UPDATE 1-As PPR becomes Kering, Puma and Fnac problems remain

Tue Jun 18, 2013 1:54pm EDT

* PPR officially changes its name to Kering

* CEO defends Fnac flotation

* Puma turnaround a big challenge

By Astrid Wendlandt and Victoria Bryan

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

The company will now have to prove it can also change the fortunes of Puma, its underperforming sportswear brand and replicate in sports the success it has had in luxury goods.

Kering Chief Executive Francois-Henri Pinault said the new name, which took a year to develop, was a necessity to reflect the group's "new reality."

But beyond the name change and new logo featuring an owl, Pinault gave few answers to shareholders about the future of Puma or Fnac, the group's CD and book business, which will list on the stock market on Thursday.

Pinault called on shareholders to hold on to Fnac shares they will receive when the business floats, valuing Fnac at 400 million euros ($533.90 million), significantly below the 1 billion euro mark some analysts had forecast two years ago.

Fund managers and analysts have predicted that Fnac's share price would fall once the stock started trading as investors would offload their shares.

Pinault called on shareholders to hold on to the Fnac shares they will receive in the float.

"This is an opportunity for investors to take part in the turnaround of Fnac ... and I am confident in this company's ability to pursue its development," Pinault said.

Pinault also said his family holding Artemis, Kering's biggest shareholder, would hold on to its 39 percent stake in Fnac for at least two years and a part of it beyond that.

NEW PUMA BOSS

Pinault said he had full faith in Puma's new chief executive Bjorn Gulden, poached from Danish jeweller Pandora, who starts on July 1. "He (Gulden) will bring a new energy and experience which will help him tackle the challenges that await him," Pinault said.

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

Gulden, a 47-year old former professional Norwegian footballer who was previously head of accessories and apparel at Adidas, has inherited some deep-seated 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 has made a number of mis-steps, including opening shops in the wrong places, poorly integrating licence businesses and back-office operations and spending money on sponsorships in sailing and rugby not closely linked to the brand. It suffered a 70 percent drop in net profit last year.

"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.

DISCOUNT TO RIVALS

Pinault has 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.

"It would make sense to sell Puma but my fear is that Pinault is keen to show the he can turn it around as it is his baby," said Luca Solca, luxury goods analyst at Exane BNP Paribas.

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, plus 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 brand funds totalling 1.6 billion euros. She pointed out that 85 percent of Kering's profits come from luxury.

Pinault also told shareholders that the group, whose previous name PPR stood for Pinault-Printemps-La Redoute, was in talks to sell the French mail order unit La Redoute by the end of the year.

The disposal would close its exit from the retail industry, begun with the disposal of department store Printemps in 2006.

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