Last updated: December 12, 2012 9:35 pm

Puma chief quits amid slower sales

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Puma is parting company with its chief executive of less than two years as owner PPR, the French retail group, implements a turnround strategy at the German sports goods maker.

Franz Koch will depart in March “by mutual agreement”, Puma said on Wednesday. Jean-François Palus, Puma’s chairman and a managing director at PPR, which owns 80 per cent of Puma, said he hoped to find a new chief executive by next spring.

The departure comes as Puma has struggled to keep pace with arch-rival Adidas, based in the same German town. Having surpassed €3bn in annual sales for the first time last year, Puma had to issue a profit warning in July and pared back its sales growth targets, blaming disappointing spending in the eurozone.

Mr Palus said at a conference in October: “Puma is a fantastic brand but the results are not fantastic at all. Growth should not come at the expense of profitability.”

The 34-year-old Mr Koch joined Puma in 2007 and after being named as strategy head in 2008 took over as chief executive in July last year from Jochen Zeitz, who oversaw the brand’s revival. Mr Zeitz himself stood down as Puma’s chairman at the beginning of this month.

“The company is therefore entering a new phase in its development and is changing its top management structure to take on those challenges,” Puma said. Two other senior executives – Klaus Bauer, the chief operating officer, and Antonio Bertone, chief marketing officer – had already said in July they would leave at the end of the year.

Analysts at JP Morgan said in a note: “Given the mixed track record of Mr Koch at Puma, we welcome the company’s decision to appoint a fresh and new management team to drive the turnround and notably to revitalise profitability.”

The Pinault family-controlled PPR is being transformed from a conglomerate into a retail company focused on two divisions: luxury, based around its Gucci core, and a smaller sports and lifestyle division with Puma as its axis.

But Puma’s rapid expansion over the past decade, principally under Mr Zeitz, has come at the expense of profitability, as support functions, such as marketing and IT systems have failed to keep up with its growth.

While PPR’s luxury division made €727m of recurring operating profit in the first half of the year on sales of €2.9bn, Puma’s operating profit was €149m on sales of €1.6bn.

Analysts at HSBC said in a recent note that Puma was “the true real weak spot” in PPR’s portfolio: “Puma’s disappointing operating and share price performance since its acquisition may lead to scepticism about PPR’s ability to create value from acquisitions in sporting goods and lifestyle.”

Puma accounts for 95 per cent of the sport and lifestyle division’s sales, making its performance critical to the growth of the fledgling unit, which PPR is unlikely to expand significantly until the Puma problem is fixed.

The unit’s turnround plan involves more sportswear – and fewer lifestyle – products to reinforce the brand’s identity; reducing its product lines by 30 per cent by 2015, closing unprofitable stores and reorganising its warehouses.

Analysts at Citigroup expect Puma to take a restructuring charge of €100m in the second half of this year, as a result of the increased costs associated with the restructuring.

Mr Palus said on Wednesday: “We will pursue the reorganisation of the company, focus on product innovation and marketing, and will continue to devote the necessary resources to the development of the brand.”

Shares in PPR, which have risen by 28 per cent over the past 12 months, were flat in Paris trading at €141.70. Puma shares have risen 2 per cent over the same period and were 1 per cent lower on Wednesday at €222.35.

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