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Puma sees profit hit from U.S. tariffs on China

BERLIN (Reuters) - German sportswear group Puma PUMG.DE cautioned on Thursday that it would take a hit from U.S. tariffs on China in the fourth quarter but still raised its sales forecast and narrowed its profit target after a strong third quarter in all regions.

FILE PHOTO: The logo of German sports goods firm Puma is seen on a shoe after the company's annual news conference in Herzogenaurach February 20, 2014. REUTERS/Michaela Rehle/File Photo

“So far everybody is eating the tariffs in their margins,” Chief Executive Bjorn Gulden told journalists, adding that he expected rivals to increase U.S. prices, but Puma would not hike first as it is not the market leader.

Instead, Puma would seek to shift even more production for the U.S. market from China to countries like Vietnam and Indonesia, Gulden said.

Production in China for the U.S. market has already been cut to about 20% from more than 50% five years ago, he said.

That has incurred extra costs as some styles are now produced in two places. However, it has not led to reducing production in China because the domestic market there is growing so fast and has absorbed volume previously destined for the United States.

“The fourth quarter will be the first quarter where the U.S. tariffs on China will have an impact. Currently, without price increases, this is putting pressure on EBIT, at least in the short term,” Gulden said.

Puma said its third quarter sales rose by a currency adjusted 17% to 1.48 billion euros ($1.65 billion), beating average analyst forecasts for 1.45 billion, while operating earnings were up 25% to 162 million euros, in line with analyst expectations.

Inventories rose 28% to 1.14 billion euros as Puma front-loaded products for the United States to beat the tariff rise.

Puma's shares, which have risen by almost three quarters in the last year, were down 2.8% at 0842 GMT, the second biggest loser on the German mid-cap index .MDAX.

The company's growth has been outpacing rivals like Adidas ADSGn.DE and Nike NKE.N, which recently reported that its quarterly revenue and profit beat market expectations as a push to sell sneakers direct to consumers gained pace, boosting margins.

Puma said it now expects currency-adjusted sales to rise around 15% for the full year, up from a previous forecast for 13%, while operating earnings will come in at 420 million euros to 430 million euros, versus a previous 410-430 million range.

In the third quarter, Puma’s sales rose 28.5% in Asia/Pacific and 17.9% in the Americas and recovered in Europe, the Middle East and Africa to 9.7%.

Growth in the Americas was powered by Puma’s return to selling basketball products, while the European market was holding up well despite the lack of a major soccer tournament, Gulden said.

($1 = 0.8984 euros)

Reporting by Emma Thomasson, editing by Riham Alkousaa/Thomas Escritt/Susan Fenton