Kering to Spin Off Puma SE, Focus on High-Margin Luxury Brands

Puma

Kering (OTC: PPRUY) has announced plans to spin off a majority stake in Puma SE (PMMAF), enabling the company to focus on its high-margin luxury brands Gucci, Yves Saint Laurent and Balenciaga. CFO Jean-Marc Duplaix indicated the group would also look to rid itself of the boardsports label Volcom. The company will distribute 70% of Puma shares to its investors, reducing its own stake to 16%. The transaction price will be determined at April’s shareholder meeting. PPRUY shareholder Groupe Artemis (see: Francois Pinault), will become PMMAF’s largest shareholder; controlling 29% of the company.

Howie Long-Short: Kering paid $6.4 billion for Puma in 2007, slightly above the current market cap ($6.1 billion); despite the stock price climbing 45% over the last 12 months. Despite not yet having capitalized on the turnaround (profits fell from $324 million in ’07 to $6.3 million in ’13, before rising to $161.5 million over the first 9 months of ‘17), it makes sense for Kering to sell their sportswear (and lifestyle) brands; as Duplaix explained, the company has found itself in “a sort of imbalance, linked to the outperformance of the luxury sector.” In other words, their sportswear businesses were dragging down the overall performance of the company; particularly Gucci, among the hottest names in fashion.

Fan Marino: PMMAF, the German footwear and sports apparel manufacturer, will report full year earnings on February 12th; after having increasing profit guidance 3x in 2017. The company turnaround can be attributed to a refocusing on the world’s most popular sports (soccer, running, motorsports) and a boost in women’s sportswear sales. Puma publicly stated it welcomes the transaction, but shares closed -4.4% on Thursday amid concerns the company lost a powerful backer.

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PIPER JAFFRAY REPORT INDICATES TEENS WILL NO LONGER WEAR UNDER ARMOUR

Piper Jaffray Companies (PJC) 34th biannual “Taking Stock with Teens” report has been released and Under Armour (UAA) has once again been named the No. 1 company teenage males perceive as an “old brand”, one they will no longer wear; while Nike (NKE) and Adidas AG (ADDYY) placed 1st and 3rd respectively, as the most preferred brands. As for footwear preferences, Nike remains #1, but lost 5% of teens (down to 46%) to Adidas over the last 12 months. The report indicates that athleisure remains popular, but trends are shifting towards “street, denim and festival wear”.

Howie Long-Short: For the first time in a generation, the majority of teens didn’t list Nike as their favorite footwear brand. Adidas has been getting a lot of the attention, but Puma (OTC: PMMAF) and New Balance are quietly picking up market share as well. Teenagers contribute $830 billion (7%) to retail’s bottom line, so their opinions (and purchases) aren’t insignificant.

Fan Marino: Nike is offering an unprecedented 40% off through 10/13. The sale includes 200+ items, including product from its premium Jordan Brand. Up until 18 months ago, Nike rarely ran sales. Now, I don’t buy Nike unless it is on sale (25% is offered frequently).

Teens say Under Armour is an ‘old brand,’ as Adidas and Vans grow more popular