Reebok Unit Poses Challenges for Adidas

Adidas, which paid $3.8 billion to acquire Reebok in January, may face some tough times with its new division.

NEW YORK — Adidas, which paid $3.8 billion to acquire Reebok in January, may face some tough times with its new division.

Reebok orders at the end of 2005 were down 22 percent from the previous year, Adidas Group chief financial officer Robin Stalker said on a conference call with analysts last week to discuss the company’s year-end financial results. The decline was driven by a 28 percent drop in backlog orders in North America.

“We expect full-year sales for the Reebok brand to decline at a mid-single-digit rate, and addressing this issue is clearly one of our highest priorities within the group today,” Stalker said.

Adidas, the world’s second-largest athletic firm after Nike, said it will make a major strategic announcement about Reebok on April 11 in London. There has been speculation that Adidas will move Reebok downmarket to compete with Nike’s Starter brand in the mass channel. Company executives, however, denied that on the call Thursday.

“[An] issue that has impacted Reebok’s performance in the last two quarters has been a misperception among some retail partners that Reebok positioning would be dramatically changed or taken downstream as part of the acquisition,” said Adidas chief executive officer Herbert Hainer. “While all along we were clear that Reebok is and will remain a performance brand within the Adidas Group, we have reached out through our sales team to reinforce and answer any concerns.”

Without revealing many specifics, Hainer said the company is also taking steps to improve the styling of Reebok’s products using Adidas technology and will limit distribution of key Reebok products.

John Shanley, an analyst with Susquehanna Research Group, said in a research report Friday that Adidas’ plan to turn Reebok around will be a “difficult task to accomplish.”

“The company’s recent purchase of Reebok could negatively impact Adidas in the long run, especially if Reebok’s classic footwear business continues to decline in terms of both consumer demand and retailer interest levels, particularly in the important U.S. marketplace,” Shanley wrote.

The acquisition, one of the largest ever in the athletic sector, merged the second- and third-biggest players in the industry and created a megafirm with combined sales of $11 billion. The acquisition gives Adidas significantly more market share in the U.S., where it has sought to raise its profile.

This story first appeared in the March 6, 2006 issue of WWD.  Subscribe Today.

In the fourth quarter, Adidas posted a loss of 4 million euros, or $4.78 million, from a profit of 20 million euros, or $23.9 million, in the year-earlier period. The 2005 results were hit by costs associated with the Reebok purchase, the company said, as well as expenses related to the World Cup, for which it is a sponsor. Sales in the quarter grew 21 percent to 1.52 billion euros, or $1.82 billion.

For the full year, net earnings rose 30 percent to 434 million euros, or $518.4 million. Sales for the year were up 12 percent to 6.6 billion euros, or $7.88 billion. North American sales were up 17 percent to 1.56 billion euros, or $1.86 billion, and apparel sales in the region gained 19 percent.