Germany's Puma missed expectations with a 5 percent fall in first-quarter earnings, as the group was hit by wariness among European consumers and struggled to exploit demand for western brands in China and lightweight sneakers in the United States.
Along with larger rivals Nike and Adidas, Puma had enjoyed a strong end to 2011 and analysts said they were surprised by the results, with sales, margins and profits all missing average forecasts.
In comparison with Adidas and Nike, they've been weak on the product innovation front. They've got a lot of catching up to do, especially in terms of getting back to the desirability that the brand enjoyed in the 1990s, BHF Bank analyst Peter Steiner said.
The group said sales rose only 6.1 percent in euro terms in the quarter, compared with almost 16 percent in the fourth quarter. Sales in Europe, which accounts for around 43 percent of turnover, dropped 1.7 percent in euro terms.
Chief Executive Franz Koch said the group would continue to invest in new products this year and expected a return to earnings growth from the second quarter.
While Nike and Adidas have enjoyed double-digit sales growth in China, where increasingly affluent and fashion-conscious customers have been snapping up European and American brands, Puma on Wednesday described its performance there as mediocre in the first quarter.
Koch said Puma saw sales growth of less than 10 percent in China in the first quarter, compared with high double-digit rates in India, Korea and Japan.
It's to do with the overall market environment, it's flooded with inventory from local competitors, Koch told reporters.
Local rivals include Li Ning, ANTA Sports, and Goldrooster, which plans to list in Frankfurt to drive its expansion.
Koch said Puma would focus on lifestyle, running and training products in China, and that it hoped the group's motorsport products would do well there, given the interest of Chinese consumers in brands like Ferrari, BMW and Mercedes.
RUNNING AWAY WITH IT
Puma, controlled by French luxury goods group PPR, also said it had found the footwear market challenging in the first quarter, with sales down 2 percent.
The running category in particular is enjoying a resurgence, however, and is dominated by trends coming out of the United States, such as lightweight shoes, a section of the market virtually created by Nike.
Koch said he was hopeful for the new Archive Light shoe that has just hit the shops in the United States and added that Puma intended to launch a new performance footwear line in 2013.
We want to focus further on the running and training category in the U.S., he said. It's something we've been addressing but it will take us time to reconnect with those consumers.
Overall, Puma saw net earnings drop 5 percent to 74 million euros ($97.7 million), missing forecasts for 77.6 million in a Reuters poll, on sales of 820.9 million.
Puma stuck to its outlook for 2012, however, saying new products and moves to make its European operations more efficient would help it to achieve sales growth of between 5 and 9 percent and a mid single-digit percentage rise in net profit.
Its shares, which are trading ex-dividend on Wednesday, were up 0.1 percent at 1023 GMT, compared with a 1.9 percent rise in the German mid-cap index.
($1 = 0.7574 euros)
(Reporting by Victoria Bryan; Editing by David Holmes and Hans-Juergen Peters)