MOSS ADAMS CAPITAL: Apparel and foowear market monitor highlights notable deals, stock prices and results.
Details on Industry Insight.
· Consolidated sales down by 2.1%
· Gross profit margin at a strong, sector-leading 52.2%, slightly above last year’s level
· Strong improvements in cost structure as a result of the cost reduction program
· Operating result jumps € 115 million versus last year
· EPS increase to € 5.51 after € 0.37
· Further improvement in equity ratio to 64%
· Management expects sales growth in the low to mid single-digits
· Cost reduction program shall provide cost savings as planned
· Pre-tax profit is expected to improve by at least 70%
Jochen Zeitz, CEO: “We had a good start into the new year from a bottom line perspective which highlights the effectiveness of our comprehensive restructuring and reengineering efforts. Assuming a continuous improvement of the economic outlook and a planned increase of supplier orders, we anticipate low to mid single digit growth for the full year, while net earnings should jump significantly to complete the expected earnings rebound. We are now looking forward to the upcoming World Cup and to a successful integration of our newly acquired Cobra Golf business.”
Sales and Earnings Development January-March 2010
Global Brand Sales
Worldwide PUMA brand sales, which include consolidated and license sales, decreased by 2.3% to € 720.6 million.
Footwear sales were down by 6.0% to € 382.8 million and Accessories by 3.1% to € 90.3 million. Apparel sales increased by 4.3% to € 247.5 million.
PUMA’s consolidated sales in the first quarter were down by 2.7% currency-neutral and 2.1% in Euro terms to € 683.1 million. This development should be seen in the context of last year’s sales increase of 3.6%, which was mainly driven by closeout sales in order to reduce inventories. In addition, supplier orders for the first half of 2010 were placed with caution. Excluding the previous year’s inventory clearance, sales were slightly above last year. Sales in Footwear declined currency-neutral by 5.1% to € 378.8 million and Accessories decreased by 1.6% to € 77.5 million. Apparel sales rose by 1.2% to € 226.8 million due to a positive development in PUMA’s teamsport business. In regional terms, sales in EMEA were down currency-neutral by 6.2% to € 351.8 million (share: 51.5%) and Asia/Pacific declined by 8.4% to € 141.0 million (share: 20.6%). Sales in the Americas region significantly improved by 9.8% to € 190.4 million (share: 27.9%) with both regions – North America and Latin America – positively contributing to this strong performance.
Gross Profit Margin
In the first quarter, PUMA’s gross profit margin reached a strong, sector-leading 52.2% compared to 52.1% last year. The Footwear segment reported 50.7% versus 50.4%, Apparel was at 53.5% compared to 53.7% and Accessories remained unchanged to last year at 55.6%. In terms of region, the gross profit margin in EMEA softened to 54.3% after 55.1%, Americas rose to 47.4% from 46.7% – driven by Latin America – and Asia/Pacific improved to 53.4% from 51.0% last year.
Operating expenses decreased by 4.6% from € 254.1 million to € 242.3 million. As a percentage of sales, the cost ratio improved from 36.4% last year to 35.5% because of the cost reduction program introduced last year. Expenses in marketing/retail and depreciation decreased due to the improvement to the overall retail store portfolio.
PUMA’s EBIT before special items increased by 4.4% to € 119.0 million versus € 114.0 million last year. As a percentage of sales the EBIT margin improved from 16.3% last year to an excellent 17.4%. Taking last year’s special items into account, EBIT increased from € 4.0 million to € 119.0 million.
The financial result was at € -1.2 million after € -1.6 million last year, as the net cash position improved significantly and led to lower interest expenses due to reduced bank debts.
The pre-tax profit (EBT) jumped from € 2.4 million to € 117.8 million. Net earnings increased to € 83.1 million from € 5.6 million based on a tax rate of 29.5% versus an operational tax rate of 28.5% last year.
Earnings per share rose to € 5.51 from € 0.37 and diluted earnings per share were at € 5.50 compared to
€ 0.37 last year.
Net Assets and Financial Position
As of March 31, 2010, total assets increased by 2.4% to € 2,159.3 million while PUMA’s equity ratio improved significantly from 56.6% to 64.0% this year.
Inventories declined by 15.9% to € 375.7 million and accounts receivable went up by 6.7% to € 568.6 million. Accounts payables increased by 7.2% to € 265.5 million. Working capital remained stable at € 595.6 million compared to € 596.9 million last year.
Capital investment amounted to € 7.7 million in the first quarter after € 11.6 million in the previous year.
The free cashflow came in at € -73.4 million compared to € -118.0 million last year.
Total cash by the end of March jumped 59.5% to € 426.8 million after € 267.6 million last year. Bank debts were reduced by 41.8% from € 63.2 million to € 36.8 million. As a result, the net cash position improved significantly by 90.7% from € 204.5 million to € 390.0 million.
Assuming a further improvement in the overall economic outlook, sales for the full year 2010 should strengthen accordingly throughout the year. The company’s pre-tax profit is expected to improve by at least 70% in 2010 while sales should post an increase in the low to mid single digits.