Munich Puma boss Björn Gulden sees the many global uncertainties and risks as sportive. “The situation is difficult for everyone. We just have to be better than the rest,” said the Norwegian when presenting the quarterly figures.
The third largest sporting goods company in the world is currently doing this. Puma is still much more dynamic than Adidas. While the larger competitor had to lower its forecasts for the current year on Tuesday, Gulden raised its sales outlook on Wednesday after a record quarter. “They go their own way,” praised analyst James Grzinic from the investment house Jefferies.
The divergence of the two Franconian archcompetitors has several causes. The main one is the different presence in China, where Adidas has been hit harder than Puma by the constant lockdowns and calls for boycotts against Western brands due to its stronger starting position. However, some experts currently also see greater brand strength at Puma.
This is also indicated by the development in the second quarter. Puma increased sales by a good 18 percent currency-adjusted to more than two billion euros for the first time. “This illustrates the strong demand for our products despite all the global challenges and uncertainties,” said Gulden.
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As a consequence, he raised the sales forecast for the full year. The group now expects growth in the mid-teens percent range. The profit forecast confirmed Gulden. The operating result (EBIT) should increase from 557 million euros to 600 to 700 million euros.
Adidas lowered expectations for 2022 on Tuesday evening. The global number two now only expects sales growth in the mid to high single-digit percentage range, instead of the original eleven to 13 percent.
Adidas has been growing more slowly than competitor Puma for some time.
(Photo: dpa)
Adidas also conceded the profit forecasts. The group is only aiming for around seven percent for the operating margin for the full year, previously Adidas had promised up to eleven percent.
Adidas justified the forecast reduction with a “slower than expected recovery of business in China”. In addition, the consumer climate could also weaken in Europe and the USA in the coming months. In the second quarter, Adidas increased sales after a decline in the first quarter by at least four percent to 5.6 billion euros. However, the group grew much more slowly than its competitor Puma.
A pattern that has been emerging for a long time. The brand with the big cat was able to increase its sales by a third last year, while Adidas only increased by 16 percent. And also in 2022 the pace of Puma is significantly higher. In the first quarter, sales increased by 20 percent to 1.9 billion euros. “Based on such a strong first quarter, we would usually raise our outlook for the year as a whole,” said Gulden at the end of April. But with a view to the many global challenges – from new corona lockdowns in China to rising material prices to the Ukraine war – the Norwegian was still cautious at the time. With the current forecast increase, the Puma boss is now bolder.
China is not getting back on its feet
One of the main reasons for the different performance is the fact that Adidas has a stronger presence in China. Last year, the share of sales in China was almost 22 percent and thus about twice as high as at Puma. That’s actually a strength: Despite all the current problems, China was considered the most important growth market for the global sporting goods industry.
Chinese nationalists have been campaigning against Western brands for taking a stance on human rights abuses in Xinjiang Province.
(Photo: Reuters)
But in the short term, a strong focus on China is a burden. So far, Adidas had expected that sales in the region could be kept stable in the second half of the year. However, due to the ongoing extensive Covid-19 restrictions, Adidas is now bracing for a double-digit percentage decline in China sales for the remainder of the year.
Like other Western brands, Adidas is struggling with the new Chinese buying behavior, which places greater emphasis on domestic brands and designs. Adidas had also joined an initiative that no longer purchases cotton from Xinjiang Province due to indications of forced labor. Like its big competitor Nike and Puma, the brand was the target of a call for a boycott by Chinese nationalists.
Adidas boss Kasper Rorsted reacted and set up a task force. The group now wants to develop more articles for the Chinese market in China in order to meet the special needs. In addition, Adidas is expanding the digital sales channels on site and has replaced the China boss. Puma also had to accept a slight drop in sales in the Asia-Pacific region in the second quarter due to stronger losses in China. However, the effect was not as strong as in the case of Adidas on the entire group.
Puma relies more on retail, Adidas more on direct sales
According to experts at Adidas, there is also room for improvement in terms of brand strength. Puma and also world market leader Nike currently have a “greater brand heat” than Adidas, said Thomas Jökel, fund manager at Union Investment.
“It’s sometimes doing worse than others in the industry and the question is why.” Daniela Bergdolt, German Association for the Protection of Securities, on the Adidas business
Daniela Bergdolt, Managing Director at the German Association for the Protection of Securities, was critical of Adidas: “It’s sometimes going worse than others in the industry, and the question is why.” The group always emphasizes that it has a full product pipeline. But if others grow faster, you either don’t have the right advertising medium or you’re not innovative enough.
There are also differences in the sales strategy. Adidas relies heavily on direct sales to end customers, for example in its own online shop. For Puma, retail partners are a priority. It could be that this is less profitable in the short term, said Gulden. However, he is confident that the strategy will pay off in the long run.
He is convinced that in sports, customers always want to choose from several brands. Anyone looking for a running shoe wants to look at and test models from different manufacturers. Therefore, a one-brand offer is not the best solution.
Incidentally, the big players in the industry rely heavily on direct sales, said Gulden – as a smaller challenger it could be clever to try something different. The strategy is working. At the retail chain Sport 2000, for example, Puma sales increased by double digits last year, and number three was able to get closer to Nike and Adidas.
However, Puma and Adidas have not performed particularly well on the stock exchange. Both stocks have lost more than a third of their value since the beginning of the year.
More: Investors are calling for a turnaround at Adidas