the Americas dipped slightly compared to the previous year, reflecting a challenging trading environment in the region.
The company attributed the lower-than-expected sales in part to “the continued devaluation of the Argentine peso” while also noting that wholesale customers reduced inventory levels, which led to a negative impact on sell-in and a slight decrease in the number of units sold. Despite this, PUMA saw a positive trend in its Direct-to-Consumer business, which accounts for a significant proportion of sales (24.1% in 2023) and is increasing its presence in the retail market.
Sales in PUMA’s own full-price stores and factory outlets rose by 8.7% on a currency-adjusted basis, while sales in its e-commerce business increased by 18.7% (both on a currency-adjusted), the brand continues to enjoy high customer demand, especially for its performance categories Football, Basketball, Running, Golf, and Cobra Golf. Despite ongoing global macroeconomic and geopolitical challenges, the company expects to see this momentum continue in the coming years.
However, the company trimmed its earnings outlook for fiscal 2024. Management now expects mid-single-digit currency-adjusted sales growth and an operating profit of around EUR 620 million to EUR 700 million. PUMA’s management team will focus on delivering this outlook while remaining aware of external factors such as higher freight costs, changing duties, and continuing muted consumer sentiment.
The company also announced a new cost-cutting program to improve its margin to 8.5% by 2027. The move is expected to generate savings of around EUR 100 million per annum by the end of 2027. Nevertheless, Barclays analysts noted that the program could divert management’s attention from increasing sales. They said there was a risk that the cost-cutting measures would negatively affect revenue and gross margin in the long run.
PUMA’s stock, which has slumped more than 30% this year, trades at just over 1 times sales. This is below the industry average of 1.38 times and is well below its historical average of 2.38 times. It is also below its five-year low of 0.75 times and the 10-year low of 0.9 times. The company’s Morningstar quantitative rating for stocks is below average, indicating that it is less attractive than its peers.