Kering SA’s case for selling Puma SE and the rest of its sportswear division is getting stronger as the business struggles to offer sufficient sales growth and margin potential, according to Citigroup Inc. analyst Thomas Chauvet.
Puma’s operating margin has narrowed by more than 10 percentage points in the past decade and is set to fall to a record low of 2.6 percent this year, Chauvet wrote in a note Wednesday. While Kering won’t rush to sell its 86 percent stake at a depressed price, an exit “is an increasingly credible scenario in the next 12 to 18 months,” the analyst said.
Kering Chief Executive Officer Francois-Henri Pinault has rejected calls to dispose of the sportswear unit in the past, telling Bloomberg in February that he was “very confident that we will be able to continue to turn around Puma.”
Yet, the gap to market leaders Nike Inc. and Adidas AG has widened since Kering first invested in 2007 amid competition from faster-growing rivals such as Under Armour Inc. Puma cut its full-year outlook in May, forecasting a slump in earnings because of the strengthening dollar. And on Tuesday, it sold Swedish footwear maker Tretorn to Authentic Brands Group.
“Kering management has historically been pragmatic about asset disposals,” Chauvet said. Disposing of Puma and the rest of the sportswear division via a spinoff, sale to a trade buyer or private-equity transaction would “create a pure-play luxury group and justify a re-rating in our view.”
Puma has a valuation of 2.4 billion euros ($2.7 billion), based on a peer group multiple of 15.8 times estimated 2016 earnings, according to Chauvet.
The shares rose 2.4 percent to 145.9 euros at 11:35 a.m. in Frankfurt, giving the Herzogenaurach, Germany-based company a market value of 2.2 billion euros.
Spokeswomen for Kering could not immediately be reached for comment.