By  on October 18, 2010

PARIS — Gucci Group will become the smaller cousin of PPR SA’s future sport and lifestyle division as the French conglomerate gears up for its next transformation act.

“Becoming a pure play in luxury would mean being a medium-size group of brands internationally,” PPR chairman and chief executive officer François-Henri Pinault said Monday in unveiling the management changes at Puma AG.

Puma ceo Jochen Zeitz was named head of the sport and lifestyle division, of which Puma will be the core property, as well as PPR’s new chief sustainability officer. Zeitz will become executive chairman of the German activewear firm, which plans to convert into a European company with a single board called Puma SE, and will appoint a new ceo in due course.

In a joint conference call, Pinault and Zeitz declined all comment on specific acquisition targets or rumors, while mapping out PPR’s intentions to build a mass market division that in scope and revenues will eclipse such high-profile luxury holdings as Gucci, Yves Saint Laurent, Balenciaga and Alexander McQueen.

PPR posted 2009 revenues of 16.53 billion euros, or $23.04 billion at average exchange rates, with Gucci Group contributing 3.39 billion euros, or $4.73 billion.

Pinault reiterated that PPR would not make any “significant” acquisition ahead of disposals in order to maintain its positive debt rating with Standard & Poor’s, currently at BBB-.

Last year, the French firm revealed its intention to shed its retail banners: the book, music and electronics specialist Fnac; furniture chain Conforama, and Redcats, which sells a range of apparel and household items via catalogue and the Internet.

Pinault said PPR “might” also use proceeds from the sale to add to its luxury portfolio, “if there’s any opportunity.”

But the focus will be buying brands that are “complementary” to Puma but don’t compete with it directly.

“It’s not sports or lifestyle; it’s sports and lifestyle,” Pinault stressed when asked if jeans or fast-fashion chains could be on its radar.

While stopping short of naming specific brands or categories, Pinault said he’s on the hunt for “iconic” brands with a sport element and strong global growth potential. It is understood firms in the outdoor or board-sports fields would be fair game.

Asked if PPR were interested in German outdoor company Jack Wolfskin, Zeitz declined to comment. “There’s nothing we can confirm or share with you,” he said.

Pinault said Zeitz would be responsible for “developing the architecture of this new group of companies.”

He will also continue to shepherd Puma through a growth phase that could see revenues rise from about 2.5 billion euros, or $3.49 billion at current exchange rates, to about 4 billion euros, or $5.59 billion, by 2015. Part of the growth is via acquisitions in “adjacent” categories, similar to its March purchase of Cobra Golf.

Next week, Puma is hosting an investor day to disclose third-quarter results and detail its “phase IV” strategic plan. Zeitz previewed it at PPR’s results presentation last July, describing steps ranging from supply-chain optimization to expanding in emerging markets.

Pinault characterized Zeitz’s promotion as coming “at a crucial time in the history of Puma. We wanted to strengthen the organization of the management team.”

“Puma is and will remain the main priority in terms of potential for growth,” he added.

PPR, which launched its bid for Europe’s second-largest sporting goods company in 2007, now owns a 71.6 percent stake and has no plans to buy out minority shareholders and de-list the company, Pinault noted.

Analysts were lukewarm about the change of emphasis at PPR, given that luxury goods are more defensive and offer greater opportunity in emerging markets.

What’s more, “Puma is ‘not out of the woods,’ ” according to Luca Solca, senior analyst at Bernstein Research in London. He noted Puma has underperformed its competitors, has a scale disadvantage compared with Adidas and Nike and “fruits of the merger” with PPR are not yet obvious.

In a July report, Bernstein compiled a list of more than 50 brands that could attract PPR’s interest, ranging from such publicly traded companies as Lululemon, Under Armour and Everlast to privately owned players such as Stussy, Body Glove, Rip Curl and Helly Hansen.

A wunderkind among German executives, Zeitz, 47, has headed Puma since 1993. He speaks six foreign languages, including Swahili. He said Puma would consider internal and external candidates as his successorand take its time to conduct a thorough international search.

Puma’s management board includes deputy ceo Melody Harris-Jensbach, chief operating officer Klaus Bauer, chief commercial officer Stefano Caroti and chief marketing officer Antonio Bertone.

As for the sustainability role, Pinault noted PPR is “ready to go further, and we have the chance to get this inspiration from Puma.” The German activewear firm has been on the vanguard of reducing packaging waste, along with its own carbon emissions, waste and energy and water use.

The proposed management changes are subject to approval at Puma’s next annual general meeting in April. Zeitz noted he would continue in the ceo role if no successor is found by that date.

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