Puma SE

XETRA:PUM

Earnings Call Transcript 2022-Q1

[Gottfried Hoppe, executive]

Thank you very much. Hello, and welcome to PUMA's First Quarter 2022 Earnings Call. I am here today with our CEO, Bjorn Gulden; and our CFO, Hubert Hinterseher. As usual, Bjorn will lead us through a presentation. And after that, we will take your questions.

And with that, I'll hand over to you, Bjorn.

[Bjorn Gulden, executive]

Thanks, Gottfried, and hello, everybody. I think you are -- I hope you are well and in a good mood. We actually are. I think the picture you see in front of you with Molly Seidel and LaMelo is a good description of why we are in a good mood. And you will see later that we had a great quarter and that we feel that we both have a, what should I say, a comeback in performance running, and we have a breakthrough in the basketball market, which helps us fund the growth in the North American market.

This is our lovely headquarter. And it's unfortunately that over the last, I would say, 2 years, there's been a lot of focus on things that has not only been the business. COVID put us in many tests. And we've had the mantra that people first. It's been very important for us to support our people and focus on the health and safety of our PUMA family, and I'm convinced that the so-called success we had over the last years is because of that our people make the difference.

Remember that 2021 was the best year that we ever had. You look at our growth record, and I would say we had a good 5 years of growth, both on the top line and on the bottom line. And it is unfortunate that we now are sitting in a situation that after COVID, we again have a crisis to deal with. I think the crisis in Ukraine happened just a couple of days after we spoke to you last time. And I am happy to say that we've done a lot for the safety of our people inside Ukraine. We have created a safe house where we can house 200 people. We currently have more than 100 PUMA employees and their families there. We have had the minibuses going into Ukraine with water, with food and other things that our people need. And of course, we are in daily contact with our employees, and we do everything that we can to keep them as safe as possible in Ukraine.

Maybe more importantly, for those people who wanted to leave Ukraine, we have helped many of them to do that, of course, only the female and their children. And so far, about 140 of them have managed to go either to Poland or to Germany. We have currently here in Erlangen, 113 female employees together with their children. Many of them have started working already. As you can see here, 14 of them. Almost all the kids are already in German schools. And I have to say that these are fantastic people, and I can just repeat it again. We will not save on anything to make them feel comfortable and happy. And I guess as long as this crisis go on, you as our investors and analysts will support us in that strategy.

The good thing for the business is that the things we talked about a quarter ago is continued to happening. We see higher sports participation, both in individual outdoor and team sports. The ticket trend is going on. We don't see any trend back to formal shoes. And the same are the casualization. You see more and more people wearing also casual wear to their office and that globally. And then, of course, for PUMA, we've had continuously positive feedback from our retailers, both on our product sell-through and also our service. And that is then backed by a very, very strong order book, which is as strong now as it was when we spoke to you last time.

You remember last year was the roller-coaster from a quarter-to-quarter, but you also remember, we ended the year being up 30%. And you have probably seen this morning that this continues. Our growth rate in Q1 was almost 20% and actually a little bit above what we had expected because we were not sure if we were able to supply this growth with the incoming goods.

If you look at the different channels, wholesale business grew 23%; D2C, direct-to-consumer, only 7%. Again, this is in line with our strategy of wholesale first. Brick and mortar with a solid growth of 21%, but do not forget that first quarter last year, many of the stores were closed. And then e-com shows a negative number of 13%. If you take China out, it's flattish. And again, you need to remember that last year, e-com was up 75% in the quarter. All divisions doing well, all business units doing well, and I would say almost all the regions doing extremely well. You see Europe 25%, EMEA 26%, North America, almost 40% and LatAm of 65%. And then APAC here, the way we reported internally, down 24%. I think in our external, we are down 17%. And that is, of course, led by greater churn.

If you look at the P&L then, a top line of EUR 1.912 billion. That's the highest that PUMA ever had in the quarter. That's a nice growth of 23% reported. Gross profit margin, we lost 130 basis points. If you simplify it, it's due to channel and geographical mix. OpEx, good leverage, and that gives us then an EBIT of EUR 196 million and an EBIT percentage above the famous 10% at 10.3%. If [ Hubert ] wanted to, and we haven't done some of the write-offs for Ukraine, we will probably here have been EUR 10 million higher. EBITDA and net income, in line and very solid number. And I think Hubert can explain you the net income at your Q&A.

Solid balance sheet, working capital growing approximately, as you can expect, to the speed of our growth. I would just stop with inventory. We're reporting 32% higher inventory. If you look at what it really is, then you see that 18.6% is in our warehouse, so-called on hand. We have a 63% growth in transit, meaning between the factories and our warehouses, and that gives you then the 32%. At the beginning of the year, the 18.6% was 15%. So you can see we've been able to build a little bit inventory even with the 20% growth in sales. And this inventory is kind of on line with what we need -- in line with what we need to have to get the growth that we think we should have in Q2.

Yes. For the last 2 years, we have said that we need to deal with COVID, continue to drive the business and do the right thing. Unfortunately, COVID is not over. We are sitting now with our whole office in Shanghai in a lockdown since, I think, 42 days. The business in China for the last 4 weeks has also been hampered by lockdowns. The good thing is that all our factories, except one, are producing at full speed. And although there has been issues with transportation and there has been lockdown in certain harbors, our supply chain when it gets to producing is actually working 100%.

When it gets to our, what should I say, mantra, we want to be the best partner with our suppliers, with our retailers, with our consumers and, of course, with our athletes and ambassadors. I do think you agree that being a good partner helps in business. And especially in this crisis time, this has been very, very good for us. And we're getting good reaction to this attitude.

We have 3 brand platforms, women's with She Moves Us, which we started a year ago. We still own to the #REFORM platform and then everything we do under sustainability, which is more and more important with doing the Forever Better. And when you look at sustainability and responsibility, although falling a little bit behind the focus during COVID, it is as important. And we know it is from our people but also from our consumers. We will continue to use our platform to show that we are a socially responsible brand. We will do more and more sustainable products and work on issues like circularity.

We're very proud that over the last couple of weeks, we have introduced both the RE:SUEDE, which is 100% [ beef hide ] degradable shoes, difficult to say. And totally new is the RE:JERSEY, where we worked with AC Milan, Manchester City, [ North Mont ], and I think also Marseille. We're using all soccer jerseys combined with plastic from the ocean to combine into new jerseys. And therefore, we will have programs for the fans to give back all jerseys, and they will get them new jerseys that are made of their old ones, a pretty cool program that you will hear more and more about.

For the different categories, we say we have 9 category platforms. First of them, of course, football, faster football, we call it. We feel that from a product, we see great successes in both our FUTURE and ULTRA SILO, and we started to reintroduce the romantic KING again. That is especially relevant when you know that we have over 75th years anniversary coming up next year. We signed quite some players lately, [ Kumam ], Pulisic, Depay. You add that to our famous, Neymar. We think we have a fantastic portfolio of players, and we do also see that in the market share, which is growing in all the markets. And in many markets, now we are approaching the famous 20% market share.

Very proud of running. We, as a brand, has not been in performance running for a long, long time. We have been in track and field. That's the Formula 1 running. And I think we have the fastest and the best bikes in almost all the rents, as you can see in Tokyo. But totally new for us over the last 18 months is the launch of our running performance line under the Nitro umbrella. And both the reviews, the sell-through and also the feedback from the assets has been fantastic. We also have new running innovation coming in '22, as you see here. And these are shoes with carbon plates made to run faster, and we are as competitive as you can be when you look at all their reviews.

News and also, of course, that athletes are winning with our shoes. I don't think that's happened for 30 years, but now it's happening. And I think it's fair to say that coming from a small base, PUMA is back again in performance running, and we will stay there. We were just together with a lot of accounts in Boston Marathon, and it's very, very, very good to see that we're back again on that stage.

Training, a very important category for us where we focus both on multiuse training, straight training and, of course, studio, especially studio led by [ Jorge and Pilates ] going fast. And we and other brands in the industry are making great progress. The famous basketball, we have talked about it now for 3 years after our famous JC become our Creative Director, and we bought the famous PUMA jet. The success has been accelerated by the [ signage ] of LaMelo Ball. And all the shoes that we have launched with him has been sold out. And finally, the end game was, of course, that we should have an impact our classic business and illustrated here by 3 our classics, the [indiscernible] and the Suede, that is also happening. And we see now big, big growth in all the markets, which I think, especially in North America, is linked to the investment that we did in basketball.

A big collection of very exciting products, not only for men but also for female. And as we said last time, the best player in the world, Vienna Stewart will have their own signature line launched in September and showcasing that we take female basketball as serious as we take male basketball.

The whole fashion side, we call Select classics and sports style. On the select side, we're doing a lot of collabs. On the right side, you see the latest 1 with Ami, probably the best, what should I say, collabs that we have ever done. And all these collabs have the goal of creating brand heat, especially for the younger target group. And I have not in the days that I've been here seeing such a portfolio of collabs and we have also not seen central numbers as we see today.

Plastics, we talked about. We have together with the friends across the street, the biggest archive of classics. And all the shoes you see now here are best sellers, and we now have clear go-to-market strategies, both with products, with marketing and ambassadors, and you will see more and more of this going forward.

The rest of the specialty men's lifestyle is trying to find new silhouettes. The market doesn't have that many currently. I think our RSS that we launched 3 years ago is one of the newest, but we also have very interesting new technology shoes also attacking the lifestyle market, as you will see in the next couple of quarters.

In addition to that, PUMA Motorsport, Motorsport is actually moving, especially Formula 1, especially because of the series on Netflix. Next week is in Miami, a fantastic event, and we see a big growth both on the [ Fanberside ] Motorsport with what we do with Ferrari, Mercedes and RedBull and now also Alfa Romeo, but we also see a bigger trend increase directly to Motorsport, especially in the U.S. market, helping sales both on the apparel and footwear side.

And then finally, it's your play, that's how we call our kids business. We have been underrepresented in kids and are now investing more. And I'm happy to report that the kids business is also starting to grow at a double-digit rate.

PUMA Golf, finally, we talked about it for a while. There is a golf boom out there, and we being 360 supplier of golf with shoes and PUMA and clubs from Cobra see great growth. Unfortunately, supply chain on golf is very tight. And as you know, most of it coming from Vietnam, and you remember the lockdown we had there in September, October. So some delivery issues, but demand high and participation continuing to grow. So a good '21 and continued progress in '22. So very happy with that.

That gives us the following outlook. We have in -- despite all the positive, unfortunately, still the risks we talked about 3 months ago, continued impact on COVID-19, especially now in Asia. The market environment in China with the BCI boycott is still there. Hopefully, it eases when they come out of COVID. Supply chain is still tough. I mean, there are still many, many ships that are waiting outside harbors. The speed going from Asia to the different markets is still slow, but we have a fantastic relationship with Maersk and feel that we have a priority of getting products on the ships and feel also when you look at our inventory that we are in pretty good shape, maybe compared to many other companies.

The gear political tension in the world has unfortunately gone the way that we had hoped it would not. And having the Ukraine where it goes to us is, of course, also not giving us the biggest uncertainty. I think all of this is resulting in the cost pressure and inflation we see. We see inflation in many markets that hasn't had it for many, many years. And of course, that's something we all have to deal with and will deal with in the next coming quarters and probably also into 2023.

Anyway, here are the sales and our P&L for the last 3 years. And here is how we look at it still for '22. We promised to deliver at least 10% growth at the end of the year, and we do agree with quite some upside potential. I think we need Q2 to see how things develop on the risk side before we give you a higher goal. So we'll leave it at that. The mix between gross margin and OpEx is, of course, dependent on that. So we don't give a guidance on it. But we still, with all the increased uncertainties still promise you an EBIT between EUR 600 million and EUR 700 million. And of course, as we said last time, the EUR 700 million is, of course, based on a higher growth than only 10%.

So with all that, I just want to remind you that PUMA is 75 years old next year, that we will celebrate that and that we hopefully will have a lot to celebrate because we really, really think we are in a good way and are very confident that we can maneuver through all these issues in a very positive way. So with all that, I think I hand back to Gottfried, and you can ask whatever question you want to ask.

[Gottfried Hoppe, executive]

Thank you, Bjorn. We are now ready to take questions.

[Operator]

We have a first question. It's from Anne-Laure Bismuth of HSBC.

[Anne-Laure Jamain, analyst]

Yes. So I have 2 questions. First one is looking at the guidance and assuming a 10% organic growth for the full year, it would -- and you said at least 10%. And based on the strong Q1, it would imply 7% organic sales growth for the rest of the year. So why is that given the strong Q1? So have you seen any change in trends recently in the U.S. or in Europe?

And my second question is about the cost pressure and if you are planning to increase prices to offset the increase in the raw material prices? And would it be possible to know the magnitude? And when are you going to pass on those price increases?

[Bjorn Gulden, executive]

Well, the reason for that, the guidance has not been changed other than with the wording with the upside potential is that the uncertainty has increased and sitting next to Ukraine, having Shanghai in a lockdown. We think we need another quarter before we give you a higher number. But should we be able to keep the momentum we have here, then, of course, the growth should be more than 10%.

And no, we have not seen any lockdown -- any slowdown in any markets, except for that we lost the sale, of course, in Ukraine and Russia, and that the China situation has not improved but worsened now because of the COVID situation.

When you look at the cost prices, then we have said all the time that the good thing about the increases in raw material production freight is that it doesn't come all at one time. We started to see cost increases mid-last year, and it's continuing. That means that these cost increases are coming gradually, and we are increasing prices gradually. That means that we have increased some prices for spring/summer '22. The season we are in now, I think through the cash right now, we are running 3%, 4%, 5% higher prices. We have increased more product for the second half, and then the plan is to have all the cost increases that we can calculate priced into the product for '23.

But as you know, there has been acceleration in cost prices on oil, on energy. Freight continue to grow. So you're always running a little bit behind, I would say, the cost increases. And then the question, can you then keep your profitability growing them by finding growth, so that gives you leverage. There's no doubt that gross margin, I think, for all of us currently is under pressure. I think you will see reports from everybody with lower gross margin also with us, although ours was mostly because of channel and geographical mix. But there's no doubt that pricing in an inflationary market is the most difficult thing. And again, we will deal with it as good as we can. We will not be the price leader. But of course, we will try to keep our profitability as good as we can and then fuel that by growing faster than the market.

[Operator]

The next question is by Edouard Aubin of Morgan Stanley.

[Edouard Aubin, analyst]

I limit myself to 2. So the first one is, sorry, Bjorn, on China, if you could come back on that. So as you said, the bad news is you have COVID. As well from what I understand, you still cannot work with KOLs, but I'd like to hear your views on that. But the good news is that the basis effect is getting easier from here. From what you just said, it doesn't look like you're getting -- your momentum is getting better in April versus March and February. But if you could just come back on that and what we should expect for the remainder of the year to the extent we can predict.

And then the other question, sorry, just to follow up on the price increase and gross margin question. I understand you don't want to guide and given the different moving parts and the uncertainties on freight cost and supply chain and FX and all of that, but we are looking at the consensus, which is expecting, I think, gross margin expansion for the full year of about 20 basis points. You had a contraction of 130 in Q1. So I'm not going to ask you to guide, but would it be possible to have a gross margin flat to slightly up in the full year 2022? Is that considerable? Or if you can up or down would be sufficient in terms of the guidance.

[Bjorn Gulden, executive]

On the China question, everything you said is correct. I mean the BCI boycott started end of March. So April Q2 should be the first quarter where you're going against low number. And therefore, we were saying that you will see improvement. The problem is that since then, we have been in a lockdown in Shanghai and many of the markets has been slow. So there is no improvement currently in the business.

But I personally have the hope that when COVID and the 0 COVID policy is being eased and the consumer, then maybe we will also have some opening on using KL. It is true that we have not been able to use Chinese celebrities in our marketing for 12 months. And of course, that's hampered the business, especially on the digital side. I hope, I can't promise you, but that in the second half, you will see improvement relative to what was in the year before. But we have the strategy of getting growth in other markets and not count on China in 2022. And I think that's also what you saw in Q1.

When it gets to the price increases, then I'll just repeat what I said is that, of course, it's difficult to price in all these elements in a way that you can maintain your gross margin. And I think sometimes, when you're growing at 20%, it's more important for us to get share and sell-through than it is to optimize margin. When you say that the consensus has a 20% -- 20 basis points improvement, and we lost now 130, mainly because of channel mix and geographical mix, then you need to have some fantasy to get to a 20 basis points improvement. If that should happen, that would then mean that we will start to grow China again at an unplannable, I would say, rate. And of course, that the market will be missing inventory so that sell-through will be very high with very little discount. I think that must happen. If not, I think you will see some losses on gross margin, which will then pick up again on leverage on our OpEx line.

That's why for us, it's important that the distance between OpEx or gross margin, OpEx and product costs is improving, and therefore, we can improve our EBIT line. I don't think I can say anything else because I don't think anybody can kind of not promise you improve gross margin. I don't think it's possible because there's too many moving parts.

[Operator]

The next question...

[Bjorn Gulden, executive]

We cannot hear you. We lost you. Hello?

[Gottfried Hoppe, executive]

Operator? We obviously lost the operator. So take -- wait a second, please.

[Operator]

The next question is by Grace Smalley of JPMorgan.

[Grace Smalley, analyst]

This is Grace Smalley from JPMorgan. I just had a quick question on the U.S. after you've seen the strong growth you had in the first quarter. Could you perhaps comment on the state of the inventory levels at your U.S. wholesale partners today and what you're seeing in terms of end demand and sell-through at your wholesale partners and whether there's an ongoing kind of restocking benefit there as well?

[Bjorn Gulden, executive]

I can only tell you that our inventory level in North America is too low. We're running low on inventory and that our biggest problem is to deliver our retail partners enough inventory of the product that they want. So I can't give you any comment on the general state of it because I wouldn't be qualified with the info I have. But for us, we are lacking inventory, both with our retail partners and ourselves and wish we had more.

[Operator]

The next question is by Cedric Lecasble of Stifel Europe.

[Cedric Lecasble, analyst]

I have actually 2 follow-ups. The first one on China. You said that there was no production issues so far. Could you remind us maybe the share of local sourcing in China and how things could evolve if the lockdowns continued for quite a while?

And the second one is on the -- follow-up on the U.S. You said that basketball penetration started to be instrumental to your growth in the U.S. You've had very strong growth in the U.S. over the last quarters. Could you maybe share the precise number of your growth in the U.S. and the potential impact of basketball and disclose would be useful.

[Bjorn Gulden, executive]

The China production issue is that we currently don't have any issues on production, meaning that in some way producing 100% of our plan, both materials that are being used in China and materials that are being exported to other markets. That's what we currently don't have any production issues. When you say the share of local, the total share of China in our portfolio is about 1/3. And when you look at China for China, it is actually almost 80%. So I guess you're asking how big is China for everything we do, and that's about 1/3. We are basically simplified 1/3 Vietnam, 1/3 China and the rest is divided by many markets. China going down a little bit. Vietnam going up a little bit, but just only minor changes.

[Cedric Lecasble, analyst]

It was more about what's produced in China to stay in China to the Chinese consumer, and you answered 80%?

[Bjorn Gulden, executive]

Yes. The local -- I mean, on apparel, it's almost 100%. On footwear, it's about 60% and growing. And the goal is to basically produce local for local, everything which is not special to special. The growth in our business in North America is around 40%. And again, very strong.

And when I say it's basketball, I mean that the basketball has, I would say, made of a wanted brand by the 16-year-old kid. So he is buying either our basketball shoes, especially the LaMelo launches but is also now buying classic shoes that they normally buy from other brands because he now understands what PUMA is and why PUMA should be qualified to sell in all basketball shoes from the '80s. So I think we told you all the time that we see basketball as a qualifier as a brand in the U.S., and that's why we have invested in it, not necessarily to make money on basketball. Basketball because it costs a lot of money to have players and the marketing but it has done the job for the consumer, and that's why we are extremely happy with what the team has done under the leadership of also JC. So very happy with that development.

[Operator]

The next question is by Adam Cochrane, Deutsche Bank.

[Adam Cochrane, analyst]

First question is on inventory allocation. So the product may be that you're not selling as much in China as we originally thought. Is that possible to allocate to other markets to potentially alleviate some of the inventory issues in the U.S., for example? Is it the same product that can just be sold via transporting it to a different market?

And then second question is, have you seen any evidence of consumers trading down at all so far?

[Bjorn Gulden, executive]

The inventory issues we had in China was, if you remember specifically last year where we were planning for 30%, 40% growth and then the business crushed, and we were not able to switch off that pipeline. So we have far too many products sitting in our inventory, and we had also far too much inventory sitting with the retailers. And during the year, we tried to work through that. So taking inventory backflushing it through outlets. But also, as you rightly say, so sell some of that inventory to other markets. And to certain markets, that's possible, not to all. In some markets, you need to relabel but we have done most of that already in 2021.

Right now, we haven't planned with the growth in China. So we have kind of shortened the pipeline of product, I mean not producing, I would say, excess inventory in China the way we did. And there's not really any inventory lying in China that would help the U.S. tremendously. What we have done, of course, that some of the capacities that were blocked for China production for the Chinese market has, of course, been relieved and are now being used, for example, to produce for the growth in other areas, especially the U.S.

There is also another issue in product that you can imagine that we, of course, are producing products that are meant to go to Ukraine and Russia. And of course, both those 2 markets have not taken any products for the last, I would say, 62 days, I think the conflict has been. That product is also partly now being allocated to other markets because most of the -- post of the products that are being sold in Ukraine and Russia are the same or similar products that could go to either Europe or to the U.S. There are some issues with some labels, but that product is also now being allocated to different places.

The question, if people are trading down is a difficult one because I can only speak for us and the answer is no, because we have, as I said, an average price increase. So we're getting both more value and more volume and therefore, cannot see trading down in our business. I would expect that you will start to see a trading down as inflation is increasing, but I cannot be the proof of it other than observing the same as probably you do.

[Operator]

The next question is by Simon Irwin of Credit Suisse.

[Simon Irwin, analyst]

A couple of quick ones for you. Firstly, just in China, you talked about KOLs. Are you seeing other areas where it's becoming a little bit easier to activate product. I'm thinking particularly about sports sponsorship, obviously, outside of lockdown areas and where the landlords have been more flexible about allowing you to run events in malls, et cetera?

And the second question is just on Russia is, are you still paying people in Russia? What's the situation there? I mean, does the local subsidiary run out of cash at some point?

[Bjorn Gulden, executive]

Russia first, we suspended operation of our stores. We stopped shipping products to the country. We are paying both our landlords and our employees. And of course, eventually, we will run out of cash. That is correct. We're not there yet, but that is an issue that we will then have to deal with at that point in time.

When it gets to China, yes, we have not been able to use in China celebrities. There hasn't been any big changes on that. Although we start to see some semi Chinese brand doing it and are not getting any ships term, so it might be around the corner. When it gets to doing things on site in the stores, there's no hinders to doing that. So the landlords would not stop us from having any activities, but that cannot be Chinese celebrities. So I would say that the situation is unchanged, but a little bit of hope that when we get out of the 0 COVID issues and people are what should I say, sick of COVID, maybe we will have some positive development, at least our hope. And although we don't calculate it in our numbers, I have a small hope that the second half will see some improvements in China.

[Operator]

The next question is by Piral Dadhania of RBC Capital Markets.

[Piral Dadhania, analyst]

So first question is just on the wholesale growth in Q1. I think it was plus 23% from memory. Just wondering, aside from the underlying momentum that you have in the business, is there any incremental benefit coming from NIKE's D2C strategy shift particularly in North America and whether you're seeing increased allocations from some of your retail partners there?

And then the second question is just on current trading. Nobody has asked it yet, so allow me to. Can you just maybe comment on any trends that you've seen in April so far? And in particular, the North American market, given the base of comparison gets much more difficult.

[Bjorn Gulden, executive]

Your memory is good. We grew 23% in the first quarter in our wholesale business. We internally think that we're getting that growth because we do a better job with product and marketing. If it's helped by Nike's D2C strategy, then we have to take that to. But it's not really a topic that we discuss with anybody or that any retailer saying because of Nike, I buy you more. What I have said and I'll repeat it is that since, I would say, 18 months, I don't think there's any retailer in the world who doesn't want to speak to us about growth and our planning, I would say, a business with us. And that might, of course, be caused by Nike's D2C policy.

But it's not like he's buying a shoe from us because he's not buying it from Nike. And it's also not like Nike is giving, I would say, a way space on the shelf. They might give away less allocation and less depth than there might be less business, but it's not like Nike has disappeared from the good retailers we talked about. So I hope it's us. But if it's helped by an NIKE, then we'll take that to.

The trading numbers that you talked about, we haven't seen any change currently and are looking at the same numbers in April as we saw in March. We are hampered in certain markets, for example, P&A North America because we're lacking inventory. And I think it's fair to say that we could have grown even more than what we have reported on what you're doing in April, if we had the right inventory getting through our system. So right now, it is a supply issue and not the demand issue. And let's hope that it stays like that because it's an easier thing to deal with than the opposite.

[Piral Dadhania, analyst]

Just on the inventory point, if I could just follow up briefly. Is there any sort of phasing of shipments in that wholesale number than in Q1, if you're saying that there was -- you could have done more or there's a supply issue. Is there any phasing we should be aware of as we think about modeling the Q2 wholesale number?

[Bjorn Gulden, executive]

I mean normally Q1 is bigger than Q2 and the base that you're talking about has spread itself across, I would say, the months. You have to remember that the lockdown we had in Vietnam in end of August, September and October was high-end products, running product, high-end lifestyle products. And of course, that's a product that should have been landing to be able to sell in Q1 and part of that product came in late. We still have kind of a big pressure on the higher end of the market because we have delays, same with golf.

But I don't think there's a real timing that you can model. I think the retailer will say, you're a little bit late on everything. And then on the higher end of the market, I said delays are bigger and especially running performance and golf are probably the 2 categories that are hurt most. And then, unfortunately, there is the same issue in soccer, I mean football, where I think everybody has delays so that the launches is almost a quarter late because you have not been able to catch up the hole that you had in Vietnam.

But as you can see, I mean, we grew 20% on hand inventories, currently 18%. So I mean, if we are lucky and we're able to kind of get trucks and have a flow, we should have a good growth also in Q2. If things work on the operational side, the way it's worked so far.

[Operator]

The next question is by Warwick Okines of Exane BNP Paribas.

[Alexander Richard Okines, analyst]

Two questions, please, if I may. The first, sorry, just to go back to one of the numbers you put on your slide, you showed the Asia Pac number was minus 25%. I know that's different to the minus 17% and you reported because it's done on a different -- was it 17%?

[Bjorn Gulden, executive]

17% is the right number that we report to you when we do the report is a different market.

[Alexander Richard Okines, analyst]

It's a different basis. Yes. I was just wondering if there were any particular countries that you'd call out that would explain the difference.

[Bjorn Gulden, executive]

[indiscernible]

[Alexander Richard Okines, analyst]

Yes. Okay. Yes, understood. And can you give the number for China? I appreciate it's not a pretty number but it would be useful to have.

[Bjorn Gulden, executive]

I think it's minus 37%, isn't it? It's minus 37% compared to plus 40% a year ago.

[Alexander Richard Okines, analyst]

That's helpful. And then my second question is just what proportion of stores, including your partner stores in China are actually closed at the moment?

[Bjorn Gulden, executive]

I think closed, it's only about 10%, but the traffic in those who are open are so low that the number doesn't mean anything. You have to remember that the Chinese doesn't work outside shop when there is the danger of having COVID. So I would say that the business currently hampered way more than the 10% that you talked about. We even had our warehouses closed so that we couldn't ship for a while. So you will look at very, very bad numbers in April because of this policy.

[Operator]

The next question is by John Kernan of Cowen.

[Krista Zuber, analyst]

This is Krista Zuber on for John. Just wanted to drill down again a little bit more on the supply chain. You heard from some of your peers that they did see some improvement sequentially in throughput and on sort of unlanded goods, both in Europe and North America. Are you seeing similar trends in both of those regions? And then I have one follow-up.

[Bjorn Gulden, executive]

I'm not sure what you mean by throughput. We are producing 100%, so we have no issues at the beginning of the chain. That means that we're producing all the things that we place almost on time. But of course, you have not catched up some of the delays that you had. So in the total, you have delays, but production is running, I would say, good.

The freight issue is almost the same. I mean I think the last statistic we looked at yesterday is that I think 13%, 14% of all the ships in the world are waiting outside harbors and the throughput time in certain water routes are 2 to 3 to 4 weeks later. So nothing has really changed when it gets to that side. We think we're actually doing very well because we have this great relationship with Maersk, and we get our product on the ships when the ships are there, and it's not like cargo is left anywhere. So we feel we are in good shape relative to the general shipping market, but of course, not as good as we were before the whole COVID situation.

And as you can see, having 32% more inventory in our books and 18% more on hand shows you that throughput is pretty decent, but there's no real improvement compared to what it was 3 months ago from the speed. That's not the case. But again, everything we produce is going out of the factory on time. So that is pretty good.

[Krista Zuber, analyst]

Okay. Great. And then my follow-up question is just sort of on the sizable increases in inventory, accounts receivable and payables. I guess is there anything that you can share with us on how we should think about the pace of inventory growth through the balance of fiscal '22?

[Bjorn Gulden, executive]

Well, we will try to keep as high inventory as we can as long as we can. We basically are not managing the flow of product to any optimization of working capital. We're trying to ship everything out that we can. And especially now in the risk of a COVID lockdown in China, we have accelerated shipments and are taking all the merchandise we can. And hopefully, when I look at the order book, we will not have an inventory buildup that we don't want to have. So we feel that working capital and our balance sheet on that side is going to be very good.

We will sell the inventory that we get. And we currently have, I would say, except for the issue now in Ukraine and Russia, we do not have any, what should I say, fallout in payments. I think that our service of our accounts and the fact that we have good sell-through have put us high on their payment list. And I think our data standing is even better than we had planned. And I'm looking at Hubert, but I think we are in very good shape on that side. No issues to report at all.

[Operator]

The next question is by Jurgen Kolb of Kepler Cheuvreux.

[Jurgen Kolb, analyst]

Two questions from my side. The first one, can I get maybe some additional thoughts from you on your gross profit margin performance. You indicated an increase for the full year and may not be possible given the current situation. But maybe a little bit of the trends that we should expect. I certainly understand there are a lot of moving parts. But maybe from a hedging perspective, how is that going to develop through the coming 3 quarters? And also in this week, how do you see the promotional environment currently? Is that something that is still generating tailwind for you for your gross profit margin also in Q2? And how do you see that situation in the second half? That's the first part.

And the second one, even though a smaller division, the accessories, but obviously showing tremendous growth and a very strong performance. Maybe you can share with us a little bit more of that division and what's really driving that growth? Is it almost exclusively golf or what else is playing in there?

[Bjorn Gulden, executive]

The accessories is a big growth in golf. We're selling everything we can -- and then a very healthy development in categories that was slow last year, take an issue like backpacks like last year, the schools were almost close to Novo backpacks. Now we're selling backpacks again. And then we have because of the better brand is very positive development on bodywear and legwear, especially socks and underwear is selling well. So it's a big spread. And I think it's just -- what should I say, mirrors that the brand is more accepted and it's selling better everywhere.

When it gets to the gross margin, and I'll hand over to Hubert in a second when you're getting into the hedging, you saw that we lost 130 basis points, which is basically explained by the geographical change, especially with China, which used to have the highest gross margin and that wholesale is growing quicker than D2C, which again is watering out the margin. And that means that the organic gross margin like-for-like was pretty much the same, which we think is a pretty good performance in Q1.

Then we know that the price increases that are on the way in on the cost side is not mirroring 100% the way we price the product because we don't want to be a price leader. So there is an organic decoration on the going-in margin gradually through the year, and the hope is then to kind of nullify that in '23.

But again, there are other factors should China go up again, should we have enough inventory to prioritize D2C more. And again, should discount stay low, then there is an upside to this. But I think budgeting with the full year, an increased gross margin is very optimistic when you see what's going on in the market, and there is too much uncertainty.

We do currently not see a lot of discounting. It's not like the big markets are full of inventory. So, so far, there isn't any discount wave in those markets that you would expect it, especially the U.S. And then when it gets to hedging, I'm handing over to Hubert.

[Hubert Hinterseher, executive]

Yes. Regarding the margin, there is, of course, a certain tailwind from the U.S. dollar, euro we enjoyed in the first quarter, and we expect that this continues throughout Q2, Q3, Q4. The benefit of the U.S. dollar versus other currencies is not that strong. But overall, as said, we expect certain improvements which will help us to compensate for other negative impacts like in Q1.

[Jurgen Kolb, analyst]

Okay. And just a quick follow-up. So is that trend going to -- that should accelerate, I understand in the coming quarters, Q2, Q3, Q4, that positive tailwind. Would that be fair?

[Hubert Hinterseher, executive]

It would be almost the same level as the U.S. dollar hedging throughout the quarters was basically at the same level around the [ EUR 120 million ]. This did not change and will not change that much.

[Operator]

The next question is by James Grzinic of Jefferies.

[James Grzinic, analyst]

Bjorn, just a quick one for you. You referenced you hope that the China 0 COVID policy will lease in due time and it felt like you're really thinking about a half to timing to that. Can you perhaps give us a little bit more insights as why you feel that way at this point in time?

[Bjorn Gulden, executive]

That's like a shrink question. Why do you hope -- well, I just feel that this bar code has been going on for such a long time. And when I see kind of Chinese brands, and I would say so to international brands started to use celebrities. And I do assume that the consumer now coming out of 60, 70, 80, 90 days lockdown will be in a mood to do what he or she wants. And that's why I have a hope, which is just based on hope. I don't have any facts but a year is normally a time where people look at what they have done and not done, and now we have a year behind us. Unfortunately, that hit them into the 0 COVID policy. But I don't have any facts to be honest with you. It's just that I do hope. I don't count on it, but I do hope. I think I have to leave it by that.

[Operator]

There are no further questions. And with that, I would close the Q&A session and hand back to Gottfried Hoppe.

[Gottfried Hoppe, executive]

Thank you very much. This concludes our call for today. Many thanks for your questions and for taking the time to participate in our first quarter earnings call. As to say, I was glad -- great pleasure to have you on the call today. You know how to reach us. And meanwhile, of course, stay at home and have a nice day and talk to you soon.