As PPR becomes Kering, investors look for Puma promise

PARIS/FRANKFURT, June 18 Tue Jun 18, 2013 8:11am EDT

PARIS/FRANKFURT, June 18 (Reuters) - PPR seeks to turn the page on its retail past and start a new life as a luxury and sports brands group by renaming itself Kering at its annual general meeting today.

Shareholders will be hoping the company, which bought German sportswear maker Puma in 2007, will have credible ideas to turn around the underperforming brand and replicate in sports the success it has had in luxury.

Kering trades at a 15-20 percent discount to its luxury goods peers, though it owns some of the market's strongest and fastest-growing fashion brands such as Bottega Veneta, Yves Saint Laurent and Stella McCartney on top of mega-brand Gucci.

"The share price of Kering today does not give much credit to Puma's turnaround nor its capacity to contribute to group profitability," said Caroline Reyl who runs several premium brands funds totalling 1.6 billion euros and points out that 85 percent of Kering's profits come from luxury.

PPR waited until 2012 to oust Puma's old guard, putting its operational No.2 Jean-Francois Palus in charge only in December.

"I have the feeling that PPR took a long time to get into the business of Puma and really understand what was going on," said Thomas Chauvet, luxury goods analyst at Citi.

Investors have high expectations for Bjorn Gulden, the new Puma CEO poached from Danish jeweller Pandora who starts on July 1, but the 47-year old former professional Norwegian footballer inherits deepseated problems.

Puma has lost its competitive edge and credibility in key areas such as the running shoe segment, allowing rivals such as Asics and New Balance to gain market share and bigger competitors such as Adidas and Nike to consolidate their lead.

Puma's footwear sales dropped 7.8 percent in the first quarter and sales fell 2.3 percent overall, prompting it to downgrade guidance for sales and profit this year.

The results contrasted with those of Adidas, which reported in May its highest gross profit margin ever amid strong sales of higher priced products such as its Boost running shoes.

Puma has made a number of mis-steps in recent years, including opening shops in the wrong places, poorly integrating licence businesses and back-office operations and spending money on unlikely sponsorships in sailing and rugby.

"The historic roots of Puma lie in soccer and are the heart of the brand. We must reflect that more in our marketing," Pinault told a German newspaper last week, adding that Puma also could have used Olympic sprinter Usain Bolt more effectively.

PPR bought Puma in cash for 330 euros a share in 2007. Now Puma shares trade at 230 euros, and some say they be lower still if Kering, which now owns about 83 percent, having started with 62.1 percent, was not buying.

PPR Chief Executive Francois-Henri Pinault staked his reputation on the group's diversification into sports, distancing himself from father Francois, who founded PPR and led the group's investments in luxury goods in the early 2000s.

Puma's revised guidance gives the new CEO some breathing space, so he won't have to worry about another warning in a few months.

"Gulden knows the market incredibly well, but he needs time," said Klaus Jost, chairman of Intersport International, the world's largest sportswear retailer and CEO of Intersport Germany.

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