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UPDATE 2-Puma warns on profit as Europe, China stutter

Trainers and sportswear maker Puma SE warned of shortfalls in sales and profit on Tuesday as its performance faltered in Europe and China, highlighting the challenge in store for its new chief executive.

The group is undergoing its biggest reorganisation in 20 years after suffering a 70 percent drop in net profit last year and last month hired a new chief executive from Danish jeweller Pandora to inspire its recovery.

For the first quarter of this year it posted a 2.3 percent decline in group sales, along with shrinking profit margins and a bigger than expected 23 percent fall in operating profit, forcing it to downgrade its targets for the year.

The results contrast with those of rival Adidas AG , which earlier this month reported its highest ever gross profit margin amid strong sales of higher-priced products, such as its new Boost running shoe.

"It was a rough quarter," said Chief Financial Officer Michael Laemmermann, who is acting CEO following the departure of Franz Koch at the end of March.

He said Puma - supplier of shirts for German top flight soccer club Borussia Dortmund, who play Bayern Munich in this year's European Champions League Final - was especially hurt by falling sales in Europe, China and a poor performance in footwear, its biggest category.

The group, controlled by French luxury goods group PPR and which also sponsors top sprinter Usain Bolt, now predicts sales will fall between 1 and 5 percent this year, rather than match last year's level of 3.27 billion euros ($4.3 billion).

It also said it would not meet its target to increase operating profit (EBIT) before special items by a low- to mid- single digit amount.

For the first quarter, EBIT fell to a lower than expected 79 million euros, compared with average expectations for 93 million.

Shares in the group dropped around 3 percent at the open but recovered later and were trading down 0.7 percent at 231.05 euros by 1011 GMT.

"With these results it all makes sense as to why the previous CEO had to leave after two years," said one analyst who declined to be named.

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CLEAN BREAK

PPR, which also owns Gucci and which has seen Puma's results knock the performance of its sports and lifestyle division in recent quarters, has shaken up management at the German firm.

It is bringing in as CEO Bjorn Gulden, who helped revive the fortunes of Pandora and which on Tuesday beat forecasts for first-quarter earnings.

Jean-Francois Palus, managing director of PPR and chairman of Puma, said at last week's annual shareholders' meeting that Puma needed a clean break from the legacy of Jochen Zeitz, the former CEO who led the company for 18 years and placed its focus on fashionable lifestyle products.

Laemmermann said Puma needed to work on marketing its brand and pushing its more technical products for sportsmen and women.

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He also said Gulden's experience at Adidas and shoe retailer Deichmann would prove especially useful after sales in the footwear segment fell 8 percent in the quarter and it was forced to keep discounting shoes to get them off the shelves.

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Puma, which launched its new Mobium running shoe this year, said its gross profit margin narrowed to 49.1 percent from 51.2 percent, hit by currency effects and the footwear discounts.

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Puma is also playing catch-up in producing shoes and kit for money-spinning sports like soccer, where Adidas and Nike are market leaders, and has pulled out of what it sees as less lucrative sports like rugby in Europe and sailing.

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The group has reportedly signed a deal to provide the kit for British team Arsenal. Laemmermann refused to comment on the reported Arsenal deal.

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"It's never too late," said the analyst. "They've achieved a much bigger turnaround, compared with what has to be done now." ($1 = 0.7703 euros) (Editing by Mark Potter and David Holmes)

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