ROUGH Draft

M E M O R A N D U M


To: Clark Hansen, CEO, AMDP

From: Claire Ziperski, Research and Development Analyst 

Subject: PUMA Inc. Recommended BUY for AMDP Investment

Date: March 10, 2023


Overview and Summary


As part of my role as an analyst at AMDP, I have conducted extensive research on companies with a strong ESG profile whose values and business practices are aligned with the priorities of AMDP that also provides a good financial return, worthy of an investment by AMDP. My research leads me to recommend AMDI invest in PUMA, a German multinational corporation that designs and manufactures athletic and casual footwear, apparel, and accessories. 


Before I go into more detail about PUMA’s ESG priorities and my recommendation for AMDP, I want to briefly reaffirm ADMI’s four critical standards warranting review prior to investment.


AMDP Investment Standards 


Triple Bottom Line (“TBL”)

A company’s TBL demonstrates how committed a company is to focusing as much on its social and environmental impacts as they do its profitability. TBL addresses three factors:

  • Profit: The traditional accounting measure of corporate profit—the P&L statement. Prosperity of other stakeholders should also be considered.

  • People: A measure of how socially responsible an organization has been throughout its history with employees, customers, suppliers and the community.

  • Planet: A measure of how environmentally responsible a firm has been, minimizing negative impacts on the environment (Savitz, p.4-6).

Corporate Social Responsibility (“CSR”)

CSR refers to strategies that companies put into action to ensure the company’s operations are ethical and beneficial for all stakeholders–employees, customers, investors, environment, and society as a whole (Peterdy).

Social Enterprise (“SE”)

A SE is a revenue producing business that also has social objectives. The business strives not only to maximize its financial profits, but maximize benefits to society and the environment using profits to fund social programs or causes (Deloitte, p. 2-3).

Carbon Footprint (“CF”)

A company’s CF is the total amount of greenhouse gas emissions it creates either directly or indirectly during its operations. The measure of carbon footprint can inform a company’s impact of its business activities on global warming and help create realistic climate goals and reduction strategies (Issel).


Overview of PUMA


PUMA is one of the world’s leading sports brands and has been in business for over 70 years. It designs, develops and sells footwear, apparel and accessories for a variety of sports Headquartered in Germany, PUMA distributes its products in over 120 countries and employs over 16,000 people. 


Financial Performance of PUMA

PUMA had record financial performance in 2022. It achieved its highest annual sales ever and Earnings Before Interest and Taxes (at 551.7 million Euros) and sales growth accelerated across all product categories despite a volatile market environment (Puma 2022 Annual Report). 


While PUMA is facing economic challenges in 2023, Goldman Sachs (“GS”) rates PUMA as a “BUY”. As of 3/10, its stock price is €52.92. GS believes the stock will be fairly valued at €100.00 relative to its projected and historical earnings (price appreciation potential of 89%). GS forecasts Earnings Per Share to rise from €2.36 (12/22) to €2.55 (12/23) and to €4.30 (12/25) (Edwards).


PUMA’s ESG Strategy

For thirty years, PUMA has integrated sustainability into every aspect of its manufacturing processes for all products – from the sourcing of raw materials to the manufacturing stage, both environmentally and socially. PUMA introduced the world’s first ever environmental profit and loss statement as well as a sustainability Code of Conduct in 2011. 


In 2019, PUMA launched its “10FOR25” sustainability strategy focusing on ten key areas of improvement with explicit targets for PUMA to achieve by 2025 in the following categories: Human Rights, Climate Action, Circularity, Products, Water and Air, Biodiversity, Plastic and the Oceans, Chemicals, Health & Safety as well as Fair Wages to improve the company’s sustainability performance (PUMA, p.31). All of these areas fall into at least one of four of AMDP’s standards. 


PUMA’s ESG Achievements


PUMA is a member of the Fashion Charter for Climate Action and is committed to reducing its CO2 emissions to avoid the bad consequences of climate change. The company has made several impressive improvements in their ESG achievements in its operations:

  • PUMA reduced its own worldwide carbon emissions by 88% by buying renewable energy and eliminating tail pipe engines in its car fleet and in LA, using electric trucks to transport goods from ports to warehouses.

  • PUMA also reduced emissions in its supply chain by 12%, helping its suppliers source more renewable energy.


PUMA has also had environmental achievements in their materials used:

  • PUMA will have sustainable components in 90% of its footwear by 2025 including recycled options for leather, polyurethane and rubber. 

  • PUMA has vowed to remove all plastic shopping bags from all of its stores by the end of 2023. 

  • Partners with NGO Canopy to ensure sourcing of man-made cellulosic materials to ensure its activities do not contribute to deforestation and biodiversity loss.


PUMA is not only working on sustainability for new items it produces, but is exploring ways to take more responsibility for the afterlife of its products by working with recycling partners so that its products can biodegrade in a controlled setting.


In terms of people, PUMA ensures fair working conditions in all of its factories with a Code of Conduct. Since 2007, PUMA has been accredited by the Fair Labor Association (“FLA”) and purchases 99% of its cotton and leather and 80% of its polyester from FLA accredited or certified sources. 


Independent Third Party Validation


Several reputable third parties have validated PUMA’s status as a sustainable and socially responsible brand.


In 2022, Business of Fashion magazine ranked PUMA the “Most Sustainable Brand in the Industry” among the 30 largest global fashion companies. Overall, PUMA scored 49 on a 100 point scale, well above the industry average of 28. The magazine noted that PUMA had leading scores for water & chemicals, worker’s rights and transparency, while at the same time drastically improving its emissions score (Business Wire).


CDP, a non-profit organization that analyzes the environmental impact of over 15,000 companies, gave PUMA an “A” rating (one of only 283 companies receiving the rating) for its climate change efforts. Maxfield Weiss, Executive Director of CDP Europe, says PUMA is “taking clear action to reduce emissions and to address environmental impacts throughout its value chains; this is the type of environmental transparency and action we need economy-wide to prevent ecological collapse” (Ciment). 


Finally, Puma was presented the “2022 Sustainability Leadership Award” at the Footwear News Achievement Awards. PUMA made significant progress on its Forever Better strategy, leading the way with major progress toward using renewable energy alternatives and offering more sustainable products to consumers (Ciment). 

 

My Recommendation


I highly recommend investing in PUMA. PUMA is well-positioned to continue to gain market share and achieve growth in its earnings. Its current stock price of €52.92 is well below its target stock price of €100.00, allowing 89% for potential stock price appreciation. PUMA has a long history of demonstrated achievement in the ESG standards that AMDP values, so the investment will likely provide not only strong financial performance, but positive results to all of its stakeholders as well as our planet.


Regards,


Claire Ziperski







Works Cited

Savitz A. The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social and Environmental Success - and How You Can Too. 2nd ed. Wiley; 2013.

“Deloitte Trends: The Rise of the Social Enterprise. Global Human Capital Trends; 2018.” Deloitte. 

Peterdy, Kyle. “Corporate Social Responsibility (CSR).” Corporate Finance Institute, 5 Mar. 2023, https://corporatefinanceinstitute.com/resources/esg/corporate-social-responsibility-csr/. 

Issel, Marc. “The Corporate Carbon Footprint: A Quick Guide.” OneTrust, 24 Jan. 2023, https://www.onetrust.com/blog/corporate-carbon-footprint-guide/#:~:text=A%20company%27s%20carbon%20footprint%2C%20also,clarity%20on%20your%20emissions%20hotspots. 

“Puma Annual Report 2022.” Home, PUMA SE, https://annual-report.puma.com/2022/en/index.html. 

Edwards, Richard. Goldman Sachs Investment Research, PUMA, March 1, 2023

“Puma's Transparency on Climate Change Receives Top Mark by CDP.” PUMA SE, https://about.puma.com/en/newsroom/corporate-news/2022/12-13-2022-cdp#:~:text=December%2013%2C%202022-,PUMA's%20transparency%20on%20climate%20change%20receives%20top%20mark%20by%20CDP,the%20environmental%20impact%20of%20companies. 

“Puma Ranked Most Sustainable Brand on Business of Fashion Sustainability Index 2022.” Business Wire, 1 June 2022, https://www.businesswire.com/news/home/20220601005662/en/PUMA-Ranked-Most-Sustainable-Brand-on-Business-of-Fashion-Sustainability-Index-2022. 

Ciment, Shoshy. “Here Are 3 Reasons Puma Deserves the 2022 Sustainability Leadership Award.” Yahoo!, Yahoo!, 29 Nov. 2022, https://www.yahoo.com/lifestyle/3-reasons-puma-deserves-2022-153055975.html. 


Comments

Post a Comment