Puma Shares Retreat as Quarterly Profit Decline Disappoints

Puma SE sank to the lowest price in almost two years after reporting steeper declines in quarterly profit and sales than analysts had estimated.

The stock fell as much as 3.8 percent to 208.75 euros, the lowest since October 2011. Puma’s earnings before interest and tax dropped to 31 million euros ($40.9 million) last quarter from 47 million euros a year earlier. Analysts had predicted 36.1 million euros, according to the average of 11 estimates compiled by Bloomberg. Sales at the Herzogenaurach, Germany-based company also fell short of estimates.

The sporting-goods maker will have a hard time reaching a forecast it reduced in May for currency-adjusted sales to decline by a low-to-mid single-digit percentage, according to Ingbert Faust, an analyst at Equinet AG. The outlook, which Puma reiterated today, is “ambitious,” he said in a note.

Puma’s 46 percent gross margin in the first half “was significantly weaker than our expectation of 47.7 percent,” said Faust, who has a hold recommendation on the shares.

The stock dropped 2.3 percent at 11:54 a.m. in Frankfurt trading. Puma has declined 5.5 percent this year.

Second-quarter revenue decreased 4 percent to 692 million euros on a currency adjusted basis, the company said. That trailed the 709 million-euro average of analysts’ estimates.

Currency Effects

“Southern Europe and the Far East remain challenging,” while sales of motorsport footwear such as 90-euro Ferrari Drift Cat 4 sneakers “did not meet expectations,” Puma said.

While the business will continue to benefit from cost-saving measures, “we see also headwinds ahead of us in the gross profit margin, as well as on the sales side,” Chief Financial Officer Michael Laemmermann said on a call with reporters. “The second-half will be quite challenging for us.”

First-half sales fell 8 percent in euro terms, hurt additionally by shifts in the Japanese yen, Argentina peso and South African rand, the company said.

Puma is hedged at $1.31 per euro for 2013 and expects to adopt the same rate for 2014, Laemmermann said. Currencies may have a positive effect on revenue growth in 2014, he said.

“We are well positioned from a hedging perspective going forward, but of course we cannot influence those impacts on the top line,” the CFO said. “That is out of our control.”

Currency movements had a 70 basis-point impact on first-half gross margin, Laemmermann said.

Pricing Pressure

High inventory levels and stiffer competition point to continued pressure on prices through 2013 and into the first half of 2014, the CFO said. The level of markdowns and discounts has increased “slightly” from previous years, he said.

Former Pandora A/S head Bjoern Gulden started as Puma Chief Executive Officer this month, one of a number of senior management changes that majority owner Kering SA has made at the company. Laemmermann said he doesn’t expect Gulden to make major changes to Puma’s transformation plan.

The company still expects an increase in full-year net income compared with 2012, it also said today.