PARIS — Puma said Wednesday it would close stores and trim jobs to improve its disappointing sales and earnings performance.
The Herzogenaurach, Germany-based sporting goods giant reported net profits plummeted 85.1 percent in the third quarter and confirmed they would be significantly lower in 2012 than the previous year, reflecting the impact of restructuring measures designed to offset a sharp decline in sales in crisis-hit Europe.
Net earnings fell to 12.2 million euros, or $15.3 million, in the three months ended Sept. 30. For the first nine months of the year, net income was down 42.8 percent to 112.8 million euros, or $144.6 million.
Consolidated sales in the third quarter rose by 6 percent in euro terms to 892.2 million euros, or $1.12 billion. Dollar figures are converted from euros at average exchange rates for the periods to which they refer. Puma continues to forecast sales growth in the high single-digit range for 2012 as a whole.
“I am aligned with the board in our view that we are not pleased with Puma’s sales and earnings performance at present, but that we have taken decisive actions to overcome the issues we are currently facing,” Puma chief executive officer Franz Koch said in a conference call.
“We already said in 2010 when our five-year growth plan, Back on the Attack, was launched that 2011 and 2012 will be transition years. Given the current challenges, the transition period would need to be extended into 2013,” he added.
The company booked one-time costs of 80 million euros, or $100 million, in the third quarter as a result of its savings drive, which involves restructuring the European region, closing unprofitable stores and reorganizing its global operations and functions. It expects the expenses to be amortized within two or three years.
Puma plans to shut around 80 stores, mainly in mature markets, and continue to open stores in profitable locations, mainly in emerging markets. It expects to end 2013 with around 540 stores worldwide, versus 590 at present.
Koch said the company had started cutting jobs, particularly in Europe, and would end 2013 with a smaller net headcount than in 2012, despite the planned opening of around 30 new stores.
“We take the opportunity in 2012 to clean up the marketplace in terms of inventories, to execute our immediate cost-cutting measures, including some job cuts, and start fresh and with a new mindset into 2013,” he said.
In addition, Puma plans to reduce the overall number of articles it develops by 30 percent by the end of 2015, and cancel certain endorsement deals.
Europe's second-largest sporting goods firm after Adidas is maintaining for now its sales target of 4 billion euros, or $5.14 billion at current exchange, by 2015, though Koch said the priority was restoring profitability. “We will not grow at any price,” he said. “Profitability for us is more important right now than sales growth.”
Puma’s overall gross profit margin fell by 180 basis points in the third quarter to 48.2 percent, reflecting rising input costs and heavy discounting. In the key footwear category, the gross profit margin fell to 46.1 percent from 49.8 percent during the same period a year earlier, as retailers got rid of their excess stocks.
“The overall marketplace has become very discount-driven. The market is flooded with inventory,” noted Koch.
Sales in Europe, the Middle East and Africa fell 3.4 percent in the third quarter to 396.7 million euros, or $496.4 million, with France, Italy and the United Kingdom registering a disappointing performance, despite the Olympic Summer Games that saw Puma-sponsored sprinter Usain Bolt win three gold medals. Revenues in Germany, on the other hand, were boosted by brisk sales of replica jerseys for soccer team Borussia Dortmund.
Sales in the Americas jumped 20.5 percent during the period to 283.2 million, or $354.4 million, with Argentina, Brazil and Mexico posting strong double-digit increases and North America registering continued growth.
Turnover in the Asia-Pacific region rose 8.3 percent to 212.3 million, or $265.6 million, lifted by marked improvements in India and Japan. However, growth in China has slowed due to a challenging environment characterized by high inventory levels and worsening consumer sentiment.
Puma is controlled by French luxury, sports and lifestyle conglomerate PPR, which is slated to report its third-quarter results today.
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