By and  on May 7, 2007

Puma, the German activewear firm that France’s PPR is trying to buy, on Monday warned a drop in orders in the U.S. would rein in full-year sales and earnings.

As Puma reported a 3.7 gain in first-quarter profits, the firm forecast that weak order-writing at the end of the quarter would result in “low single-digit” growth through the end of the year instead of the double-digit profit hike forecast earlier.

HSBC analyst Antoine Belge, in a note to investors, speculated the profit warning “might explain why the Herz family [which controlled Puma before the PPR deal] agreed to sell its 27.1 percent controlling stake at 330 euros [$448.40 at current exchange] per share [instead of a higher multiple].”

PPR, the French retailer that controls Gucci Group, last month said it would buy a controlling stake in Puma and would offer 330 euros, or $448.80, a share for the rest of the company’s outstanding publicly held capital.

Puma shares spiked above 340 euros ($462.33) in the wake of the deal before sliding to close last Friday just below 335 euros ($455.53).

Belge said the profit warning represented a “mixed bag” for PPR in that it “increases the likelihood of Puma shares being tendered” at the proposed price of 330 euros — a fact some analysts doubted after the share price spiked — while “decreasing the value of the acquired business.”

PPR shares fell 0.24 percent, to 127 euros, or $172.72, in trading on the Paris Bourse. In Frankfurt, Puma shares gained 0.06 percent, to 335.13 euros, or $455.78.

Puma said net earnings in the three months through April improved to 96.6 million euros, or $128.2 million, from 93.1 million euros, or $112.4 million, on net sales that gained 2 percent, to 655.8 million euros, or $1.33 billion, from 642.8 million euros, or $776.3 million. Currency conversions were made at average exchange rates for the respective periods.

The U.S. was the blight on the numbers. Sales there slumped 4.1 percent, to 174.3 million euros, or $231.4 million, due to a negative currency affect, and order writing dropped 17.6 percent at the end of the quarter.Puma said the decrease occurred because of “a business-related adjustment with one key account that had seen a significant sales increase in the prior years, as well as a generally moderating environment in the U.S. mall business.”

In dollar terms, sales in the U.S. dampened slightly, to $156.2 million from $156.6 million.

Sales in Asia-Pacific declined 0.9 percent, to 120.6 million euros, or $160.1 million, despite double-digit gains in China, while sales in Europe gained 6.4 percent, to 360.9 million euros, or $479.1 million, Puma said.

By category, footwear sales improved 3.6 percent, to 413.5 million euros, or $548.9 million. Apparel sales slid 0.5 percent, to 200.7 million euros, or $266.4 million, and accessories sales eased 1.2 percent, to 41.7 million euros, or $55.3 million.

Puma chief executive Jochen Zeitz acknowledged the quarter’s results meant the rest of the year would be tough.

“While the remainder of the off-year in terms of major sports events will certainly be challenging, given our current order book, we continue to be fully focused on our long-term objectives,” he said in a statement.

Last Friday, Zeitz was in Boston at the helm of a 70-foot, Puma-sponsored racing sailboat that happened to be zooming around Boston Harbor at 16 knots.

During the visit, Zeitz said Puma would evaluate PPR’s next bid, expected in mid-May, and give shareholders a recommendation on whether to accept it. Puma’s share price surged after reports of a buyout by the French luxury conglomerate, which also owns Gucci. PPR chairman and ceo Francois-Henri Pinault said in mid-April he had no plan to sweeten his original offer of 330 euros.

Zeitz expressed optimism about a potential fit with PPR.“We will be looking for know-how and qualitative synergies,” he said. “This doesn’t have to be about finding cost savings to work.”

Puma could gain insight into high-end sourcing, retail expansion and multibrand management from PPR, he suggested.

There are signs that the deal is, at some level, progressing.Antonio Bertone, Puma’s global brand manager and one of the talents credited for building the U.S. business, met Pinault for the first time last week. “I think this could be a fantastic new chapter for us,” he said. “We get along as people …[Pinault] gets it.”Puma is sponsoring a Newport, R.I., sailing team and its boat in the Volvo Ocean Race, a 39,000-mile, around-the-world race Puma hopes will be its ticket into the sport. Insiders term the event, which kicks off next October, the “Everest of sailing.”

Zeitz sees spending what he characterized as “double-digit millions” [he would not specify, but said the amount was comparable to a World Cup soccer outlay] as a suitable investment, given that the race is underexposed in the media. Sailing’s other major race, the America’s Cup, has become a high-profile forum for luxury brands.

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