October 24, 2012 / 12:31 PM / in 5 years

Weak Europe and revamp costs hammer Puma profit

FRANKFURT (Reuters) - Sportswear brand Puma (PUMG.DE) posted an 85 percent plunge in quarterly earnings, hit by weak European markets, slowing growth in Asia, and the cost of a revamp aimed at boosting innovation and future profits.

The German company, a distant third in the sporting goods industry behind Nike (NKE.N) and Adidas (ADSGn.DE), said on Wednesday it was cutting more costs in a bid to protect earnings, without giving details.

Consumer firms from car suppliers and luxury handbag makers to food retailers have issued profit warnings in recent days, blaming flagging demand in austerity-ravaged Europe and slowing growth in China, which had previously offset weakness elsewhere.

Puma, whose shoes are worn by sprinter Usain Bolt and soccer player Cesc Fabregas, had warned over the summer that 2012 profit would fall far below last year’s level, as it paid the price for lagging rivals in bringing out new high-tech running and soccer shoes and in streamlining its business.

Controlling shareholder PPR (PRTP.PA), with an 82.4 percent stake, says Puma has not spent enough on products and needs to restore profitability, and so the brand has promised more innovation, as well as steps to reduce its product range by 30 percent, close loss-making shops and end some sponsorship deals.

On Wednesday, Puma booked a larger-than-expected 80 million euros ($104 million) of restructuring costs in its fiscal third quarter, hammering net profit down to just 12.2 million euros.

“Puma was a bit behind some other brands in its efficiency drive and against a worsening background in Europe, they’re having to fight harder to catch up,” Silvia Quandt analyst Mark Josefson told Reuters.

Puma’s shares, down 19 percent over the past six months, dropped to a three month low in early trading, before recovering to stand up 0.9 percent at 217.45 euros by 0600 ET.

PPR, which also controls luxury brands Gucci and Yves Saint Laurent, on Tuesday appointed its group No.2 Jean-Francois Palus as Puma’s new chairman. PPR has been steadily increasing its stake in Puma over the last year and analysts expect it to use the low share price to snap up more shares.

A man is reflected in a window with a Puma sign, at the factory outlet store in Herzogenaurach near Nuremberg April 10, 2007. REUTERS/Michaela Rehle


“I and the board are in agreement that we are not pleased with Puma’s sales and earnings performance at present,” Puma Chief Executive Franz Koch told journalists.

“Given the market environment and Puma’s performance, especially in Europe, we have taken quick measures to reduce the cost base in short-term,” he added, without elaborating on the new measures.

    Puma said third-quarter sales rose 6 percent to 892.2 million euros, missing analysts’ average forecast of 906 million, including a 3.4 percent decline in Europe, its biggest source of revenue.

    “We did not expect brilliant results but these are clearly much worse than we expected,” one Paris-based analyst said.

    Silvia Quandt’s Josefson said many of the steps being taken by Puma had already been done by rivals, such as cutting product lines and consolidating country organizations. Adidas has already trimmed the number of products it offers by 20 percent.

    Puma maintained a forecast for 2012 sales to rise by around 5 percent and net profit to fall significantly from last year’s 230 million euros. Some analysts said they would lower their profit expectations following the third-quarter numbers.

    Puma is currently expected to report 2012 sales up 7 percent to 3.22 billion euros and net profit of 166 million euros, according to Thomson Reuters I/B/E/S.

    While Koch maintained a target to grow sales to 4 billion euros ($5.2 billion) by the end of 2015, he said Puma was currently concentrating on profit.

    ($1 = 0.7714 euros)

    Reporting by Victoria Bryan; additional reporting by Christian Kraemer in Munich and Astrid Wendlandt in Paris; Editing by Ludwig Burger and Mark Potter

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