The major running shoe companies pounding the pavement are Nike (NKE.N), Adidas (ADSGn.DE) and Puma (PUMG.DE). Like many marathon racers, however, Puma seems to have hit a wall.
The company’s turnaround plan over the last few years has not yet yielded results and margins continue to suffer as it loses ground to Adidas and Nike. Puma is expected to report full year results on Feb. 10, 2014 and from the large negative Predicted Surprise of 10% it looks like the company will report an earnings miss.
Source: Eikon/StarMine
Estimates running out of breath
The I/B/E/S consensus estimate for the year fell from almost €15 per share to its current level of €9.50 per share. The StarMine SmartEstimate, which puts more weight on the most accurate analysts and the most recent estimates, is even lower at €8.55 per share. Since the beginning of June, every analyst except one has lowered their estimate for Puma. Most point to falling margins and an increasingly less relevant brand name.
Source: Eikon/StarMine
Falling behind the race leaders
As industry margins remained flat, Puma’s trailing 4Q operating margins stayed above the industry median until just two years ago. Since then they have plunged and turned negative in the latest quarter ending September 2013, a fall of more than 13 percentage points from five years ago. That’s not so good news as the company has been struggling to cut costs. Puma recently announced that it was shutting down its operating office in London and relocating back to the small town of Herzogenaurach in Germany, which is where its headquarters are located.
Source: Eikon
Athletics, not fashion
Puma earns more than half its revenues from the footwear segment, and in an attempt to refocus the company, CEO Bjoern Gulden told journalists, “We are a sports company, not a sports lifestyle company.” Look for the percentage of revenues from the accessories division to fall. That likely means that revenues are going to continue to decline as Puma become less a fashion and more of a sports company.
Source: Eikon/StarMine
Pricey stock
Although Puma does not seem to be in any immediate credit risk, most other StarMine models paint a negative picture. It doesn’t seem cheap according to the StarMine valuation models and the stock price seems to have negative momentum. And even earnings don’t seem to be of high quality based on the poor StarMine Earnings Quality (EQ) model score. Even if it is in the midst of a turnaround, there is still plenty of work to be done to catch up with bigger and deep pocketed rivals such as Nike and Adidas. It remains unlikely that even an endorsement from sprinter Usain Bolt is going to help earnings race ahead of expectations.
SMARTESTIMATES AND THE PREDICTED SURPRISE %
SmartEstimates: StarMine Professional quantitatively analyzes the earnings estimate accuracy of sell-side analysts and uses this information to create proprietary
SmartEstimates®.SmartEstimates help you better predict future earnings and analyst revisions with estimates that place more weight on recent forecasts by top-rated analysts.
Predicted Surprise %: The Predicted Surprise% is the percentage difference between the SmartEstimate and the I/B/E/S consensus estimate. When SmartEstimates diverge significantly from consensus, it serves as a leading indicator of the direction of future revisions and/or surprises. In aggregate, this indicator gets earnings surprises directionally correct 70% of the time.
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