UPDATE 2-Puma results deepen challenge for new CEO

Wed Jul 24, 2013 7:46am EDT

* Puma falling further behind Adidas and Nike

* Hopes for change after new boss took over July 1

* Q2 sales at 692 mln eur vs forecast 709 mln

* Q2 EBIT 31 mln eur vs poll avg 34.7 mln

* CFO says worst behind company, shares down 2 percent

By Victoria Bryan

FRANKFURT, July 24 (Reuters) - German sports apparel group Puma SE, hoping to revive its fortunes under a new chief executive, reported a second quarter of falling sales and profits on Wednesday and said the rest of the year looked challenging.

Puma, 83 percent controlled by French luxury goods group Kering, has fallen behind rivals such as Nike and Adidas in the market for soccer gear and running shoes after spending years focusing on its fashion products.

Analysts and investors hope new CEO Bjorn Gulden, a former Adidas executive and professional footballer who started on July 1, will win back much-needed credibility on the sporting performance of Puma's footwear and clothing rather than just its look.

The world's third biggest sporting apparel producer, which kits out sprinter Usain Bolt and Champions League finalists Borussia Dortmund, reported a 4 percent fall in sales and a 34 percent drop in operating profit for the second quarter.

That was worse than analysts had expected and sent its shares down around 2 percent, compared to a 0.4 percent fall for the MDAX index of medium-sized German companies.

"I think we have the worst behind us, but if we look at the economic environment and what we're getting from the markets, then we see that the second half will be quite challenging," Chief Financial Officer Michael Laemmermann said.

Poor sales in France, Italy and China, the weak yen in Japan - its second largest market at around 10 percent of sales - and high discounts on its shoes resulted in a further fall in Puma's gross margin to 46 percent from 49.1 percent.

Since the third quarter of 2012, Puma has reported a fall in the margin - a key measure of success in the sector - while that at Adidas rose to 50 percent for only the second time in its history in the first quarter of this year.

FINDING ITS FEET

Gulden, who has been a product manager at Adidas as well as managing German shoe retailer Deichmann and turning around a troubled Danish jeweller, was not involved in Wednesday's results presentations, the norm for German managers who tend to have 100 days to settle in before talking to media.

He is expected to wait until the group's third quarter results in November before setting out his plans for the group.

"The main challenge, in our view, will be to recover some pricing power through sports image legitimacy and innovative technology," analysts from Raymond James wrote in a note.

Owners Kering have criticised Puma in the past for not making enough of its sponsorship of Bolt and its soccer heritage at a time when the sporting reputation of goods is at a premium as consumers cut back on frivolous fashion purchases.

Shoe sales, which make up almost half of its revenue, fell 7.3 percent in the quarter as the group had to discount its products more than last year to get them off the shelves. Puma's footwear sales fell by 7.8 percent in the first quarter, while Adidas's increased by 3 percent.

"It's too early to say, but I would not be surprised if this price pressure continues into the first half of 2014," Laemmermann said.

Also on Wednesday, economic data showed China's manufacturing engine lost further momentum in July and the job market weakened, boding ill for many leveraged to the world's second-largest economy.

Puma's sales in the Asia/Pacific region fell by 7.2 percent. China, already one of its top ten countries for revenue, remained tough, with an excess of stock on the market, Laemmermann said, echoing comments by Nike.

Laemmermann said price increases in Japan to mitigate the weak yen had helped in the second quarter but, unadjusted for currency effects, overall sales fell 8 percent to 692 million euros. Analysts had expected 709 million on average.

Puma also reiterated its 2013 forecast for sales to fall by between 1 and 5 percent for the year as a whole.

Kering will report results on Thursday, while Adidas will do so on Aug. 8.

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