PUMA SE (PUM) Earnings Call Transcript

Hello, everyone, and welcome to PUMA's Second Quarter 2026 Earnings Call. Joining me today are our CEO, Arthur Hoeld; and our CFO, Mark Langer. Before we begin, please take note of the cautionary statements regarding forward-looking information, which is included on the next slide of the presentation. Arthur and Mark will then lead you through today's presentation, covering our business recap, financial update and way forward. [Operator Instructions]

Good afternoon, everyone. Before we start, allow me a quick personal remark after being the CEO of PUMA for just about a year. It's a great privilege to work with such an iconic brand and the energy from our teams and our people motivates us every day to drive our journey back to the podium, a journey that we've called out and started last year. The key message from us are that the second quarter '26 progressed in line with our commitments for the transition year as part of our 3-year transformation journey. We see continued improvement in distribution quality and an ongoing transition of the brand and commercial operating model as our foundation for our future growth. Despite continuous macroeconomic and geopolitical uncertainties, we remain on track to achieve our plans for this year. Sales for the quarter were at minus 9.4% versus '25, and that's currency adjusted. When we look at the categories underneath that, we are very happy about the turnaround that is visible already in the categories of Running and Training. We do see a very positive brand impact yet no significant commercial gain in football from the World Cup. We are undergoing a continuous transition in the categories of Sportstyle and Core. And above all, we're also seeing soft consumer sentiment, particularly in Europe. Our reported EBIT landed at minus EUR 53.1 million in the second quarter, showing incremental improvement of 51.3% versus last year. We have significantly lower one-time effects than '25. Significant improvement is also in our free cash flow landing at EUR 328.8 million. That's primarily because of our improved working capital management and lower CapEx, and Mark will talk in more detail to that one later on. So looking back at the second quarter, of course, what stands out is our strong brand exposure during the World Cup on and off the pitch. We've had 11 teams competing in the World Cup, the biggest stage since 2006 from a PUMA perspective. Two of our teams, Morocco and Switzerland, also made it into the quarterfinals. What was equally important for us was also our presence off the pitch and how we connected with consumers in social media. The announcement of Neymar that he'll join the Brazilian squad, for example, had more than 100 million online views, which was the highest-viewed PUMA video ever on that channel. And that was despite a very moderate media and production spend that we have put behind that one. Generally, we're very happy about the very balanced marketing approach that we have seen as a brand for the World Cup. And overall, we clearly came out as a strong #3 in unpaid online media mentions related to the tournament. Our commercial relevance, as discussed earlier already, we have not made significant impact in terms of our top line. However, very happy, extremely happy with the sellout ratios of all of our national team jerseys, led, of course, by the Portuguese jersey. From a product innovation perspective, both the FUTURE line and the ULTRA 6 have had a very great exposure on the field of play and we're involved in several key goals being scored. When you look at our second DNA category that we called out for our path back to growth, it is about Running. And Running is not just about our product innovation, it's also about the community building, which are key pillars for acceleration in the future. We have seen a very strong presence around the London Marathon, where PUMA, in the top 10% of the finishers, was the #4 brand. Three of our athletes were in the top 10 across men's and women's. Our PROJECT3, which is a community-based exercise that we started in 2025, has seen further heights. We have 200 runners participating in the London Marathon and 60 of them finished within the top 10 -- sorry, top 100 of the men and top 100 of women. So great exposure for the brand at the highest level possible. We also used the London Marathon to exploit our NITRO LAB, which demonstrates the superiority of our footwear technology and had an amazing feedback and response again by thousands of consumers who are visiting the booth. NITRO is gaining overall momentum. It's the #2 in global online searches compared to competitors running technologies and franchises to date. Both the Fast-R3 and NITRO Elite 3 is doing extremely well in the Elite races, and we are also very happy with the latest launch in the family, which is the Deviate Pure, that has very, very strong sellout results recently. Moving on to Training with our key partnership that is HYROX. We had amazing success rates with our key athletes, Joanna Wietrzyk, for example, set a new women's world record at just above 54 minutes. A few weeks ago, Simon Gronau, a German guy, finished 100 HYROX races within 100 consecutive days sponsored by our apparel and our footwear. At the HYROX World Championships in Stockholm, we've been the #1 brand in the Elite 15 men's and women's races. We have also a diverse amount of activations, not just on site, but also where we basically entertain runners and spectators with shakeout runs and activities around the Stockholm event. What makes us extremely excited is the outlook for '27, where the World Championships will be happening in Hong Kong and drive further international relevance. Firstly, I've been visiting also New York, the biggest event to date with more than 50,000 athletes participating over 10 days. From a commercial perspective, certainly a highlight for us because we have a very strong sell-through of our products and franchises there. And definitely worthwhile mentioning from a technology and from an innovations perspective, our first-ever dedicated shoe for hybrid racing was awarded Best Sneaker of the Year 2026 by Women's Health. So again, we're not just demonstrating leadership in the partnership with HYROX, we're also demonstrating leadership in terms of technology and advancement from a product innovation perspective. Where we are in transition is definitely our Sportstyle segment. We're on the one side, extremely pleased with the continued success of our Speedcat franchise, including the ballerinas and the wedges. And that is certainly also down to our marketplace management activities, our reset activities that we have established midway throughout 2025. The interest is not just high, it's growing across the globe. We see key success factors and key success moments in retailers across the globe. We also believe that the low-profile trend will continue into 2027 and other franchises like the H-Street will also help us to succeed there. In parallel, we are also starting the incubation of PUMA franchises, which are part of our iconic lineup like the SUEDE incubation led by our PUMA ambassador, A$AP Rocky. As we said last year, we are right in the middle of a 3-year transformation program. Progress has been made not just in the 4 DNA categories, but also in partnerships with McLaren, with Ferrari and Aston Martin when it comes to Formula 1. But it's a 3-year transformation journey that will be continuously requiring our focus and our dedicated efforts and transition will help us to build a very strong foundation for our brand for growth in 2027 and beyond. The objectives that we've outlined are pretty clearly outlined here. Next to our 3-year journey that we're right in the middle of, it is again worthwhile mentioning that anything will depend on PUMA's return to brand momentum for future commercial success. All of our efforts are geared up to make PUMA a stronger brand again and strong that will connect with consumers worldwide. We are driving higher quality revenue with an improved focus on profitability, and that also means a continued effort on marketplace management as we started in 2025. We are elevating our financial discipline, and we will be delivering reliable results. And here, I'm again very pleased to have Mark by my side as of this quarter. I'll talk a little bit later about how we also have evolved in terms of our team building around the world. On the next chart, you can see the rightsizing efforts in our organization that we have started at the beginning of 2025. The reduction of 20% of our workforce will be ended by 2026, at the end of 2026. We have already announced 500 positions at the beginning of the first half in 2025 as part of our next-level cost efficiency program. In addition, then last year, we have identified another 900 positions. The reduction program will be closed by the end of this year, and our targets will have been achieved by then as planned. At this point in time, again, a big thank you to my PUMA team, to the organization, who's been helping us and supporting us in executing the rightsizing, but at the same time, focusing on building and rebuilding the business and our brand. We have also pointed out last year in '25 that we're not happy with our distribution quality. We have shown you at the time that's the left side of the graph here that PUMA has an overexposure when it comes to the so-called mass merchants part of our distribution. What you see on the right-hand side is twofold: a, we have, on an absolute level, reduced our exposure with those customers; and b, we have also relegated them further down in the ranking. So they are not anymore the top 1 and top 2 customers globally worldwide. That is part of our promise in terms of cleaning up the distribution and giving PUMA a better chance to appear as a healthy and a prosperous brand in the future. Mass merchants will have a very limited role in PUMA's distribution, like they do for any other competitor in the industry in the future. So overall, we are providing a very solid foundation for our organization to rebuild our brand. That means we are sharpening our brand identity, and we are sharpening our positioning towards consumers in each and every market, in each and every channel around the globe. We have kicked off a significant investigation and reshaping or optimization of our overall marketing working budget. We are diligently investigating now where we are going to have fixed funds versus flexible funds in the future available in order to drive brand momentum and in order to drive the technologies and the icons and the product franchises we have identified as key for our success moving forward. And strengthening these key product franchises is of paramount importance for us as an organization. And before I hand over to Mark, let me just briefly also touch on the senior leadership changes in our organization during the last quarter. On the commercial side of things, we have announced Bert Blanc as new Vice President for Global Wholesale, and Dusan Hamlin as the new Vice President for Global E-Commerce. That is now completing the channel lineup from a global perspective next to Ronald Reijmers, who was already appointed as the Global Head of Retail. We are also looking forward to Dennis Schroeder joining us as the Managing Director for Europe starting middle of August next month. On the brand side of things, we have now also completed the senior lineup in Maria Valdes' team. Laurent Fricker has taken over the role of Vice President BU Sportstyle and Marcia Dos Santos is the Vice President of the BU Core. So I'm extremely excited now that these people, these new leaders are all on board, helping us to drive both brand and commercial success in the future. And last but not least, of course, we have Mark Langer now on Board with us, and I'm very pleased to hand over to him to explain the financial details of Q2 2026.

Thank you, Arthur. And ladies and gentlemen, also a warm welcome from my side. I'm pleased to take you now through the financial update for the second quarter. Following a solid first quarter, we saw a softer second quarter in line with our expectations. Sales declined by 9.4% on a currency-adjusted basis, mainly driven by 2 factors. First, as indicated in our Q1 presentation, the impact from the reset measures initiated in the third quarter of 2025 was more pronounced in the second quarter than the first. This included the reduction of undesirable business and lower promotional activity across both our full-price stores and e-commerce. Second, subdued consumer demand affected by the ongoing Middle East conflict, broader macroeconomic and geopolitical uncertainty and continued inflationary pressure. Clearance continued to support sales in the second quarter, but had a substantially smaller impact than in Q1. As a result, it could only partially offset the stronger impact from reset measures and weaker consumer demand. Overall, this year the sales development reflects the ongoing impact of the measures we are taking, and we remain on track with our priorities during our transition year. Let us now take a closer look at the sales breakdown by sales channels. Wholesale declined by 14%, mainly driven by the reduction of undesirable business against Q2 2025, which still included a substantial mass merchant business. In addition, we saw softer underlying demand from wholesale partners, especially in EMEA and the Americas. Direct-to-consumer sales increased by 0.4% with e-commerce up 1.8%, supported by marketplace expansion in APAC and Greater China. Owned and operated retail stores declined slightly by 0.5% as clearance activities in our outlet stores only partially offset the impact of lower promotions and weaker consumer demand. As a result, the direct-to-consumer share increased significantly from 32% in Q2 '25 to about 35% in Q2 2026. Let us now turn to our regional performance. EMEA sales declined by 12.9% currency adjusted, mainly reflecting a muted wholesale performance from the reduction of undesirable business, subdued consumer demand, particularly in Europe and lower sales in the Middle East due to the ongoing conflict. The Americas declined by 15.4% currency adjusted, with North America down 16.7%, mainly reflecting weaker consumer demand and the continued reduction of undesirable wholesale business with mass merchants. Latin America declined by 13.8% due to softer consumer environment and the temporary operational challenge in Mexico, where we transitioned into a new warehouse and implemented a new ERP system. This affected delivery timing and sales, but we expect part of the business to shift into subsequent quarters. Asia-Pacific increased by 8.6% currency adjusted, once again the best performing region in the quarter with Greater China up 0.9%, supported by direct-to-consumer growth and the positive impact of the 618 shopping festival. This was partially offset by weaker wholesale business, reflecting more cautious wholesale partners following the announcement of ANTA's planned acquisition of a stake in PUMA. All other markets of the APAC region grew by 12.5% currency adjusted, driven by the low-profile trend and strong direct-to-consumer performance in Southeast Asia. Looking at our performance by product division. Footwear sales declined by 11.7%, mainly reflecting weaker performance in Core and Kids. This was partially offset by continued momentum in low-profile styles. Running and Training also delivered strong growth, supported by NITRO styles and the expansion of HYROX-related products. Apparel sales declined by 4.3%, mainly reflecting softer demand in Core and Kids again. This was partially offset by growth in football, supported by the FIFA World Cup jersey sales. Accessories sales declined by 12%, reflecting broad-based decline across most categories. Let us now move on to the major developments in our operating performance. As discussed already, sales declined by 9.4% currency adjusted. On a reported basis, sales were down 9.7%, reflecting a limited FX impact of around 30 basis points, mainly from the U.S. dollar and the Indian rupee. Gross profit margin increased by around 180 basis points to 48.0%, and I will come back to the drivers in more detail on the next slide. Adjusted EBIT, excluding one-time effects, came in at minus EUR 41.9 million, mainly reflecting the significantly lower sales base, which was more than offset the strong improvement in the gross profit margin. One-time effect amounted to EUR 11.2 million, significantly below the prior year level. This was mainly related to personnel and consulting expenses from the cost efficiency program. As a result, EBIT improved to minus EUR 53.1 million compared to minus EUR 109 million in the prior year, resulting in an EBIT margin of minus 3.1%. Let me now come back to the gross profit margin drivers. Overall, gross profit margin increased by around 180 basis points to 48%. The increase was mainly driven by lower sourcing prices. This included tariff refund effect of EUR 11.5 million, which contributed around 60 basis points to the overall margin improvement. A favorable channel mix, reflecting a higher direct-to-consumer share, together with currency effects also supported the margin development. These positive effects were partially offset by negative product mix effects. Let us now take a closer look at operating expenses. Excluding one-time effects, OpEx decreased by 4% to EUR 872.6 million, mainly driven by benefits from our cost efficiency program and favorable currency movements. Marketing expenses remained broadly stable year-on-year. As OpEx decreased less than sales, the OpEx ratio adjusted for onetime effects increased from 48.6% to 51.6% in the second quarter. Moving on to working capital. Inventories decreased by 15.3% to EUR 1.8 billion, mainly reflecting lower purchasing volumes in line with the expected lower sales base for the year as well as ongoing inventory clearance. Trade receivables declined by 18.9% to EUR 1.1 billion, mainly due to the lower sales level, while trade payables decreased by 20.8% to EUR 1.2 billion, reflecting lower purchasing volumes. Overall, these developments resulted in a 17% reduction in working capital to around EUR 1.5 billion. Looking specifically at inventory development, inventory levels continued to decline sequentially in the second quarter, supported by lower purchasing volumes and clearance activities. We remain on track towards more normalized inventory levels by the end of fiscal year 2026. Let us now turn to free cash flow. Free cash flow was significantly stronger year-on-year and came in at EUR 329 million. This improvement was mainly driven by better working capital management, including lower purchasing volumes and inventory clearance, as I discussed previously, as well as improved profitability compared to last year. CapEx was also lower, while investments remained focused on direct-to-consumer, particularly e-commerce and digital infrastructure. As communicated previously, we continue to expect free cash flow to be positive in 2026. Finally, let me comment on net debt development. Net debt amounted to EUR 1.1 billion, slightly above the prior year level, but declined sequentially from Q1 2026, supported by the strong free cash flow generation in the quarter. Our cash position stood at EUR 373 million, up 27% year-on-year. In addition, we had unutilized credit lines of EUR 811 million, resulting in total financial headroom of EUR 1.2 billion. This gives us sufficient flexibility to support our transformation journey and strategic investments. At the same time, given the elevated level of net debt, we remain focused on our deleveraging path and aim to reduce net debt over the coming years. This concludes the financial part of today's presentation. And with that, I hand it back to you, Arthur.

Mark, thank you. Let me now conclude with the presentation on our way forward and specifically our outlook for '26. We remain on track with our transition year, and we do confirm our outlook for full year 2026. The outlook now includes our current assessment of the impact from the Middle East conflict and tariffs, which were not reflected previously. There are 2 key assumptions behind this assessment. First, we expect negative effects from the Middle East conflict on sales and profitability. Second, we expect positive effects from lower tariff rates and tariff refunds on profitability in the mid-double-digit million-euro range, resulting from the U.S. Supreme Court decision dated February 20, 2026. What does this mean for the outlook ranges? For currency adjusted sales, we confirm our outlook of a low single-digit to mid-single-digit decline. Within this range, we now expect a more challenging sales development as weaker consumer sentiment impacted by the Middle East conflict is affecting demand. Against this backdrop, we expect sales in the third quarter to continue to decline but sequentially improve from Q2. For the EBIT, we also confirm our outlook range of minus EUR 50 million to minus EUR 150 million. Based on our current assessment, the positive effects from lower tariffs and tariff refunds largely offset the negative effects from Middle East conflict. For Q3, we expect EBIT to sequentially improve from Q2. At the same time, further deterioration in consumer sentiment beyond our current assessment or additional tariff-related effects that may materialize in the future are not included in the outlook. So let me conclude. We remain focused at PUMA to taking ourselves back to the podium. We will be a top 3 global sports brand in the future again. And that is based on clear roles, clear identities of our categories and a sharper brand profile as outlined in the previous part of the presentation. Accelerating our brand momentum is a foundation for success, for any commercial success in the future. We are very consciously continuously undergoing our transition journey, and that's progressing well with important achievements that have been made and challenges that we are addressing proactively. And finally, our full year 2026 outlook is confirmed. We do remain committed to achieve our plans as announced earlier. Thank you very much. With that, I'm handing back to Manuel.

Thank you, Arthur. Thank you, Mark. We are now ready to start the Q&A session. Operator, please open the line for questions.

[Operator Instructions] First question comes from the line of William Woods from Bernstein.

You said that your inventory clearance is on track. Would you be able to give a bit more of a sense of how much inventory you think is left with your wholesale partners, and how much you think is left in your own channels? What have you got to do over the next 6 months? And then the second question is on Asia ex-China. Why do you think you're growing so quickly in Asia ex-China? What's driving the success of the Speedcat in that market? And are there any learnings that you can take from how you're operating in China and apply them to Europe -- sorry, how you're operating in Asia ex-China and what you can apply to Europe and North America?

Thank you. I will start with the inventory question, then Arthur will comment on the APAC sales trend. So to be very clear, we don't see any need to take back inventory from our wholesale partners. So that was clearly something we did in '25. So there was a clear move to take back inventory from our partners, and we have been very well progressing with adjusted purchase order to clear this inventory, particularly via our factory outlet. So overall, I think we have completed, as you have seen on my previous chart, on the absolute inventory level, our target to normalize inventory levels. So in absolute terms, we are very close to our target. What we need now to achieve to take this fresh revised inventory base to start accelerating our top line. This -- giving our outlook for the current year, we do not expect to return to growth in the current fiscal year, but we think that the inventory level is now right, and there's no further need from inventory clearance and takebacks from wholesalers. With that, over to you, Arthur, on the Asia-Pacific question.

Yes, William. And let me answer the situation in Southeast Asia and why I specifically think we are performing there better. To give credit to the teams, I think in Southeast Asia as well as Korea, the team has started much earlier to focus on a healthy brand and a healthy marketplace environment before we reset the entire company last year. That has affected in a cleaner brand proposition, in a cleaner positioning in the market, and it certainly helped the Speedcat to incubate much faster. It is also a natural thing that low-profile female silhouettes start earlier from a trend perspective in Southeast Asia before they then come across the rest of the globe. We also see now significant commercial impact of the low-profile business in Southeast Asia ahead of impact in Europe and in North America. And what we can learn from that is, of course, as I think we outlined last year already, a cleaner, more stringent marketplace management, an integration of brand and commercial activities and certainly a sharper focus on sell-out ratios versus sell-in. That ultimately, I think, is the answer to your second question.

Next question comes from the line of Anne-Laure Bismuth from HSBC.

I have 2 questions as well. So the first one is about China. You mentioned that wholesale business was weaker in China due to cautious order patterns following the announcement of ANTA acquisition. Can you give more details as to how much down the wholesale business was? And should we think about -- and how should we think about China growth as a whole for the remainder of the year and also next year? And my second question is about the gross profit development for the second half. What are the puts and takes between discounting FX and tariffs?

Thank you, Anne-Laure. So let me start by reiterating what I think explained in our last call already. We're extremely happy about the arrival of ANTA as the future major shareholder. The transaction has not been concluded, so therefore, we're not in direct contact with them in order to reshape our business in China. We do, however, project and customers, wholesale customers are also seeing, they want more stringent development for the DTC-led model, which is part of the ANTA success recipe in China. That has led some of our wholesale partners to be more cautious in terms of store renovations and store build-outs versus the past. We have not actively taken any measures to reduce that business. We remain committed to our partners and our previous commitments, but that is a tendency we now see developing over the year 2026. We're not concerned about that because, as I said, mid- and long-term, definitely, we believe in the strength of that future partnership, and we also believe in the significant opportunities that PUMA will have in China in the future. With that, handing over to Mark for the second part of the question.

Yes. Thanks, Arthur. Let me take the gross profit question. So overall, we expect the improvement versus last year that we've seen in the first 6 months to continue in the second half of the year. Clearly, we continue to benefit from a higher share of direct-to-consumer business carrying higher margin. We continue to see progress in our pricing discipline across all channels, and we will continue to benefit from lower purchasing volume. The impact from exchanges might be smaller to -- more difficult to predict. But I think overall, we do expect a positive impact. And do not forget we have already received tariff refunds also at the beginning of the third quarter. The tariff refund will be another fourth supportive element. So we will expect that gross profit margin in the second half, similar to the pattern we've seen in the first 6 months will be higher than what we have seen in the second half of 2025.

Next question comes from the line of Monique Pollard from Citi.

The first one was just if you could talk about the weaker demand for retail partners, particularly in the Americas. So in this release, you talked about weaker demand from retail partners in both EMEA and Americas versus just talking about that being a problem in EMEA in the first quarter. So I don't know if that is order books softening over the past quarter or what it is exactly, if you could talk to that, that would be helpful. And then could you help me also with an understanding of where you're seeing strong demand for low profile. So obviously, it's an APAC trend, as you've highlighted, but sort of which Asian markets in particular? And are there any other pockets of strength that are emerging for low profile outside of APAC, please?

Thank you, Monique. So talking about the softer developments in North America, these are primarily down to our reset measures, which we've already indicated in '25. So we have significantly reduced as outlined, the mass merchants business, which is part of our wholesale business over there, and we have corrected purchase orders, which were effective for spring/summer '26 last year already. That has led to a softer business primarily in North America. We do see, however, also softer consumer sentiment as outlined in Europe, and that is one of the key drivers for our performance in the second quarter in '26. When it comes to low profile, yes, low profile is very, very significant for us in Asia, Southeast Asia and other countries. However, let's be clear, this is a trend that is now going across the globe, and we do see significant results and significant progress for us also in European and in North American customers. We have a couple of customers, key customers where PUMA Footwear, from a women's perspective is the fastest-growing brand at this point in time. We've been nominated shoe of the season or footwear of the season by several publications recently. So you definitely see this as a global trend that will also prevail into 2027. I'm pretty confident about that. Thank you.

Sorry. Can I just ask a follow-up? On the -- where are these -- the few customers that you have where the female customers are seeing, PUMA Footwear being the fastest-growing footwear of the brands they have, where are those customers located?

To date, primarily in North America and in Southeast Asia. So key customers in North America, high street customers that people are very familiar with.

The next question comes from the line of Thierry Cota from Bank of America.

First on revenue growth next year. I think you've said in the past that you were targeting to grow above industry that you were estimating at a low- to mid-single-digit pace next year. So if you still do, which I would imagine, can you tell us what is the contribution you expect from current sell-out this year as a proportion of sales to sort of build -- questions about comparison base? And secondly, what reception from wholesale accounts are you having for the products that you will launch next year, notably in terms of orders, do you already have visibility? And my second question would be on the business model. What kind of revenue growth do you think you need to stabilize the ratio of OpEx to sales? And do you think it can happen before you reach about a 40% exposure to retail, which, if I'm not wrong, is one of the targets you have for the medium term?