A Strategic Financial Analysis of Puma SE and Comparative Analysis with Adidas AG.
This report provides an analysis of Puma SE’s (Puma) 2019 financial performance, current financial
position and strategic outlook in relation to placing a competitive bid for future work. It provides an
overview of their market stance and a comparative analysis of performance with that of Adidas AG
(Adidas).
Context
External Analysis
Puma SE is a German founded multinational corporation that designs and manufactures athletic and
sports clothing, footwear and accessories and is headquartered in Bavaria, Germany. The company was
founded in 1948 and first listed on the Frankfurt Stock Exchange in 1968. Since its creation, Puma has
evolved from a regional manufacturer to become the global entity it is today, employing over 13,000
staff and operating on six continents, with EMEA being their largest market accounting for 37.9% of all
sales in 2020, (Statistica, 2021).
Fig 1 – Puma’s Sales Share Worldwide by Region 2020.
(Source: https://www.statista.com/statistics/254028/sales-share-of-the-puma-brand-worldwide-by-region)
Puma’s diversification and innovation has allowed it to cater to almost every sporting subdivision and the
rise of online shopping has further supported its growth and market penetration, (Kol & Lissitsa, 2016).
The sporting goods and apparel sector is highly competitive (Su & Tong, 2015) and Puma is one of several
global companies that dominate this market. Adidas, Nike and Reekok are among Puma’s competition
and are also operating as multinational corporations across a diverse range of sporting and leisure
ranges. Nike is currently the market leader in terms of sales revenue which totaled €35.13 billion in
2019, (Nike, 2020). New technology such as app based shopping, same day delivery and e-commerce
websites coming online in developing countries have bolstered sector growth which is expected to
continue through the decade, (Arokairaj, 2021). Consumer trends such as the increase in casual wear
being used as every day clothing, and an increase in health consciousness have also increased market
value of Puma and similar businesses in the sector (Chi & Kilduff, 2011) and consumer disposable income
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has increased, (Van Ophem, 2020). The Statistica Consumer Market Outlook has estimated a 24.2%
growth in the global active wear market between 2020 and 2026, (Ref Fig 2.).
Fig 2. Expected Growth of the Global Active-wear Market from 2020 to 2026.
(Source: https://www.statista.com/statistics/613169/size-of-the-global-sportswear-market)
Despite previous years sector growth the industry has been heavily impacted by the ongoing COVID-19
pandemic which has resulted in 70-80% of all retail space closing for an unknown and elongated period,
along with the cancellation or postponing of all major sporting events worldwide, (Puma, 2020). A
Porters Five Forces Analysis further outlines the threats Puma and the industry face, (Ref Table 1).
Table 1. Porters Five Forces Analysis of Puma.
Porters Five Forces Analysis
Little bargaining power in big industry.
Bargaining Power of Buyers Options consumer has when buying will increases influence.
Customer experience is a focal point of brands and influences an
individual’s purchase decision.
The bargaining power of suppliers is low.
Economies of scale works to the advantage of multinationals.
Bargaining Power of Suppliers Materials are sourced from multiple suppliers driving down costs
Cheaper materials that are unethically sourced may ultimately damage
the brand.
Threat of new entrants is not high for market leaders.
Significant investment required to finance operation, supply chain and
Threat of New Entrants transportation networks.
In COVID-19 era difficult to launch a new brand on the scale of Puma
or Adidas.
The threat level is moderate from substitutes.
Smaller brands can detract custom from Puma.
Threat of Substitutes
Consumers are increasingly supporting local and smaller brands.
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Industry rivalry poses a significant threat.
Puma and its rivals have undertaken major image campaigns
promoting themselves as sustainable, responsible corporations
Industry Rivalry
focused on quality and customer experience.
Puma must continually innovate and upgrade its strategy to meet
market expectations.
Internal
Puma’s corporate mission is “to be the Fastest Sports Brand in the world” and they employ a “forever
faster” corporate strategy. The mission statement is significant as it recognizes the company’s strategic
objective to be ahead of or faster than their competition. Puma believes the emphasis on speed in the
mission statement should be reflected in its innovation, branding and direction allowing it to remain
ahead of the competition while best serving the needs of its customer, (Puma, 2020).
The company’s strategy has been to set itself apart from its competition through diversification and
innovation, with its business being split across three main sectors; footwear, apparel and accessories
(Puma, 2020). The largest of these sectors is footwear and accounts for 45.2% of sales, (Ref Fig 3).
Fig 3. Percentage of Global Sales by Category 2019.
(Source:https://www.statista.com/statistics/254019/share-of-pumas-consolidated-sales-worldwide-by-segment)
The company has set out six strategic priorities to be adressed in the future: brand heat, a competitive
product range, a leading offer for women, improving distribution quality, organizational speed and
building sports performance credibility in the US through re-entry into Basketball, (Puma 2020).
Puma is focused on social, economic and environmental sustainability. In the 2019 Annual Report they
stated they have already achieved 9 out of their 10FOR20 sustainability targets and developed the next
set of targets for 2025, (Puma, 2020). Puma supports the Fashion Charter for Climate Action together
with UN Climate and joined the Fashion Pact, a global coalition of fashion companies, suppliers and
distributors which advocated sustainability in the industry, (Puma 2020). They maintain a long-standing
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social compliance program is recognized by the Fair Labor Association of which they been an accredited
member since 2007, (Puma, 2020).
Puma employs a segmented reporting structure based on the geography in which it operates with each
individual region forming a business segment. Sales revenue, EBIT and any other information are tied to
the corresonding geography according to the registered office of the respective group company and are
repoeted as reportable business segments in accordance with IRFS 8, (Puma 2020). Pumas central
leadership have defined theur key targets as growth and profitability and are focused on improvement of
sales, increasing gross profit margin and EBIT, (Puma 2020).
Overview
In the 2019 Annual Report Puma cited sales revenues of €5,502.2 million for year ending December
2019, an increase of 18.4% YOY, (Ref Fig 4). Puma’s operating margin in 2019 was 8%, up from an
operating margin of 7.3% in 2018. In 2019 the company recorded a net margin of 4.8%, compared to a
net margin of 4% in 2018, (Puma, 2020).
Fig 4. Pumas Sales Revenue from 2000 to 2019.
(Source: https://www.statista.com/statistics/268490/operating-revenue-of-puma-worldwide-since-2000)
Puma’s gross profit in 2019 was €2,686.4 million, a 19.4% increase on 2018 driven by product and
regional mix and an increased portion of Pumas retail sales. Puma notes foreign currency effect also had
a less significant impact in the period than expected, (Puma 2020).
Net earnings increased by 40.0% from €187.4 million in 2018 to €262.4 million in 2019 as a result of
strong sales growth alongside improved profit margins and operating leverage. A lower tax rate was also
noted, (Puma, 2020).
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EBIT improved by 30.5% from €337.4 million to €440.2 million between 2018 and 2019. The improved
profitability was a result of sales growth, improved gross profit margin and lower than planned increase
in operating income and expenses against sales. EBIT margin was 8%, (Puma, 2020).
Earnings per share increase by 40% from €1.25 last year to €1.76 respectively, (Puma, 2020).
Table 2: Key Numbers Comparison from 2018 & 2019 for Puma and Adidas.
Puma (Million Euro) Adidas (Million Euro)
Year 2019 2018 2019 2018
Current assets 2,481.20 2,192.8 10,934 9,813
Non-current assets 1,897.00 1,014.4 9,746 5,799
Total assets 4,378.20 3,207.2 20,680 15,612
Current liabilities 1,558.90 1,195.2 8,754 6,834
Non-current liabilities 899 289.7 4,868 2,414
Shareholders’ equity 1,920.30 1,722.2 6,796 6,377
Total liabilities and shareholders’
4,378.20 3,207.2 20,680 15,612
equity
Sales 5,502.20 4,648.2 23,640 21,915
Gross profit 2,686.40 2,249.2 12,293 11,363
EBIT / operating profit 440.2 337.4 2,660 2,368
Cash and cash equivalents at end
518.1 463.7 2,220 2,629
of the financial year
It is noteworthy also that while Adidas and Puma represent the second and third largest leaders in the
industry, Nike holds the biggest market share in the sportswear and apparel industry and dwarfs both its
competitors. This driven by its dominance in the North American market where 2019 sales revenue was
€13,230 million, representing 37.6% of their total sales of €35,130 million, (Puma 2019).
Fig 5. Puma, Adidas and Nike revenue comparison 2006-2020.
(Source: https://www.statista.com/statistics/269599/net-sales-of-adidas-and-puma-worldwide)
Ratios
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In order to best judge the decision as to whether a competitive bid for a contractual agreement with
Puma is in the best interests of the business, a series of ratios have been collated to form the basis of a
comparative analysis between Puma and Adidas, (Ref Table 3).
Table 3 – Financial Ratios of Puma and Adidas.
Puma Adidas
Ratio 2019 2018 2019 2018
ROCE 29.60% 25.80% 45.40% 45.10%
Gross margin 48.80% 48.40% 52.00% 51.80%
EBIT Margin 8.00% 7.31% 11.30% 10.80%
Asset Utilisation 1.91 1.99 1.78 1.82
Current Ratio 1.59 1.83 1.25 1.44
Quick Ratio 0.88 1.07 0.78 0.93
Cash Ratio 0.33 0.39 0.25 0.38
Working Capital 923 977 2,180 2,980
ROCE for both Puma and Adidas saw an increase from 2018 with Puma increasing 3.8% and Adidas by
0.4%. While the data shows both companies are generating profits from their capital and YOY growth, it
is notable that Adidas ROCE is 15.8% higher than that of Puma indicating that Adidas reinvested capital
yields a higher rate of return than Puma’s.
Gross Margin also increased for both Puma and Adidas reporting 48.8% and 52% respectively. This
represented a 0.4% increase for Puma and 0.2% increase for Adidas. While Puma saw the greater
increase YOY, Adidas’ margin was 3.2% higher overall indicating Adidas will retain more capital on sales
which can then be utilized elsewhere in the business.
EBIT margins also increased for both companies, Puma increasing 0.7% to 8% YOY and Adidas increasing
0.5% to 11.3%. The higher EBIT of Adidas indicates the company has less operating expenses and
therefore higher overall earnings than Puma’s.
Asset Utilization has decreased for both companies with Puma and Adidas indicating both companies are
becoming less efficient which is reflected on the revenue returned for every € of assets. Asset utilization
of Puma was 6.8% greater than Adidas, suggesting they have a more efficient operation.
Current Ratios have also decreased for both organizations YOY by 4% (Puma) and 13.2% (Adidas),
however both companies are still in a very strong position as current assets are greater than current
liabilities in both cases. Puma has a ratio of 1.59 and Adidas 1.25 in 2019, indicating Puma is in a stronger
position to meet short term obligations. Industry benchmark is 2:1 which both companies fall short of,
(Andal et al, 2019).
The Quick Ratio of Puma and Adidas decreased YOY by 17.8% and 6.9% respectively. With a quick ratio of
0.88 Puma still appears to be in a good position to meet its short term obligations. Adidas, with a ratio of
0.78 is considerably further away from this position and would struggle to meet its current obligations
with a liquidity ratio this far below 1.
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Cash Ratios also decreased between 2018 and 2019 for both companies. Puma saw a 15.4% reduction to
0.33, while Adidas dropped 34.2% to 0.25. Both companies have ratios far below 1 meaning they have
insufficient cash on hand to pay its short term liabilities, however Puma is in a stronger position than
Adidas in cash and near cash coverage of liability. Industry benchmarking is 0.5 which both companies
fall short of.
Working Capital has decreased for both Puma and Adidas by 13.2% and 26.8% respectively, however in
both instances it is still substantial with Pumas totaling €923 million and Adidas recording €2,180 million
in 2019. This substantial working capital puts Adidas in a stronger position over Puma to invest in future
projects and enterprises to continue growth. While Pumas working capital is not a major cause for
concern, it may restrict growth on the same scale as Adidas in the future.
Evaluation
Based on the above analysis it is clear Puma holds a strong market position. Year on year since 2014
Puma has recorded grow in sales and its ambitious plans to enter into partnership the National
Basketball Association in 2021 and a string of celebrity endorsements in the sport in could prove
lucrative, (Puma, 2021). Adidas has enjoyed similar successes in recent years and on a much larger scale
with sales reaching €23.6 billion.
However despite the successes in recent years there are also certain risks. The World Bank predicted the
global economy will shrink by 5.2% due to the effect of COVID-19 and global supply chains will be
compromised due to international restrictions for an undetermined amount of time, (World Bank 2020).
This uncertainty and VUCA operating climate adds another degree of complexity to potential
opportunities and increases risk, (Bennet, 2014). The positive growth of both Puma and Adidas will both
be impacted by the same factors in the COVID era. This may be further magnified by the persisting global
economic downturn that has reduced footfall in brick and mortar stores and pushed operating costs
higher, (Cassidy & Resnick, 2020).
Ultimately the size of the contract will have a large impact on the business decision on whether or not to
proceed with a big. If the contract of proportionate to supply a percentage share of materials to either
company, Adidas would prove a more lucrative partnership.
Scalability should also be taken into account. Given Adidas’ size advantage over Puma and their current
trajectory of growth, the business may need to scale much faster than if it partnered with Puma in order
to meet their supply needs. This could put additional pressure on the business if funds were not
available to meet such a ramp up in operations.
Duration of the contract, being five years, should also be taken into account. Given the change of the
market in the past five years, the next five may also see considerable change and volatility that cannot be
predicted ahead of time. This volatility will affect both Puma and Adidas. We must also assess the solidity
of the current contract with Adidas and the potential impact on reputation for ceasing business relations
with Adidas to bit for a competitors work.
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Recommendations
Based on the review the below recommendations are made to the board In relation to bidding for the
contract with Puma.
Puma contract is of significant size and will be for at least five years in a financially stable firm.
This is positive for bidding for Puma work.
Adidas is a much larger entity and if the contract is larger and more financially viable then a
renewed contract with them would be beneficial.
Both Puma and Adidas have sufficient liquidity to settle debts with suppliers in a reasonable time
frame.
Given the preexisting relationship with Adidas it is recommended that you renegotiate this
contract and continue to supply Adidas.
If the business is able to scale up to a point where it can supply both Adidas and Puma this is the
most favorable outcome.
References
Adidas (2020) Adidas Annual Report 2019. Adidas AG. Herzogenaurach, Germany.
Arokairaj, D. (2021) Customers Buying Behavior and Preference Towards International Branded
Sports Shoes. Psychology and Education. Volume 57, Issue 9, (pp. 2753-2758).
Bennet, N. (2014) What a Difference a Word Makes: Understanding Threats to Performance in a
VUCA World. Business Horizons. Volume 57, Issue 3, (pp. 311-317).
Cassidy, K. Resnick, S. (2020) Adopting a value co-creation perspective to understand High Street
regeneration. Journal of Strategic Marketing.
[https://www.tandfonline.com/doi/full/10.1080/0965254X.2019.1642938] Last accessed:
24/04/2021.
Chi, T. Kilduff, P.P.D. (2011) Understanding Consumer Perceived Value of Casual Sportswear: An
Empirical Study. Journal of Retailing and Consumer Services. Volume 18, (pp. 422-429).
Kol, O. Lissitsa, S. (2016) Generation X vs. Generation Y – A Decade of Online Shopping. Journal
of Retailing and Consumer Services. Volume 31, (pp. 304-312).
Puma (2020) Puma 2019 Annual Report. Herzogenaurach, Germany.
Su, J. Tong, X. (2015) Brand personality and Brand Equity: Evidence from the Sportswear
Industry. Journal of Product and Brand Management. Volume 24, Issue 2, (pp. 124-133).
Van Ophem, J. (2020) COVID-19 and Consumer Financial Vulnerability. Central European Review
of Economics and Management. Volume 4, Issue 4, (pp 115-132).
World Bank (2020) East Asia and Pacific in the Time of COVID-19. World Bank East Asia and Pacfic
Economic Update. World Bank Group.
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