Puma and Under Armour trade places in hectic sportswear league table

PUMA and Under Armour have switched sides.

Helped by endorsements from Rihanna and Kylie Jenner, the German sportswear maker is in comeback mode. Its profits are reviving and its shares are surging – a mirror image to its similarly sized US rival, which is reeling from a sales slowdown and a stock slump.

Puma’s celebrity-fueled approach was its Achilles heel a few years ago, when the company ventured beyond its soccer roots into the world of fashion, alienating consumers looking for more down-to- earth sporting gear during the financial crisis. Some turned to Under Armour, attracted to the newcomer’s performance-over-glitz approach.

Now consumers are increasingly wearing their workout clothes beyond the gym – to the coffee shop, book clubs and trips to the mall to stock up on more “athleisure” apparel. That means the leapingcat brand is clawing back lost ground. While its profit margins are nowhere near the 20 percentplus levels Puma once achieved, its shares are up more than 30 percent over the last six months, during which Under Armour has lost half its value.

“We often refer to these companies as athletic brands, but the truth is that now more than ever it’s all about fashion,” said Chen Grazutis, an analyst at Bloomberg Intelligence in New York. “The vast majority of people buying sneakers don’t even use them for their intended purpose.”

Puma is still trading below the 330 euros per share that luxurygoods maker Kering paid for a majority stake in 2007, and some analysts say the shares have been lifted by speculation that the Gucci owner may eventually sell its stake.

As Puma reorganised, Under Armour investors were richly rewarded from 2011 through 2015, with a fourfold gain. The US company’s stock has plunged since then, with downward momentum accelerating since it reported disappointing earnings in January and Chief Executive Officer Kevin Plank citing an insufficient focus on fashion. Days later, Puma reported 2016 sales and earnings that beat analyst estimates and said it expected operating profit in 2017 to grow at least as fast.

Under Armour’s earnings before interest and taxes, or Ebit, rose more than 11-fold in as many years, but analysts now forecast the measure will drop 17 per cent this year in what would be the first annual decline since 2008. At Puma, 2016 Ebit rose by a third, the first annual gain since 2010 when excluding special items, and analysts expect it to jump 47 per cent this year.

While Puma’s endorsement stable includes athletes the calibre of sprinter Usain Bolt, the company has regained ground on Under Armour by broadening its appeal with a social media-friendly strategy. —WP-Bloomberg