Updated 1:52 p.m. ET on Oct. 30
BERLIN — After a bruising third quarter, Puma executives and market analysts seemed to agree: The German sportswear brand has a long road back to profitability and desirability.
Organic sales at Puma fell 10.4 percent in the third quarter to 1.96 billion euros. Earnings before income tax, or EBIT, also collapsed, with both adjusted and reported EBIT falling by more than 80 percent.
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The German activewear firm blamed a strategic “reset” as it navigates “several company-specific challenges, including muted brand momentum, elevated inventory levels across the trade and low quality of distribution.”
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Measures taken so far, including stock take backs and reduced promotional activity, impacted Puma’s performance in the third quarter, both at wholesale and in its own stores and online sales, the company explained.
Puma’s new chief executive officer Arthur Hoeld, who previously held a number of different leadership positions at Adidas, only took on the top job in July. Shareholders and retailers have been waiting to hear about his plans. In an early-morning statement and at a press conference at the company’s base in Herzogenaurach, southern Germany, he laid out his strategy for turning the business around.
Puma was previously very reliant on wholesale but Hoeld saw this as harmful to the brand’s image as larger retailers tended to discount too heavily.
“Puma has become too commercial, overexposed in the wrong channels, with too many discounts,” Hoeld said at the Herzogenaurach press conference.
In the future, wholesale will be reduced in favor of expanding Puma’s direct-to-consumer channels, both online and in brick-and-mortar. Puma also plans to reduce the number of new products it releases and to buy less from suppliers.
The company has already taken back some stock, which has driven its inventories up to 2.12 billion euros this quarter. Much of that stock will likely have to be sold through outlet stores, experts have argued. Puma expects inventory levels not to return to normal until the end of next year.
In fact, Hoeld said Puma likely wouldn’t return to healthy growth until 2027, with the next year being all about “transition.”
The “path to achieving this [turnaround] is uncertain,” analyst James Grzinic of Jefferies wrote Thursday. Additionally “strategic details” of the comeback plan are still lacking, RBC’s Piral Dadhania wrote in his note.
Even more difficult will be achieving Hoeld’s stated ambition of establishing Puma as a “top-three sports brand globally,” market observers suggested.
The company is planning to reduce its “white collar” workforce by 900 positions. The reduction comes on top of 500 jobs cut in March and means the company will have slashed around 20 percent of its corporate workforce this year.
One thing that won’t be happening is any kind of fire sale. Hoeld denied that any part of the company would be sold off and the company’s biggest shareholder, French group Artemis, which has previously considered selling its 29 percent stake in Puma, recently told Reuters that it won’t be doing that at the currently lower market prices.
After the announcement of third-quarter results, Puma’s share price fell a further 2.5 percent. Over the course of this year, shares have lost around 50 percent of their value.
Puma saw the biggest declines in the Americas, where sales in currency neutral terms fell 15.2 percent to 678.1 million euros, driven mostly by drops in North America.
In the Asia-Pacific region, sales dipped 9 percent, and in Puma’s home market of Europe, the Middle East and Africa, they fell by 7.1 percent. The company said Europe in particular was impacted by “takebacks and the deliberate scaling back of undesired business.”
Puma footwear sales fell 9.9 percent to 1.05 billion euros in the third quarter.
The company’s offering in the so-called “low profile” trend, the Speedcat, has not been doing as well as it expected, it conceded.
Puma apparel slipped 12.8 percent, dragged down by the lifestyle segment. Accessories fell 6.1 percent.
Puma says it now intends to focus more strongly on several core sectors: football, running, training and sportswear. The company’s partnership with Hyrox, an indoor fitness competition that combines running and workout stations and which an estimated 550,000 people will compete in this year, will also continue. Puma plans to release a shoe designed especially for Hyrox early next year.
Puma had already slashed guidance for the whole year in the summer. The German brand confirmed those cuts on Thursday. It still expects sales for the whole year to drop by low-double digits and reiterated its profit warning.
Earlier in the year, before the change of management, the company had been predicting low growth and a positive EBIT somewhere between 445 million and 525 million euros.