Puma Se Unsp/Adr

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Q1 2025 earnings call of Puma SC. Throughout today's recorded presentation, all participants will be in listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tent elephant. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Gottfried Hoppe, Director, Investor Relations. Please go ahead.

Thank you very much, Maura. Ladies and gentlemen, welcome to PUMA's Q1 2025 earnings call. Today, I'm joined by our Group CFO, Markus Neubrand. Markus will take you through a short presentation and then we will open up for the Q&A session. Now, let's kick it off and over to you, Markus. Thank you, Gottfried. Good afternoon also from my side. Before I guide you through the agenda of today's investor call, I would like to start with some opening remarks about the first quarter of 2025. Our overall financial results were broadly in line with expectations, with our sales and adjusted operating results slightly ahead of our expectations for Q1. Our sales achieved last year's level in constant currencies Our D2C business grew by 12%, led by e-commerce at 17%, while our wholesale business was down by 4%, primarily because of the US and China. Our US adjusted operating results amounted to 76 million euros. And we are pleased to report good progress on our next level cost efficiency program. Please note that the situation relating to the new US tariffs will be addressed at the end of the presentation. As you are aware, we are currently in a transition period. We would like to thank Arne for all his achievements, commitment and dedication to the PUMA brand over the past 15 years. We are pleased to have Matthias as Chief Commercial Officer on the Managing Board since April 1st. During the transition period, Maria, Matthias and myself are jointly leading the company. And we are looking forward to welcoming Arthur as new CEO of Puma starting on July 1st. Now, let me present to you a business and financial update, followed by an operational update, including next level and an update on the new US tariffs. Our maintained outlook for 2025 before opening up the call for the Q&A. On 20th of March, we launched Go Wild, our biggest brand campaign to date. The first chapter dedicated to running. We are very encouraged by the initial results of this campaign. The short video film that accompanied the start of the campaign was viewed millions of times. We successfully leveraged and activated the Go Wild messaging at the recent marathons in Boston and London while launching the Fast R3, our fastest ever running shoe. Six weeks into the campaign, we have seen strong visibility globally with paid, earned, and social media. We expect this trend of strong visibility to continue in the coming weeks with the launch of our Go Wild podcast and more brand activation events. We introduced exciting product newness and innovation in the first quarter. In running, we launched the Puma DV8 Nitro Elite 3 in the context of our Go Wild running campaign. It is a high-performance carbon-plated racing shoe designed for speed and efficiency, targeting runners from 5K to marathon distances. At the Boston Marathon Weekend, we launched the Puma Fast R3 that is engineered for maximum running economy and elite level performance. In football, we launched the Puma Future 8, the latest evolution in our flagship line of the football boots. It is engineered for creative, dynamic players who demand both comfort and high performance on the pitch and is worn by top professionals such as Jack Grelish. In basketball, we released lamella ball signature shoe Puma MBO4 Golden Child, the latest and most eye-catching entry in our ongoing collaboration with the basketball star. Released in March, the Golden Child edition cements lamella's reputation for bold statement-making footwear in both basketball and sneaker culture. In February, Puma and Scuderia Ferrari launched a special replica collection to celebrate the 20th anniversary of our partnership. This milestone collection, which is worn by the team throughout the 2025 season, reinterprets classic Ferrari teamwear with a bold, fashion-forward approach, blending motorsport heritage with contemporary streetwear influences. The collection was officially unveiled at an exclusive event in Maranello, Italy, attended by Ferrari drivers Lewis Hamilton and Charles Leclerc. as well as legendary figures from Ferrari's racing history. And we saw a fantastic sell-through of this collection. With our SpeedCat franchise, we have continued to capitalize on the low-profile trend, which has picked up more momentum in the first quarter of 2025. Our SpeedCat has again been highlighted by fashion platforms and trend reports as a must-have and its slim silhouette, retro appeal, and versatility have made it very popular among fashionistas and celebrities, especially in Asia. It is consistently named as a top trend sneaker for 2025. On the back of our Speedcat popularity, we introduced the Speedcat Ballet with K-pop star Rosé being the face of the campaign. Now, let's have a look at the financials. We ended the first quarter of 2025 with sales of 2.1 billion euros. We were flat compared to last year in constant currencies. Wholesale was in line with our expectations, down 3.6%, and as anticipated, the decline was mainly driven by the US and China. Overall D2C was up 12%, led by robust e-commerce growth of 17.3%, and with broad-based participation from all regions while sales in brick and mortar increased by 8.9%. By product divisions, we saw good contributions from Putware with a 2.4% growth driven by running, basketball and sports style categories. Our sports style categories benefited from an increase in core business and in our select prime business, particularly the SpeedCat franchises with Asia leading the low profile trend. Sales in apparel and accessories softened with minus 1.5% and 5.7% respectively. Apparel was broadly in line with our initial expectations of a low single-digit decline for the group, while the decline in accessories was a little bit higher, mainly due to golf. By regions, EMEA grew 5.1%. Americas decreased by 2.7%, mainly due to North America. And APEC came in at minus 4.7%, mainly due to Greater China. Now let me provide you with a more granular view of our quarterly sales performance by market. As anticipated, emerging markets in the A and Latin America remain the growth drivers, contributing with double-digit growth rates, while North America, particularly the US and Greater China, where the markets which both declined in a double-digit range. This was driven by the wholesale distribution channel, while D2C continued to grow, driven by Ecom. This was already highlighted earlier this year. To close on a positive note, Europe came in with a low single-digit growth, and other APAC recorded mid-single-digit growth. Let's continue with the operating performance. In a nutshell, sales were slightly better than initially expected. Our gross profit margin decreased by 60 basis points, mainly due to inventory valuation effects last year, and our adjusted EBIT came in slightly above our expectations or ever below last year's level. So let me take you through our first quarter results for 2025 in more detail. Our first quarter 2025 sales remained with 0.1% on a currency adjusted basis at 2.1 billion euros. Sales in Euro terms decreased by 1.3% and include negative currency effect on our sales, mainly from the Mexican and Argentinian peso, as well as the Turkish lira. As mentioned, the gross profit margin decreased by 60 basis points to 47%. Taking a closer look at our gross profit margin. Our gross profit margin was impacted by several offsetting factors this quarter. While we benefited from favorable sourcing prices and an improved product and channel mix, these gains were more than offset by currency headwinds and the absence of last year's positive inventory valuation effects. Our promotional activity remained consistent with the prior year levels. For better comparability, if we exclude last year's inventory valuation benefit, our gross profit margin would actually show a slight improvement year over year. Operating expenses increased by 7.1%. This includes any next level related one-time costs. Let's take a look at the OPEX drivers. The overall increase was primarily driven by continued growth of our D2C business, especially e-commerce, along with higher duplication and amortization resulting from investments in D2C and infrastructure. As anticipated, the timing of marketing activities contributed to a slightly higher OPEX ratio, something that is also anticipated for the second quarter. Additionally, Currency-related effects were headwinds to the OPEX ratio, which increased by 340 basis points to 43% in the first quarter. Consequently, the adjusted EBIT decreased by 52% to €76 million as a result of a lower gross profit margin and higher OPEX. HUBAR incurred one-time costs totaling €18 million in the first quarter, attributable to its next level cost efficiency program. These expenses were primarily related to personal costs and other one-time non-operating expenditures, such as consulting costs, as well as impairment of intangible assets related to digital infrastructure. The EBITDA decreased by 35% to 156 million euros. The financial result decreased by 57% to 42 million euros, mainly due to higher net interest expenses. This was primarily driven by a lower interest income from a normalizing environment in the hyperinflationary country, Argentina. This is something that we anticipate also to impact the financial result in the remainder of the year. In addition, interest expenses were up due to higher borrowing. Taking into account taxes on income and the non-controlling interest, the net income came in at 0.5 million euros. Now, let's have a look at some of our balance sheet KPIs, starting with the inventory development. Our inventories increased by 21%, currency adjusted, and 16% in euro terms to 2.1 billion euros, driven by a strong increase of goods in transit which represent approximately half of the increase in absolute terms. One of the drivers was accelerated deliveries to the US ahead of the cutoff for the new tariffs at the beginning of April. Trade receivables increased by 6% to 1.5 billion euros. Trade payables increased by 17% to 1.4 billion in line with the increase in purchase volume and inventories. The operating working capital came in at 2.4 billion euros, up 7%. The working capital increased by 13% to 2.1 billion euros. Let's continue with the operational update. At the beginning of this year, we initiated the next level cost efficiency program. We are focusing on three building blocks, improved gross profit margin, by decreasing product complexity and improving sourcing efficiencies. This also includes improvements in pricing and promotions. Decrease OPEX ratio by further reviewing effectiveness and efficiency across all functional areas, which includes the review and closure of unprofitable owned and operated retail stores. Improve free cash flow by focusing on capital employed and cash conversion cycle. This includes improvements in receivables and inventory management, as well as optimizing our payment terms, especially for indirect procurement. Improve our capital allocation towards strategic investments that drive growth and return on capital. Let me give you an update on the progress on the next slide. Next level is expected to have an EBIT contribution of up to 100 million euros in 2025. Let me give you an update on our progress. The global reduction of 500 corporate positions, which is about 5%, is progressing as planned, with numerous positions already processed at our corporate headquarters and regional offices. We anticipate completing the personal measures in the second quarter of 2025. Through comprehensive review sessions, we have identified and initiated key initiatives primarily in general administrative and logistics to reduce costs. We conducted a review of our retail portfolio and identified around 30 unprofitable stores that we are planning to close, mostly in 2025. We've also achieved initial sourcing efficiencies that have led to first contributions realized at the end of the first quarter. For the second quarter, one-time costs are expected to be higher than in the first quarter it shouldn't be a surprise if the one-time costs double between q1 and q2 for the third quarter the one-time costs are expected to be around the same level as in q1 and in the fourth quarter we anticipate less one-time costs overall one-time costs related to next level should reach up to 75 million euros in 2025 When it comes up to the 100 million euros additional EBIT contribution, we expect to see benefits increasing from the second quarter onwards in 2025. This is a rough early indication to help you with modeling at this stage. However, this is also subject to changes and will be updated in course of 2025 as we see progress with the respective measures. The US market represents around 20% of our global sales. In other words, the majority of around 80% of our global sales is not exposed to the US tariff situation. The vast majority of our US imports originate from Asia. It is important to note that we optimize the overall landed cost, which mainly includes the product costs, FOB, logistics, and customs duties. when deciding on where to produce. Duties are one component of these costs. The new and additional US tariffs announced in April impact China as well as other sourcing countries, which may lead to higher sourcing costs for the US market. The uncertainty around the negotiations between the US and the sourcing countries remains high, which makes it difficult to quantify the direct effects. We've been reducing our US imports from China over the last two years. For the US, China sourcing is around 10% and further decreasing, and even at zero for some of the product categories already today, with Vietnam, Cambodia, and Indonesia accounting for the majority of the US production. We acted swiftly. Deliveries to the US were further accelerated and cleared with customs before April 9th. We optimized sourcing for autumn-winter 25, including rerouting of products out of China to other markets. We evaluated different scenarios and continue to do so as the news flow changes almost on a daily basis. And we constantly review our pricing adjustments. We are taking a strategic approach to potential tariff impacts. Our team is actively analyzing the specific tariff outcomes by sourcing country, evaluating our competitive product strengths, and tracking evolving consumer behaviors. Thanks to our proactive inventory management that I mentioned earlier, we have flexibility to carefully assess market conditions before implementing any pricing changes, allowing us to respond with both agility and precision as the situation develops. Furthermore, we are considering additional measures, including cost optimization of our product cost and general cost structures in the US. We have an agile global supply chain, longstanding vendor relationships, and a strong balance sheet, all of which positions us to navigate as well to navigate this time of uncertainty. However, I hope you'll understand that at this time, moment in time, given the highly volatile and changing environment for U.S. terrorist regulations, we can't make meaningful changes and statements to the outlook. Which brings me to the next topic on our agenda. Let me take you through the 2025 outlook. In the evolving global trade landscape and Emmet's macroeconomic volatility, we concentrate on the controllable factors and diligently serve our retail partners, consumers, and brand ambassadors. We maintain our outlook for the fiscal year 2025, while the potential impact of the new US tariffs announced in April 2025 remains under review and is subject to change. Now, let me first provide you with some indication on the second quarter. With Q1 behind us, we expect sales development in Q2 to improve to a low single-digit growth in constant currencies. Mainly due to recent devaluation of the US dollar, we expect FxHint headwinds on our top line to increase to approximately three percentage points. When it comes to adjusted EBIT, It is expected to come in above the first quarter of 2025, however, still below the prior year's second quarter level. As mentioned before, the highest share of one-time costs related to our next level efficiency program will be incurred in the second quarter. For the full year 2025, we maintain our outlook which excludes potential implications from US tariffs announced after Puma's initial outlook was provided on the 11th of March, 2025. Let me remind you about our outlook. Currency adjusted sales growth of low to mid single digit. Given the current US dollar weakness, we anticipate the FX headwind to increase to around three percentage points at an Euro-US dollar rate of 1.11. At an adjusted EBIT, before one-time cost between 520 and 600 million euros. One-time costs of up to 75 million euros related to our next level efficiency program. As always, we as a management team are committed to addressing short-term challenges while continuing to do the right thing for the mid to long-term success of the brand and the company. Let me summarize. We are leveraging the momentum across running and sports style categories. We are executing our next level program to right-size our cost base. We are closely monitoring the US tariff situation and are taking decisive action. And we are looking forward to welcoming Arthur as new CEO of Puma starting on July 1st. And with that, I'll hand it back to Gottfried for the Q&A session. Thanks very much, Markus. Mora, we are now ready to take the questions.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchstone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. In the interest of time, please limit yourself to two questions only. One moment for the first question, please. The first question comes from Grace Smalley from Morgan Stanley. Please go ahead.