What's going on?
German sportswear brand Puma all but completed its turnaround on Tuesday, announcing first-quarter sales and profit growth above its own targets. Despite the roaring growth, however, contingency planning to avoid potential trade taxes (a.k.a. “tariffs”) meant the stock barely managed a meow!
What does this mean?
Puma grew its total sales by 22% compared to last year’s first quarter (excluding the effects of currency swings), highlighting particular success in Asia, where sales grew by 35% versus last year. The company now expects to achieve slightly better financial results in 2018 than previously anticipated, but held off increasing its projections further due to “uncertainties” in its business environment…
Why should I care?
The bigger picture: The sporting goods sector might be the next “trade war” target.
One of the major uncertainties facing Puma is the ongoing trade dispute between the US and China. Puma’s worried that the US government will target China’s clothing and footwear industry in its next round of tariffs, making it more expensive for companies to bring their wares into the US. Just in case, Puma is making plans to move its manufacturing out of China, a process that could take about a year. Puma currently makes about a third of its products in China (by comparison, about 20% of Adidas’ products are supplied from China, and around 25% of Nike’s).
For markets: Asian consumers’ spending growth looks strong.
Brands like Puma are pouncing on the imagination (and wallets!) of Asian consumers as the rising middle class in China spends more on health and wellness. But they’re also spending more on high-end brands like Cartier and Swatch. According to Swiss watch export data released on Tuesday, growth in March’s exports to Hong Kong, Singapore, South Korea and Japan outshone the rest of the world. And Tuesday’s results for luxury giant Kering (it owns Gucci and most of Puma) confirmed this trend, with sales in Asia over 40% higher than last year.