Rihanna to the Rescue? Despite Positive 2022, Puma Urges Caution for 2023
Even if the outlook is a little darker, it’s been a positive week for German sportswear brand Puma so far. On Wednesday morning, the company reported record income for 2022 with sales rising 18.9 percent, in currency adjusted terms, to bring in 8.46 billion euros.
Shortly thereafter, Puma also signaled that one of its best known and most-hyped collaborations was making a comeback. A single all-black Instagram post on the company’s account pronounced “she’s back.” The branding at the bottom of the post, featuring the word Fenty, indicated that pop star and personality Rihanna would be returning to work with Puma again.
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A subsequent two-line statement from the company didn’t offer any further clues to what the new collaboration might look like, but an hour after the announcement on Instagram, the post had already garnered thousands of likes and excited comments.
Rihanna — full name, Robyn Rihanna Fenty — first started as a creative director for a Puma womenswear line in 2014. This eventually also involved a collaboration under her own name, Fenty x Puma.
Some of the Rihanna-inspired looks, including a thick-soled take on classic suede sneakers — the Puma Creepers, which sold out in just three hours — and much-hyped runway shows in Paris and New York were credited with delivering Puma better-than-expected sales over several quarters. However, the partnership between Rihanna and Puma ended in the spring of 2018.
Rihanna’s return comes at a particularly important time for the brand.
Over the last year, Puma has reported record-breaking quarters and the last three months of the year saw sales growth of 21.1 percent, currency adjusted, totaling 2.2 billion euros.
However, toward the end of the fourth quarter, the pace of growth had slowed and costs had been rising. The company warned of more difficult days ahead, cautioning that it didn’t expect the same kind of growth in 2023.
“Despite the strong growth in 2022, we continue to face a high degree of geopolitical, macroeconomic and commercial uncertainty,” the company said in its statement, citing “high inflation and high interest rates…volatile retailer and consumer demand” as well as higher freight and raw material costs.
Unlike in 2022, Puma only expects currency-adjusted sales to grow in high-single digits for 2023.
In December last year, Puma also lost former chief executive officer Bjorn Gulden. He led the company for the past nine years and is largely credited with seeing Puma succeed at such a rate — including guiding it to the record-breaking figures in 2022. Gulden left Puma to take the reins at local competitor, Adidas.
Market analysts from the likes of Deutsche Bank, JP Morgan and Baader Bank were satisfied with what were described as Puma’s “solid” results in 2022. While some said the company had provided a “realistic” outlook for 2023, others pronounced it conservative and suggested this kind of caution likely comes on the heels of a profit warning from much-larger competitor Adidas. In terms of the company’s margins, 2023 is likely to be a transitional year, Piral Dadhania, a sector analyst with the Royal Bank of Canada wrote in a first reaction.
If it turns out as successful as last time, Rihanna’s return could help ensure Puma stays on track.
Just as with Adidas’ now defunct collaboration with Kanye West, Puma was previously able to put a premium price on the sought-after Rihanna-designed items. Adidas has never disclosed what it earned from the Yeezy line but industry experts suggested it potentially may have brought in around 40 percent of the company’s annual profits, due to more favorable pricing. The new Rihanna collaboration, with items also likely to sell at higher price points, may well offer the same positive potential to Puma.
In other collaborations, Puma has increasingly seen success with its U.S. basketballers, players like LaMelo Ball and Breanna Stewart, both of whom have signature shoes with the brand. Stewart’s shoe, the Stewie 1, is “the first signature shoe for a female athlete in over a decade,” Puma said.
Puma has been deliberately focused on the basketball sector in the U.S. and this continued to pay off in 2022.
Last year’s growth at Puma was led by sales in the Americas. In 2022, fourth-quarter sales in the region saw a 29 percent rise, currency adjusted, to 997.6 million euros. This fed into total annual sales worth 3.69 billion in the territory, reflecting an increase of 28.3 percent for all of 2022. This was the first time Puma had broken the 3 billion euro mark there, the company reported.
Business in the Americas now makes up just over 43 percent of the brand’s total sales. In 2018, the year that Puma appointed U.S. entrepreneur Jay-Z to be its creative director for basketball, the region only made up around 35 percent of all sales.
Sales in Puma’s home market — Europe, the Middle East and Africa — rose 26.1 percent, currency adjusted, to 727.1 million euros over the last three months of 2022. This led to 3.11 billion euros in sales in the territory for the full year and growth of 22.5 percent over all of last year.
In Asia Pacific territory, the company said lockdowns in China as well as geopolitical tensions were still impacting business there, even as sales in other parts of the region increased. Sales recovered slightly in the fourth quarter to rise 1.1 percent, currency adjusted, to 471.9 million euros. However this was not enough to compensate for problems over the whole year. For 2022, Puma sales in the Asia Pacific region fell 2.2 percent, currency adjusted, to hit 1.66 billion euros.
In terms of product categories, Puma reported some slight decreases in the fourth quarter, with apparel and accessory sales falling 1.6 percent and 5 percent, respectively, reflecting what the company described as “softer demand in North America and Greater China.”
The mild decreases did not detract from full-year growth, though, with apparel sales rising 10.1 percent last year to total 2.9 billion euros and accessories increasing 5.4 percent to reach 1.12 billion euros.
Puma’s footwear continues to bring in the most money for the firm. Sales growth of 53.3 percent, currency adjusted, in the fourth quarter fed into total sales of 4.32 billion euros in the category over all of 2022. The company reported an increase of 30.8 percent, currency adjusted, in footwear sales for the full year.
Puma’s earnings before interest and taxes, or EBIT, also took a hit in the fourth quarter of last year, falling 37.6 percent, currency adjusted, to 40.5 million euros. However, EBIT was positive for the whole of 2022, increasing by 15 percent, currency adjusted to 640.6 million.
This was slightly below market expectations of 644 million euros and Puma shares fell by 6.8 percent in Germany. For 2023, Puma predicted somewhat more static earnings before interest and taxes, with these coming in somewhere between 590 million to 670 million euros.
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