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Puma Quarterly Profit Climbs 48% on Increased Demand (27.07.2004)
Puma AG, the sporting-goods maker known for its leaping wildcat logo, said second-quarter profit rose 48 percent, helped by demand for products such as Asti leather sneakers and jerseys bearing Cameroon`s national colors.
Net income climbed to 54.9 million euros ($67 million) from 37 million euros a year earlier, Puma said in an e-mailed statement. Analysts surveyed by Bloomberg News had forecast profit of 51.4 million euros. Sales rose 17 percent. The company said revenue will reach the upper end of its previous range.
The company, based in the southern German town of Herzogenaurach, is increasing sales and earnings faster than neighbor Adidas-Salomon AG this year by anticipating style changes and restricting its distribution to fewer retailers.
``Puma continues to outpace sales of competitors, both in athletic performance as well as in the lifestyle segment,`` analyst Michael Geiger of Credit Suisse First Boston wrote in a July 20 note to clients. He rates the shares ``outperform.``
The company in April raised its profit-growth forecast, saying pretax earnings would gain more than 30 percent. Chief Executive Jochen Zeitz maintained that goal today.
``Puma`s creative direction continues to resonate with its consumers,`` Zeitz said in the statement.
The shares rose 1.84 euros, or 1 percent, to 188.34 euros at 9:15 a.m. in Frankfurt. Puma`s stock has almost doubled in the past year, beating Adidas` 29 percent advance and Nike`s climb of 33 percent.
Orders
The order backlog climbed 22 percent at the end of the quarter from a year earlier to 723 million euros, paced by higher consumer spending in the U.S., Germany, France, the U.K. and Italy.
In five years, Zeitz has quadrupled revenue by connecting the Puma brand to both sport and fashion and stitching the company`s wildcat logo onto products such as athletic tank tops and sneakers with designs inspired from those worn in the 1970s.
Quarterly pretax profit surged 41 percent to 78.2 million euros. The company was expected to earn 75.4 million euros on that basis, according to the median of 10 estimates gathered by Bloomberg News. Sales totaled 352.3 million euros.
The company is boosting profitability by keeping more control over distribution of its goods than larger competitors such as Nike Inc. and Adidas, according to analysts. That enables Puma to restrict sales to outlets such as Federated Department Stores Inc.`s Bloomingdale`s, while other companies
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sell more products to discount retailers, they say.
Exchange Rates
As the euro has appreciated, Puma has also benefited because it buys raw material such as rubber and cotton in dollars, reducing purchasing costs. The company`s gross profit margin, or the proportion of revenue left after subtracting the cost of sales, surged to 51 percent from 48.8 percent.
Because of its smaller size -- a fifth that of crosstown competitor Adidas and a tenth that of Nike -- and therefore scaled-down distribution, Puma has been able to grow faster. It boosted sales 40 percent last year while Nike grew 15 percent and Adidas`s sales declined.
Puma continues to draw consumers by selling products such as suede boxing shoes, Frankenclyde sneakers, multicolored velour pants and yarn dye skirts. The company also sponsors and outfits the Italian and Cameroon national soccer teams.
A pair of white-and-gray Asti sneakers sells for $70 on the Puma Web site. A cargo skirt with mesh side pockets costs $48. And a jersey with lion claw marks and Cameroon`s national colors -- green, red and yellow -- goes for $90.
Guarding the Brand
Some analysts have said the company, which raised its forecasts three times in each of the last two years, may have to further restrict sales, sacrificing growth of more than 10 percent to protect its brand from overexposure.
``Puma must strike a balance between exceeding the market`s expectations and selective product distribution aimed at ensuring the brand`s continued appeal,`` Uwe Weinreich, an analyst at HVB Group in Munich, wrote in a July 15 note.
Such growth has also helped the company`s share price, which peaked at 212.70 euros on April 22 compared with 12.70 euros at the end of 2000. The company has a market value of about 3.05 billion euros, making it bigger than TUI, the smallest member of the 30-member benchmark DAX index.
Puma`s increasing size could make it a contender to join the DAX index, analysts say. The company in February expanded a share buyback to 800,000 shares, or 5 percent of its common stock. Zeitz has said Puma may use the stock for acquisitions.
Puma said it repurchased 225,000 shares in the second quarter and held 525,000 in total at the end of the period.
To contact the reporter on this story:
Patrick Donahue in Frankfurt at at pdonahue1@bloomberg.net.
To contact the editor responsible for this story:
Marthe Fourcade at mfourcade@bloomberg.net.
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