Throughout 2020, the COVID-19 pandemic presented PUMA with several challenges that affected almost all parts of our business. When the pandemic started in China in January, some factories of our suppliers had to shut down or could not operate at full capacity, which was a challenge for our supply chain. To ensure the safety and health of our customers and employees, we implemented hygiene measures at our offices, warehouses and retail stores. As the virus spread to other parts of the world, large sporting events were either cancelled or postponed and most of our owned and operated stores had to be closed completely or partially in the second quarter. While the third quarter was once again very strong, new lockdowns and travel restrictions had a negative impact on our business in the fourth quarter. We had to quickly react to all of these changes. PUMA’s mantra was to survive and manage this crisis short-term without hindering our mid-term momentum. Therefore, we determined three key objectives: to limit the inevitable decline in sales as much as possible, to secure the supply chain and to reduce costs as well as to ensure liquidity.
To make sure that our brand did not lose momentum, we continued to invest in a full line of products for the upcoming seasons and welcomed several new marketing partners. In September, we signed a long-term contract with football star Neymar Jr., one of the most successful athletes of his generation. Neymar Jr. played in the PUMA KING football boot, which was also worn in the past by PUMA football legends Pelé, Cruyff and Maradona. We also welcomed English singer and songwriter Dua Lipa as a Women’s ambassador, who will appear in important campaigns for the brand. Canadian model Winnie Harlow joined the PUMA family in early 2020, and already headed the marketing campaigns for several new footwear franchises, including the KYRON and the MILE RIDER.
We expanded our presence in basketball by signing one of the top picks of the 2020 NBA draft, LaMelo Ball. At the start of the year, we signed Grammy Award-winning artist J. Cole, who combines the worlds of music and basketball. PUMA also announced a partnership with creative director June Ambrose, who will create girls and women’s collections throughout 2021 and beyond.
In football, Dutch club PSV Eindhoven, and Ukrainian club Shakhtar Donetsk as well as the national federations of Iceland and Paraguay joined the PUMA family, just to name a few. To also expand our brand’s presence in other teamsports, we signed the German Handball Federation. In track and field, we signed a new partnership with the Australian and South African Athletics Federations. PUMA also signed Jamaican athletes Tajay Gayle, the long-jump World Champion, as well as Omar McLeod, the reigning Olympic Champion in 110-meter hurdles and the 2017 World Champion over the same distance.
Our regular sell-in meetings, during which we usually welcome sales managers from all over the world in Herzogenaurach, were held digitally for the first time in 2020 because of the pandemic. We also looked for ways to design and develop our products digitally, without the need for people to travel to the factories in Asia, and with a reduced number of samples to be physically shipped from those factories to Germany. For the most part, we also communicated digitally with our retail partners, for example during pre-line and sell-in meetings.
We maintained a strong dialogue with our manufacturers, customers, landlords, banks, logistic partners and other partners to ensure that we took measures together to sustain the entire value chain. To ensure that our manufacturing partners could continue to operate, we cancelled as few orders as possible, while securing more favorable payment terms. We also worked with our retail partners, logistic partners and suppliers to adjust delivery dates and at the same time to extend payment terms to share the burden across the whole value chain.
Despite the crisis, we did not neglect the social and environmental aspects of our supply chain and announced our ten new sustainability targets for 2025, 10FOR25. Examples of these targets include PUMA’s commitment to further lower its CO2 emissions and to use at least 75% recycled polyester across all apparel and accessories products by 2025. We are also in the process of phasing out plastic bags from all of our retail stores globally.
To further strengthen our e-commerce business in this exceptional time, we quickly reacted to the increased demand in our e-commerce stores and strongly increased our investments in performance marketing. We improved the speed of our e-commerce platform PUMA.com and adapted our offering to the stay-at-home situation by giving more space to leisurewear as well as sports apparel. Our e-commerce business delivered strong growth in 2020.
We also made good progress with the upgrade of our logistics network, as we opened our new distribution center in Indianapolis, USA. The center will speed up delivery times, as most US customers can now be reached within two days. We continued to work on our central European warehouse in Geiselwind, Germany, which is expected to be operational in the second quarter of 2021.
When sales slowed down sharply in the first half of the year, we reacted quickly by reducing costs and cash outflows wherever possible. We also secured additional liquidity to ensure that we could survive the crisis, together with our partners. In May, PUMA secured a new credit facility of €900 million through a banking consortium of twelve banks, including a direct participation of the Kreditanstalt für Wiederaufbau (KfW) of €625 million. So far, we have not made use of this credit facility and by the end of the year we reduced it by €700 million to only €200 million. In December, for refinancing purposes, PUMA secured new promissory note loans of €250 million and increased its existing credit lines at banks by €450 million. We used short-time work programs or comparable foreign schemes to reduce costs. The suspension of the dividend payment and the suspension of 100% of the Management Board’s salary as well as the reduction of salaries of our senior management by 25%-35% in April and May 2020 were essential measures to reduce cash outflow.
When many of our brand ambassadors and consumers were confined at home, we looked for new ways of engaging with our audience. We created a series of live videos on social media platforms, which we called #StrongerTogether. These live videos included talks with our football ambassadors Sergio Agüero and Nikita Parris, yoga sessions with Sportstyle ambassador Cara Delevingne, interviews with Formula 1 driver Max Verstappen or workouts with pole vaulter Mondo Duplantis. Apart from supporting PUMA’s social media channels and e-commerce, these videos also created significant coverage in traditional media outlets.
Even though regular competitions, such as the Olympic Games in Tokyo, were cancelled or postponed in 2020, our athletes still entered the history books and set new personal bests. PUMA athlete Armand “Mondo” Duplantis entered the history books this year by setting a new pole vault world record. In February, he cleared 6.18-meters at an indoor event and in September, he broke the 26-year-old outdoor record by jumping 6.15-meters. In June, Norway's Karsten Warholm achieved the current best result ever in a solo race in the 300-metre hurdles. In motorsport, PUMA brand ambassador Sir Lewis Hamilton became Formula 1 World Champion for the seventh time, equaling Michael Schumacher's existing record of seven world titles. In golf, PUMA player Bryson DeChambeau won the U.S. Open.
The COVID-19 pandemic has shown that local relevance is key and that the market situation can vary significantly between regions. To reflect this, we empowered decision-making by local management even more. Additionally, different countries have different sports that people follow and participate in. One of the best examples of local relevance is our partnership with Virat Kohli, the captain of the Indian national cricket team. Cricket is by far the most popular sport in India and by partnering with Virat, PUMA gains credibility as a sports brand in India.
PUMA’s sales and business development in the financial year 2020 were characterized by temporal and regional differences during the course of the COVID-19 pandemic. PUMA started the year with a very positive order book and strong and balanced growth in all regions. Following a good start to the year for China with double-digit sales growth in wholesale, e-commerce and our own retail stores, the Chinese market shut down in the last week of January. For the following six weeks, almost all business in China -with the exception of e-commerce - came to a standstill. As China began to recover from mid-March, the virus spread around the world, leaving nearly 80% of our own retail stores and many of our retail partners’ stores closed by the end of the first quarter. As a result, PUMA’s sales declined by 1.3% currency-adjusted during the first quarter. The business environment was particularly difficult in April and May, with most of our own stores and those of our retail partners closed during this period. Retail stores began to open again from June onwards, initially in EMEA and Asia, and later in North America. Due to this extremely difficult business environment, PUMA recorded a currency-adjusted sales decrease of 30.7% during the second quarter. After 85% of PUMA’s own retail stores reopened at the beginning of July and the business environment improved significantly, third-quarter sales saw a currency-adjusted increase of 13.3% year-on-year, driven by a very strong recovery in EMEA and the Americas. During the fourth quarter, however, the number of COVID-19 infections again rose sharply worldwide. This once again led to restrictions and consumer sentiment worsened. PUMA nevertheless achieved a currency-adjusted sales growth of 9.1% in the fourth quarter. By adding up the four quarters, sales for the full year 2020 recorded a currency-adjusted decrease of 1.4%. In the reporting currency, the Euro, this corresponds to a decrease in sales of 4.9% from €5,502 million in the previous year to €5,234 million in 2020. PUMA therefore managed to keep the sales decrease resulting from the COVID-19 pandemic in 2020 to a minimum.
The negative impact of the COVID-19 pandemic not only affected PUMA’s net sales, but was also the main reason for the decline in profitability respectively operating result (EBIT) during the past financial year. PUMA’s gross profit margin fell by 180 basis points from 48.8% in the previous year to 47.0% in 2020. This was mainly due to negative currency exchange effects from hedging due to a less favorable annual average US dollar hedging rate in 2020 compared to the previous year. In addition, increased sales promotions to limit the decline in sales as far as possible and to optimize inventory levels, alongside increased write-downs on inventories, contributed to the decline in gross profit margin in 2020. By contrast, the higher share of sales from our own-retail activities, including our e-commerce business, and an improved regional sales mix had a slightly positive effect on the development of gross profit margin.
The strong focus on cost-saving measures implemented directly in response to the COVID-19 pandemic at the end of the first quarter and during the second quarter led to a 0.3% decrease in other operating income and expenses during the financial year 2020. Nevertheless, compared to sales, the cost ratio increased from 41.3% in the previous year to 43.3%. Higher costs for warehousing and logistics in connection with increased e-commerce business and higher write-downs on receivables were offset by reduced spending in sales and marketing.
Due to the decline in sales and gross profit margin, which could not be compensated for by the reduction in other operating expenses, the operating result (EBIT) saw an overall decrease of 52.5%, from €440.2 million in the previous year to €209.2 million in 2020. This corresponds to a decline in EBIT margin from 8.0% in the previous year to 4.0% in 2020. The declining financial result, resulting from higher interest expenses and higher negative currency conversion differences, also contributed to a 69.9% year-on-year reduction in consolidated net earnings and earnings per share in the past financial year. Consolidated net earnings fell from €262.4 million in the previous year to €78.9 million, while earnings per share fell accordingly from €1.76 in the previous year to €0.53. This enabled PUMA to achieve positive net earnings and positive earnings per share during the past financial year, despite the severe negative impact of the COVID-19 pandemic, particularly in the second quarter.
Positive net earnings enable the Management Board and the Supervisory Board to propose a dividend payout of €0.16 per share for the financial year 2020 to the Annual General Meeting on May 5, 2021. This corresponds to a payout ratio of 30.3% of consolidated net earnings and is in accordance with PUMA’s dividend policy, which foresees a payout ratio of 25% to 35% of consolidated net earnings. However, payment is subject to the condition that the macroeconomic conditions allow for a payout. The dividend was waived in the previous year in order to reduce cash outflows during the COVID-19 pandemic.
The performance of the PUMA share price during 2020 was also strongly influenced by the negative effects of the COVID-19 pandemic. Based on the previous year’s numbers, PUMA’s share price started 2020 at a price of €68.35, before falling to a low of €42.14 in mid-March 2020, at the height of the COVID-19 crisis on the capital markets worldwide. The PUMA share price then recovered significantly from this low by the end of the year, rising to €92.28 - an increase of 35.0% on the previous year. The market capitalization of the PUMA Group increased accordingly to around €13.8 billion at year-end 2020 (previous year: €10.2 billion).
