Puma cuts profit forecast as strong dollar takes toll
Puma said its profit would be lower than expected in 2015 after the strong U.S. dollar hit its first-quarter earnings, adding plans to compensate through higher prices and more local sourcing were taking longer than expected.
The German sportswear company, which brought forward its quarterly results from Friday ahead of its annual meeting later on Wednesday, said first-quarter net profit fell 30 percent to 24.8 million euros (£18.3 million) on sales up 13 percent to 821 million.
Puma shares traded 3.4 percent lower at 1055 London time, compared with a flat German small-cap index, while the stock of majority-owner French luxury goods group Kering was down 0.8 percent.
Many companies have been hit by big shifts in global currency markets, with fashion players seeking to increase prices and produce more goods in the markets where they sell them to mitigate the impact.
The sportswear industry sources most products from Asia in U.S. dollar contracts, but Puma makes a bigger portion of its profits than its rivals in markets where currencies have tumbled against the greenback like Brazil, Argentina and Russia.
A distant third in the global sportswear market behind Nike and Germany's Adidas, Chief Executive Bjorn Gulden said Puma also had less power to impose price rises than its bigger competitors, particularly with wholesalers.
"The underlying business, we feel, is going in the right direction but we are not strong enough to counter the currency effect," Gulden told a conference call with journalists.
Puma has spent heavily on marketing and sponsorship, including ousting Nike as kit supplier to English Premier League football club Arsenal, as it tries to restore its reputation as a sports performance brand after it strayed too far into fashion.
Local rival Adidas said on Tuesday negative currency effects weighed on its gross margin, but it managed to offset them with a more favourable mix of products and prices.
Gulden said it had taken longer than expected to push through price rises in markets like Mexico, Argentina and Russia and efforts to source more products locally were taking time.
Puma is trying to produce, or at least assemble, as many goods locally as possible in Brazil, while it manufactures clothes in Mexico and has a small footwear factory in Argentina.
However, it has no local production in Russia, so it can only counter the fall of the rouble with higher prices, cost control and making sure its leases are denominated in euros.
Puma was only partially or not hedged at all in the Brazilian real, Mexican peso and Russian rouble because it was too expensive, Gulden said. It has now hedged against the rouble for the second half of the year.
The currency hit means Puma now expects its 2015 gross profit margin to fall 100 to 150 basis points from 46.6 percent last year, compared with previous hopes for a slight increase.
It expects operating earnings to fall to between 80 million and 100 million euros from 128 million in 2014.
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