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Puma Looks Ahead as Net Slides

German activewear giant is focused on getting back to peak form following a sluggish start to the year.

Puma SE is focused on getting back to peak form following a sluggish start to the year.

On Thursday, a day before the opening of the London Olympics, the Herzogenaurach, Germany-based sporting goods firm, which outfits Jamaican sprinter Usain Bolt, reported that second-quarter net profits dropped 29.2 percent to 26.7 million euros, or $34.3 million.

Europe’s second-largest sporting goods firm after Adidas blamed the weaker-than-expected earnings on a challenging business environment, particularly in Europe, coupled with increasing strains on gross margins.

Revenues in the three months ended June 30 rose 11.8 percent to 752.9 million euros, or $967.4 million.

In the first half, net profits fell 12.8 percent to 100.6 million euros, or $130.6 million.

Currency conversions are made at average exchange rates for the periods to which they refer.

Puma reiterated it expects a significant decrease in net profits versus the 230.1 million euros, or $320.4 million, posted last year and confirmed it expects net sales growth for the full year to rise in the midsingle digits in lieu of the previously stated high-single digits.

The company also stressed plans to speed up and expand its “transformation program,” launched in 2011 within the framework of the firm’s five-year “Back on the Attack” growth strategy geared at hitting the 4 billion euro, or $4.84 billion at current exchange rates, sales target by 2015.

“Management still believes that this is an ambitious but still believable target despite the short-term slowdown in sales and profitability,” Franz Koch, Puma’s chief executive officer, said during a conference call. Puma in 2011 eclipsed 3 billion euros in sales for the first time, with a 136.9 percent spike in fourth-quarter net earnings to 33.1 million euros, or $44.7 million.

Puma said going forward it would implement a new regional business model in Europe, consolidating the number of organizational entities within Europe from 23 countries to seven areas based on groupings of countries, and introducing a fully regionalized supply chain. The firm also outlined plans to streamline its product portfolio, significantly reducing the overall number of articles developed, and optimize its retail store network. This will involve focusing on selective openings in profitable locations, particularly in emerging markets, where the wholesale structure is missing, and the shuttering of underperforming stores, notably in Europe and North America, Koch said.

Collaboration and endorsement contracts that are either not viable or in line with Puma’s long-term strategy will be terminated. “We will invest in more meaningful assets on a local, regional and global scale,” explained Koch, citing Puma’s new partnership with German soccer club Borussia Dortmund as an example, as a club that is “very relevant” in German-speaking countries as well as internationally.

Puma estimates the actions of its program will require one-time costs of up to 100 million euros, or $121.1 million at current exchange rates.

As for the second quarter numbers, the company’s performance in Europe remained lackluster, dragged down by Italy, France, Greece, the U.K. and Scandinavia, with Germany and Spain, where Puma opened a subsidiary two years ago, among rare bright spots.

Strong sales in Argentina and Brazil contributed to an “excellent” performance in the Americas, Puma said, with total sales up 23.6 percent in euro terms to 278.7 million euros, or $358.1 million.

Sales in the Asia-Pacific region rose 20.7 percent to 190.6 million euros, or $245 million, with double-digit growth in China. “[China] is a very challenging marketplace at the moment.…We believe that we have a clean platform in order to pursue sustainable and profitable expansion in this country,” said Koch.

Puma also revealed the promotion of Michael Lämmermann, currently the company’s general manager finance, to the position of chief financial officer, effective Jan. 1. Klaus Bauer, chief operating officer, who joined Puma in 1989, told the administrative board that he will part ways with Puma at the end of the year due to personal reasons. His successor will be announced at a later date.