Puma Plunges After Profit Warning Highlights Adidas’s Lead

(Bloomberg) — Puma SE shares plunged after the German sportswear company reported disappointing earnings and pushed back profitability targets in a painful contrast to cross-town rival Adidas AG.  

Puma announced belt-tightening efforts on Wednesday and downgraded its profit margin guidance. The stock fell as much as 19% in Frankfurt trading, the biggest drop in more than two decades. 

Chief Executive Officer Arne Freundt is struggling to touch off another era of fast growth. 

In the half-decade before Freundt took over as CEO, Puma was on a tear, doubling its revenues thanks, in part, to a clever comeback in sports like basketball and cool points piling up with brand ambassadors like the rapper Jay-Z.

But since Freundt assumed control in late 2022, Puma’s brand buzz has stagnated. The shift in fortunes coincided with the departure of Bjorn Gulden, who left for crisis-rattled Adidas after having led Puma for almost a decade. 

Earlier this week, Adidas reported surprisingly robust fourth-quarter earnings, fueled by demand for its retro sneakers. 

Puma meantime announced cost cuts to reach a goal for its earnings margin before interest and taxes of 8.5% by 2027. That’s a downgrade from the previous guidance, which sought to reach that level as early as 2025, said Grace Smalley, an analyst at Morgan Stanley. 

The company cited “personnel expenses” as part of the cost-cutting program, suggesting there could be job reductions, but it didn’t offer details.  

Several factors help explain Puma’s and Adidas’ divergent trajectories. For one thing, Freundt has tried to shift the Puma brand upmarket by focusing on selling higher-priced soccer, basketball and running gear. In doing so, he sacrificed some sales by phasing out its offerings of some cheaper merchandise. 

Freundt was also not well known among investors and consumers before taking over from Gulden, who has earned a reputation as a savvy marketer and brand manager over decades in the industry.

Perhaps Gulden’s most important early decisions at Adidas were recognizing growing consumer interest for retro sneakers like the Samba and expediting production. The shoe and similar models like the Spezial and Campus have been some of the industry’s top sellers.

Puma was slow to capitalize on the trend, despite the fact that it owns similar models like the Palermo. A thinner-soled retro model, the Speedcat, struggled to gain momentum. 

The gloomier outlook for Puma is a stark contrast from its messaging in November, Morgan Stanley’s Smalley noted. It’s probably a result of a worse-than-expected performance in Latin America, a stronger US dollar, the increased risk of tariffs with China and Puma’s ongoing struggles to build brand momentum, she said. 

Earnings before interest and taxes rose to €109 million ($114 million) in the fourth quarter, short of the €131-million average of analyst estimates. Net income of €24 million for the period also disappointed.

Puma shares have lost 19% of their value in the past 12 months while Adidas advanced more than 50%. 

Wall Street analysts will probably now slash their earnings estimates for 2025, which will weigh on the stock, James Grzinic, an analyst at Jefferies, wrote in a note.

–With assistance from Joe Easton.

(Updates with Adidas contrast from first paragraph)

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