May 14, 2014
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Refocused Puma eyes sporting chance of turnaround

May 14, 2014

Germany's Puma is banking on this summer's World Cup soccer tournament and a renewed focus on its technical sportswear to counter currency effects that prompted the company to trim its profit margin forecasts on Wednesday.

Early sales of shirts for the eight teams Puma is sponsoring at the World Cup - including Italy, Chile and Ghana - helped to slow sliding sales in the first quarter. But like many European businesses that rely on overseas sales in foreign currencies, Puma's profitability is being squeezed by the relative strength of the euro.

Apparel sales rose by a currency-adjusted 3 percent in the first three months of the year, against a 1.1 percent fall in the previous quarter. But sales of footwear, which accounts for almost half of Puma's total, continued to slide, falling by an adjusted 7.1 percent as a positive reception for the new evoPOWER soccer boot failed to make up for a decline in its motorsport business.

Puma, which slipped further behind sportswear giants Nike and Adidas in recent years after a foray into fashion, is spending heavily on marketing and sponsorship to restore its reputation for sports performance.

"We know that the repositioning of Puma and the turnaround of the business will take time, but I am convinced ... that we have initiated the right projects to make 2014 the start of the turnaround," Chief Executive Bjorn Gulden said in a statement after Wednesday's results announcement.

French luxury group Kering, which has gradually built up a 86 percent holding in Puma since first buying a stake in 2007, said last month that it would only return to the acquisition trail in sports and lifestyle once Puma had been turned around.

Puma shares, which trade at a big premium to its main rivals on speculation that Kering could buy out free-float shareholders, were down 0.4 percent at 1047 GMT.

Star names

Rather than pouring cash into marketing during the World Cup, which Gulden said would be crowded by brands from cars to credit cards, Puma plans its biggest campaign to date in August, showcasing athletes including sprinter Usain Bolt, soccer star Mario Balotelli and golfer Rickie Fowler.

Gulden said the campaign is timed to coincide with the busy back-to-school season, which should also be supported by post-World Cup sales, particularly if one of the Puma-sponsored teams performs well.

"You should not be surprised if there is a Puma team in the final," he told journalists on a conference call.

Puma also said it will launch a unified site for e-commerce sales in the United States, Europe and Russia by the middle of the year and plans to open a new store in Dubai in the fourth quarter as part of plans to reposition the brand.

The company reiterated a forecast for flat sales in 2014, with a deal to oust Nike as kit supplier to Arsenal from next season and the new marketing campaign expected to boost sales in the second half and offset a first-half fall.

Operating profit for the first three months dropped by a quarter to 58.6 million euros (47.9 million pounds), broadly in line with analyst forecasts, and CEO Gulden said the currency hit was in the "high single-digit" millions.

Currency volatility could shave off half a percentage point from Puma's 2014 targets for an operating margin of about 5 percent and net profit margin of about 3 percent, the company said.

Adidas, which is also suffering from the strong euro, last week confirmed its target for an operating margin of 8.5 to 9 percent this year. Nike's operating margin in its 2012/13 financial year was 12.86 percent, according to Reuters data.

Puma's sales fell 7.1 percent to 725.7 million euros, but only dipped 0.5 percent after stripping out the impact of weak currencies in markets such as Russia, Turkey and Japan, with its core Europe, Middle East and Africa region up 0.3 percent.

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