Puma cuts sponsorships, products to battle Europe blues

FRANKFURT Thu Jul 26, 2012 7:10am EDT

FRANKFURT (Reuters) - German sportswear maker Puma (PUMG.DE) will reduce the number of products it sells and cut back on sponsorship deals in its biggest reorganization in 20 years as it battles weak European markets it fears will get no better anytime soon.

Puma, a distant third in terms of sportswear sales behind Nike (NKE.N) and Adidas (ADSGn.DE), has been struggling to find its feet after focusing too heavily on fickle fashion markets, and last week warned 2012 profits would miss forecasts after its core European customers held back on spending.

"Growth in Europe has stopped," Chief Executive Franz Koch told journalists on Thursday, as the group reported a 29 percent slump in second-quarter net earnings after it upped marketing spending ahead of the Olympics and Euro 2012 soccer tournament.

"We believe that the macro economy will not improve, if anything the opposite will be true, especially here in Europe."

Shares in Puma rose 5.6 percent to 224.90 euros after the measures were announced and Koch confirmed a target to increase sales to 4 billion euros ($4.8 billion) by 2015, despite forecasting sales growth would slow over the next two quarters.

The firm will take a knife to its network of own stores in Europe and North America, reduce the number of warehouses it runs and reshuffle its regional management in Europe, as well as stop producing country-specific products and terminate underperforming sponsorship deals before they expire.

Puma's poster boy is Jamaican sprinter Usain Bolt, under contract until the end of 2013, and who is garnering massive media attention as he prepares to defend his Olympic titles in London. When the sponsorship deal was renewed in 2010, Puma described it as the biggest in athletics by far.

Puma, which is 80 percent controlled by French luxury goods group PPR (PRTP.PA), did not mention individual contracts on Thursday. Koch said it would keep contracts that produce the best commercial results and mostly look at ending smaller, more local contracts.

The overhaul is the biggest at Puma since previous chief executive Jochen Zeitz's drive in the 1990s to drag a loss-making business back into profit.

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Puma said second-quarter sales in Europe -- which account for just under half of its business -- dropped 3 percent, while sales in its biggest product category, footwear, were flat.

Bright spots were in China, where the group managed to turn around a mediocre performance in the first quarter to increase sales by over 10 percent, and soccer gear, which also grew over 10 percent, helped by demand for Italian jerseys after the national team made it to the final of the Euro 2012 tournament.

Along with the efforts to cut costs, products and endorsement contracts, which will cost it up to 100 million euros, Puma also said Chief Operating Officer Klaus Bauer and Chief Marketing Officer Antonio Bertone would leave the company at the end of the year.

Bertone was brought into Puma as a 22 year-old skateboard fanatic in the early 1990s as a freelance consultant by previous CEO Zeitz to help shape what was then the new Lifestyle division, while Bauer has been with Puma since 1989.

Total second-quarter sales were 752.9 million euros, while net earnings were 26.7 million. The 29 percent drop in net earnings followed a 5 percent decline in the first quarter.

(Reporting by Victoria Bryan; Editing by Mark Potter)

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