German sporting goods manufacturer Puma SE (OTCPK:PMMAF) (OTCPK:PUMSY) released its half-year results yesterday. We expect a good quarter, and Puma finally delivers in line with our expectations. Indeed, the company was able to increase its sales and profits in the second quarter thanks in particular to the good performances achieved in Europe and America.
Prior to the Q2 results, we were anticipating an uptick in sales looking at inventory in warehouses and expecting a strong rebound in sales in North America thanks to the return to basketball. Looking at the three-month figures just released, our forecasts were correct.
Analyzing the quarter, turnover amounted to 2 billion euros, up 26%. This performance was recorded thanks to a strong wholesale business and was the best ever in Puma’s history. Taking into account the evolution of the exchange rate, sales increased by 18.4%. As mentioned earlier, EMEA and Americas regions saw solid growth, while APAC revenues declined slightly, this is due to the prolonged COVID-19 related restrictions still enforced by the Chinese government.
Despite higher marketing and transport costs, operating income reached 146 million euros. In the press release, we note that management is focusing more on sales growth and gaining market share rather than margins. In terms of results, Puma achieved a gain of 73% compared to the quarter of the previous year, reaching a net profit of 84 million euros.
Conclusion and evaluation
Due to the positive results, Puma raised its sales forecast. Meanwhile, adidas (OTCQX:ADDYY) (OTCQX:ADDDF) is lowering its earnings outlook for the year. This is explained by the weaker than expected recovery in China and the feared deterioration in consumer confidence. It must be said that the activity in China is not as important for Puma as for adidas. Regarding margins, Puma is sticking to the target of 600/700 million euros for 2022. During a specific question during the call with analysts, the CEO explained that he wanted to remain cautious in price increases so as not to scare off customers. Puma’s strategy is to avoid higher prices for existing models and only “set new prices” for new collections, with price increases in the inflation range (5/9%), highlighting that sales growth is more important than “short-term profit optimization“.
Since the start of the year, Puma’s share price is down almost -30%. In terms of share price, the company is one of the worst performers in the industry. After analyzing the strong Q2 performance and reviewing the closest competitors, we reaffirm our valuation at €98 per share. With the higher guidance provided by management, we see the German sporting goods manufacturer well positioned against its peers. Our valuation is also supported by a significant discount to its history.