Photographer: Guenter Schiffmann/Bloomberg

Puma Warns Full-Year Earnings to Drop on Strong U.S. Dollar

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Puma SE cut its full-year outlook, forecasting earnings to slump as the German sports-gear maker struggles to contend with the strengthening dollar.

Earnings before interest and tax will be 80 million euros ($90 million) to 100 million euros, a drop of as much as 37 percent from a year earlier, also due to higher marketing expenses and expansion costs, the shoemaker said Wednesday.

The dollar’s advance had a “significant negative impact” on first-quarter earnings, Puma said, sending its shares down the most in almost three years. While a stronger U.S. currency benefits most European exporters, Puma pays in dollars for the vast majority of its soccer shoes and jerseys, so its buying costs increase when the euro weakens.

“What hurt our profit margin is that those countries that have no hedging and whose cost of goods increased dramatically, like Mexico, Brazil, Turkey, Argentina, Russia, and South Africa, are where we usually have also a high profitability,” Chief Financial Officer Michael Laemmermann told reporters on a conference call. “And now it’s dramatically impacted.”

Local Sourcing

Puma raised prices by 25 percent in its Russian stores in the first half, and further price increases are planned for the second half, Chief Executive Officer Bjoern Gulden said on a conference call. In Mexico, the price hike was 6 percent, with another 6 percent coming. Puma has hedged some currencies for the second half, and the company is also increasing local sourcing, the CEO said.

“The company clearly got caught short in terms of currency movements based on what was hedged and not hedged,” said John Guy, an analyst at MainFirst in London.

Puma shares were down 2.7 percent at 176.30 euros as of 12:07 p.m. in Frankfurt.

The sports-gear maker said its gross profit margin in 2015 will narrow by 1 to 1.5 percentage points, abandoning previous guidance for a “slight increase.”

The margin declined to 46.9 percent in the first quarter from 48.5 percent a year earlier due to the dollar’s strength compared to currencies such as the Russian ruble, Mexican peso, Brazilian real, Turkish lira and Argentinian peso.

“We do work hard to counter these negative currency effects, but do currently not have enough leverage to fully neutralize the impact,” the company said.

Consumer businesses such as Associated British Foods Plc and Hennes & Mauritz AB have also been hurt by the dollar’s strength. The greenback has gained 24 percent against the euro over the past year, even after easing from its March peak.

The setback “shouldn’t derail Puma’s long-term investment plan,” said Guy at MainFirst. Gulden is focusing on a recovery program to revive growth that includes introducing new shoes for soccer and running and winning retail space for the Puma brand.

Puma said its outlook for a “medium single-digit” increase in currency-adjusted sales is unchanged.

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