Puma Takes Hit in Q1

The cost of restructuring took a big bite out of Puma AG’s first-quarter profits, but currency fluctuation worked in its favor as it generated an increase in revenues.

The firm, owned by PPR and based in Herzogenaurach, Germany, reported Friday that its net income for the three months ended March 31 fell 93.8 percent to 5.6 million euros, or $7.3 million, from 90.1 million euros, or $135.2 million, during the comparable 2007 period. The more recent quarter includes 110 million euros, or $143.9 million, in pretax restructuring charges. Earnings came to 0.37 euros, or 48 cents, a diluted share versus 5.76 euros, or $8.64, in last year’s quarter.

Sales were up 3.6 percent to 697.4 million euros, or $912.2 million, from 673.3 million euros, or $1.01 billion, and increased 0.8 percent excluding the effects of currency fluctuation. Dollars figures have been converted from euros at average exchange for the period to which they refer.

Highlighting regional growth was a 19.7 percent increase in sales in the Americas, to 178.1 million euros, or $233 million. Even adjusted for currency shifts, sales were up 11.5 percent in the region. In Europe, the Middle East and Africa, Puma’s largest volume region, sales declined 6.4 percent to 366.1 million euros, or $478.9 million, and fell 3 percent when adjusted for currency. Asia/Pacific sales were 153.3 million euros, or $200.5 million, a 14.8 percent increase reduced to a 1.2 percent decline when accounting for currency fluctuation.

In euros, footwear sales increased 0.7 percent to 397.1 million euros, or $519.4 million. Excluding currency effects, footwear sales were down 0.8 percent.

CEO Jochen Zeitz said the company planned “to implement further measures to align our cost structure with the current market environment, ensuring a platform for profitable growth in the future. The measures are expected to accelerate our operational processes, make the organization even more efficient and to further reduce time-to-market for our products.”
 
Zeitz also highlighted the company’s focus on soccer in the forthcoming year, in the lead-up to the World Cup held in South Africa.
 
Christopher Svezia, an analyst with Susquehanna Financial, wrote in a note that the company’s cost-cutting measures may make sense over the long term.
 
“While we view [the restructuring charge] as a long-term positive, it may have had a near-term negative impact given that it was unexpected and the full benefits will not be realized until 2011. With that said, we view it positively that management is taking the right steps to rationalize its operating structure to lower sales expectations in a difficult environment. We also expect the company to reinvest some of the expected savings in brand initiatives and marketing, particularly next year when the World Cup will be held,” he wrote.
 
Svezia also praised the firm’s strong results in the U.S., despite a “highly promotional environment.”
 
“Considering that [Puma] was going up against a strong trend in performance footwear and a crowded marketplace in running, we believe these are particularly good results.”