Puma sets new, substantially lower sales projection for the year
Puma Faces Revenue and Profit Decline Under New CEO
Puma, the German sportswear giant, has announced a significant drop in revenue and profit for the current year, with the appointment of Arthur Hoeld as CEO on July 1.
In the second quarter, currency-neutral sales fell by 2.0 percent to around €1.9 billion, marking a disappointing performance. This decline was more pronounced without currency effects, with a drop of 8.3 percent. The company's key markets, including North America, Europe, and Greater China, underperformed expectations in the quarter.
The main factors contributing to Puma's revenue and profit decline are sluggish sales growth, the impact of pending US tariffs, increased competition, supply chain inefficiencies, and cost pressures.
Sluggish sales growth is expected to result in a low double-digit percentage decline in currency-adjusted sales, reversing earlier expectations of modest sales gains. The impact of US tariffs is projected to reduce Puma’s gross profit by about US $86.8 million, significantly impacting profitability.
Puma faces stiff competition from major sportswear players such as Adidas, Nike, and growing challengers like On Running and Hoka, which has pressured Puma’s market position and sales performance. Supply chain inefficiencies and cost pressures, despite efforts to improve supply chain efficiencies, pricing strategies, and partner coordination, have persisted.
As a result, Puma anticipates an operating loss (EBIT) for the year and has announced cutbacks in capital expenditure to manage costs. The company now expects a loss instead of a pre-tax profit of up to €525 million. Puma does not anticipate any improvement in the second half of the year.
To mitigate the financial impact, Hoeld announced plans to intensify the cost-cutting program initiated by his predecessor. Puma's investment plans have been scaled back, with a reduction of €50 million, totaling €250 million.
The anticipated impact of US tariffs, costs related to cost-cutting measures, increased currency fluctuations, and a weaker sales performance have led to a revised forecast. The company now expects a shrinkage of at least 10 percent instead of growth by one to five percent.
Moreover, the potential for inventory buildup may force Puma to sell shoes and textiles at reduced prices.
In conclusion, Puma’s decline in revenue and profit in 2021 under Arthur Hoeld is primarily due to weak sales, significant tariff-related costs, stiff competition, and lingering supply chain challenges. The company remains optimistic about its long-term prospects, but the immediate future looks challenging.
In light of Puma's financial struggles, Arthur Hoeld, the new CEO, plans to intensify the cost-cutting program to mitigate the financial impact, as the company faces a potential shrinkage of at least 10 percent instead of the previously anticipated growth. The business environment for Puma is particularly challenging due to sluggish sales in the sports industry, increased competition, and supply chain issues.
