Sportswear brand Puma today (26 July) revealed a dive in second-quarter profits on the eve of the Olympics, after being hit by poor consumer sentiment in Europe combined with the impact of strategic investments. The company said the results meant it would now speed up its transformation plan to “establish a more efficient business model, operating on a leaner cost base.”
The Herzogenaurach, Germany-based sporting goods firm reported that second-quarter net profits plunged 29.2 percent over the second quarter to 26.7 million euros, or $34.3 million, as sales grew 11.8% to EUR752.9m, or $967.4 million. In the EMEA region, sales declined 3% to EUR283.6m, which the company attributed to the difficult market environment in Europe and weaker footwear performance.
Puma SE, which outfits Jamaican sprinter Usain Bolt, blamed the weaker than expected earnings on a challenging business environment, particularly in Europe, coupled with increasing strains on gross margins.
The transformation plan, which began in 2011, will see the company trim its retail portfolio in Europe and North America, reduce the number of products developed, and cut its endorsement contracts.
It also intends to streamline its cost bases by setting up a new regional business model which will initially be rolled out in Europe. The European set-up will restructure its operations from 23 countries to seven areas.
Puma will also establish a fully regionalised supply chain to improve order management, inventory levels and turns, as well as production flows on the sourcing side.
Together, these actions are likely to incur one-time costs of up to EUR100m, which will “ultimately result in higher cost efficiency and working capital improvements” in the upcoming years.
“Despite the poor consumer sentiment and challenging business environment particularly in Europe, Puma achieved respectable sales growth in the second quarter and first half of this year,” said CEO Franz Koch.
“However, pressure on gross profit margins and further strategic investments related to our “Back on the Attack” plan, in combination with a weakening European business, impacted second quarter net earnings.
“We have therefore taken measures to secure sustainable and profitable growth by broadening the scope of our Transformation Program. This program is designed to reduce complexity and establish a more efficient business model, operating on a leaner cost base.”
Puma also announced the promotion of Michael Lammermann, currently the company’s general manager finance, to the position of chief financial officer, effective Jan. 1, 2013. Klaus Bauer, chief operating officer, announced to the administrative board that he will part ways with Puma at the end of the year due to personal reasons. His successor will be announced at a later date.