Argentina’s shock peso devaluation weighs on sportswear brand Puma

German sports retailer Puma on Wednesday said Argentina’s major devaluation of its currency in December hit its financial results.

Puma shares were 7.3% lower at midday in London, at the bottom of Europe’s Stoxx 600 index, after the company reported preliminary results for the fourth quarter and the full 2023 period, along with an outlook that missed expectations. Final results will be published on Feb. 27.

Full-year currency-adjusted sales growth was estimated at 6.6%, versus an outlook for high single-digit growth, with sales of around 8.6 million euros ($9.37 million). Earnings before interest and taxes (EBIT) came in at around 622 million euros.

Though this was in line with guidance, the company would have seen 8% sales growth and EBIT above last year’s 641 million euros if not for the effects of the Argentinian peso, it said.

The impact was particularly pronounced in the fourth quarter, where “the application of hyperinflationary accounting led to a sales decline,” Puma said in the results.

“Both sales and net income are below the analysts’ consensus. However, the consensus does not take negative effects from the extraordinary devaluation of the Argentine peso into account,” it added.

Argentina’s new President Javier Milei devalued the peso by more than 50% in December as part of a pledge to radically transform the economy. Milei said the move would cause short-term pain, driving up the cost of imports, but was necessary to tackle the country’s fiscal deficit and therefore rampant inflation.

Puma on Wednesday also said it expected currency-adjusted sales growth in the mid-single digits and EBIT between 620 and 700 million euros in the 2024 financial year, below a consensus forecast for over 700 million euros.

This outlook “assumes that the future devaluation of the Argentine peso will be fully compensated by corresponding price increases in Argentina,” according to the results.

“For 2024, we foresee the geopolitical and macroeconomic challenges as well as highly volatile currencies to persist. This continues to weigh on consumer sentiment and demand, especially in the first half of 2024,” CEO Arne Freundt said.

Puma saw record sales and EBIT in 2022. The Americas were its biggest and fastest-growing market, bringing in 3.68 billion euros versus 3.1 billion euros in EMEA, while its Latin America business surpassed 1 billion euros in sales for the first time.

Wednesday’s results initially pulled rival Adidas slightly lower, though it was trading flat in early-afternoon deals.

Piral Dadhania, analyst at RBC Europe, said Puma revenue had also disappointed and was 3% below consensus expectations.

“We flagged in our recent note that [full-year 2024] guidance could be a negative catalyst for the shares, particularly for EBT; however, we are surprised and disappointed by the magnitude of the lower guidance vs our below-consensus expectations,” Dadhania said.

Its revenue guidance “flags softer demand trends and tougher macro, despite cleaner inventories and product pipeline, which management are confident around,” Dadhania added.

Nonetheless, RBC Europe rated the stock “outperform” and said the sporting goods industry should see sectoral tailwinds from gross margin recovery and an improving inventory cycle this year.