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Struggling Stock Performance at Puma: Tariffs, Exec Change, and a Reassessment
In the world of athletic apparel, Puma's stock market performance has taken a hit, with the company's shares performing noticeably below expectations. Having reached a high of nearly €115 in November 2021, Puma joined the DAX, a top German stock index, as one of its 40 members. However, the sportswear giant is now back in the MDAX after only a year, following a significant drop in its share price to just over €25—a level not seen since 2016.
Yet, the past quarter has seen a modest recovery, with the share price bouncing back from an early April low of less than €19. This recovery can be attributed to a lessening of the customs threats imposed by former US President Donald Trump, as well as a relatively robust first-quarter performance. Although Puma's Q1 results didn't shine, they fell short of market expectations for worse results.
Regarding its financial standing, Puma reported a 1.3% decline in sales but saw earnings stagnate at approximately €2.1 billion when adjusted for currency effects. Yet, EBIT fell dramatically by almost two-thirds to €58 million, with the resulting gross margin dropping significantly from 7.6% to 2.8%. Nevertheless, the net result was a positive half a million euros.
Disappointing sales figures should be a concern for the company, as both North America and China showed declines. North American sales dropped by 11% in currency-adjusted terms, and the Chinese market experienced a nearly 18% decline. Such results have led some analysts to question Puma's approach in these regions, with the U.S. market, in particular, seeing the brand falter on the budget end of the market.
Addressing these concerns, Puma has recently announced a major brand campaign aimed at turning its fortunes around. However, the company has also seen a change at the top, with former CEO Arne Freundt being replaced by a new leader, Arthur Hoeld, effective July 2022. Hoeld, who previously worked as the sales director for Adidas, will now step into Puma's top spot.
Facing pressure from increasing tariffs, Puma—like its competitors Adidas and Nike—produces over 90% of its shoes and clothing in Asia (with important supplier countries such as Vietnam, Cambodia, and Indonesia top producers for the local market). China, however, mainly produces goods for the domestic market. Puma claims that only 10% of its imports to the U.S. originated from China in 2021, and the company has reportedly been working to further reduce this percentage. To mitigate higher tariffs, the brand shipped as much merchandise as possible to the U.S. before the April 9 deadline for higher tariffs implemented by former President Trump.
Looking beyond tariffs, analysts have responded positively to Puma's Q1 results, with some suggesting that the company has surpassed expectations. Despite the overall positive response, many experts remain cautious, citing continued costs associated with Puma's restructuring program and the impact of trade policies on the company's earnings. Factoring in these risks, Swiss bank UBS has recommended selling Puma's stock, setting a new price target at €19.10—significantly below the current value. However, other analysts, such as Jefferies and Warburg Research, are more optimistic, with their price targets reaching €35 and €60, respectively.
As the sportswear market continues to evolve, Puma faces challenges both at home and abroad. The company must address its current financial difficulties, adapt to market changes, and focus on revitalizing its brand—all while navigating potential trade barriers and ensuring that consumers remain satisfied with its offerings. Upcoming leadership and strategic decisions will play crucial roles in shaping Puma's future path.
The struggle in Puma's stock market performance has led some investors to reconsider their investment decisions in the finance sector, given the business's challenging situation. The company's increasing focus on technology, such as leveraging advanced methods for manufacturing and supply chain management, could potentially aid in its recovery and attract more investor interest.
Despite the recent change in Puma's leadership with Arthur Hoeld taking over as CEO, the company's focus on technology in its business strategies, particularly in investing in superior manufacturing methods and enhanced supply chain technologies, could significantly affect its future trajectory.
