Bloomberg News

Puma’s New Chief Faces Tougher Turnaround Task Than at Pandora

May 14, 2013

Bjoern Gulden turned round Danish jewelry maker Pandora A/S (PNDORA) in a little more than a year. Working his charm at Puma SE (PUM) will be a tougher task after Europe’s second-biggest sporting-goods maker cut its profit guidance.

Gulden, due to start at Puma in July, yesterday reported estimate-beating first-quarter profit at Glostrup, Denmark-based Pandora that boosted the stock to the highest in almost two years. At the same time, Puma cut its 2013 revenue and profit forecasts as it trails competitors such as Adidas AG. (ADS)

“When I came in there wasn’t a lot of question what we should do, it was about executing and I think 14 months later we have executed according to the plan and done what people expected,” Gulden said of his job at Pandora, which he joined in March 2012. He declined to comment on Puma.

The scale of Gulden’s task at Puma, which outfits sprinter Usain Bolt, is daunting. Puma is far behind Adidas in the fast-growing area of performance sportswear, and catching up will involve accepting lower profitability than on casual items. And it comes at a time when the Herzogenaurach, Germany-based company’s European markets show few signs of improvement.

Pandora “was reasonably easy to fix because it was all about distribution,” according to John Guy, an analyst at Berenberg Bank in London. “Puma is a slightly more complicated story,” mostly because of an overdependence on products such as casual sneakers and sweatshirts, he said.

To combat declining footwear sales, Puma has closed stores, eliminated jobs and cut product ranges. It’s also seeking to boost its credentials in the performance sportswear category with products such as $110 Mobium Elite running shoes.

Unwanted Inventory

Puma shares fell 1.4 percent to 229.5 euros in Frankfurt yesterday, almost wiping out their gain for the year. Pandora rose 12 percent to 207.5 kroner, extending its advance in 2013 to 67 percent. That was the highest close since May 18, 2011.

Gulden, a former soccer professional, was brought in by Pandora following a collapse of demand in the summer of 2011 that led the company to cut its full-year profit forecast.

To get sales growing again at the jeweler, the CEO replaced unwanted inventory with best-selling lines, cut prices and changed the product line as well as improving business processes, systems and logistics.

Pandora said yesterday that first-quarter net income rose 30 percent to 438 million kroner ($76.4 million), exceeding the 346 million-kroner average estimate in a Bloomberg survey of seven analysts. Sales increased 41 percent to 2 billion kroner.

Ideal Candidate

Gulden will be able to call on his experience at Puma’s crosstown rival. He spent eight years with Adidas, where he headed the apparel and accessories business and also helped take the German sporting-goods maker public in 1995. Before joining Pandora, Gulden held senior positions at Deichmann Group, the owner of Rack Room Shoes and Off Broadway Shoes.

His experience makes him the ideal candidate to lead Puma, according to Chief Financial Officer Michael Laemmermann.

“He has not only knowledge in sporting goods, but also in the lifestyle industry,” Laemmermann said yesterday on a call with reporters. “He will have the necessary standing and capacity to carry on Puma’s” transformation.

After all but abandoning its 4 billion-euro revenue target by 2015 in February, Puma yesterday forecast a low-to-mid-single digit decline in currency-adjusted sales. The company, in which Gucci-owner PPR SA (PP) owns a majority, also said it’s unlikely to meet its original guidance of low-to-mid-single digit growth in earnings before interest, tax and special items.

The “business climate in Europe remains challenging,” the sporting-goods maker said in a statement, while in China, fitness and training products “did not perform as expected.”

Performance Products

Puma gets 35 percent of sales from performance products, compared with 72 percent at the Adidas brand. While the gross margin on performance products is 5 to 15 percentage points lower than on casual gear “you need a strong performance base in order to leverage your lifestyle products,” said Guy.

Puma expects gross profit as a percentage of sales to decline by about 1 percentage point in 2013, according to Laemmermann. Restructuring measures will also lead to a loss of market share this year and lower sales, Guy estimates.

The competitive nature of the market requires Puma to provide bigger discounts than it would like, Laemmermann said, adding that the level of markdowns is similar to last year. “This is currently the reality of the market,” he said.

Still, with Adidas this month saying its gross margin widened to a record in the first quarter, Gulden faces an uphill challenge making Puma famous for performance rather than fashion, which once differentiated the brand.

The gap with Adidas and Nike Inc. (NKE:US) “continues to widen,” said Jurgen Kolb, an analyst at Kepler Cheuvreux.

To contact the reporters on this story: Katarina Gustafsson in Stockholm at kgustafsson@bloomberg.net; Andrew Roberts in Paris at aroberts36@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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