RBC: Puma’s earnings was potential ‘clearing event’, near-term outlook bullish

Puma shares saw a setback last week after releasing the second-quarter 2024 results, which showed challenges in the EEMEA wholesale sector and higher finance expenses.

According to analysts at RBC Capital Markets, these headwinds “could have been better signposted and 2Q revenue guide needn't have been so high.”

“We view this as a clearing event which could support near term share price strength, noting no real change to earnings expectations and the setup still focused on hockey stick 4Q24 revenue acceleration at a depressed valuation,” they added.

Consensus expectations for the fiscal 2025 year are modest, RBC notes, with a projected growth of 8%, a 60bps margin expansion, and a 7.9% EBIT margin, which is slightly below the company’s target of 8.0-8.5%.

If 4Q24 achieves low double-digit growth, driven by wholesale order fulfillment and an easier revenue base in 1H25, modest earnings upgrades for FY25 are possible.

“Coupled with depressed valuation across metrics, and recent sell-off, this could support a positive near term share price outlook,” analysts said.

However, the competitive landscape is expected to intensify in 2025, with Nike’s (NKE) return and stronger momentum at adidas, while margin targets depend on mixed visibility for gross margin evolution.

Citing higher finance expenses, analysts at RBC Capital Markets reduced earnings per share (EPS) estimates for Puma and trimmed the price target to €42 from €47.

During the earnings call, Puma highlighted expectations for double-digit revenue growth in 4Q24, driven by a strong wholesale order book, although IAS 29 benefits will impact reported rather than organic growth.

For 3Q24, the company forecasts mid single-digit organic revenue growth, improved gross margins, but slightly lower EBIT compared to last year.

Moreover, it remains confident in achieving its FY25 margin target of 8.0-8.5%, with current trading in July meeting expectations and wholesale momentum accelerating.

Source: Investing.com