APPAREL LIFTS REEBOK PROFITS
Byline: Vicki M. Young
NEW YORK — Apparel sales helped push Reebok International Ltd.’s second-quarter earnings up by nearly a third, enabling the company to beat Wall Street’s consensus expectations by 3 cents.
Reebok reported a 32.5 percent jump in income for the period ended June 20 to $14.1 million, or 24 cents a share, from $10.7 million, or 19 cents, in the comparable year-ago quarter. Sales were up 3.8 percent to $711 million from $685.1 million.
Paul Fireman, chairman and chief executive officer, said in a statement, “This is the seventh consecutive quarter that we’ve reported quarter-on-quarter improvement in our income from operations. And we’ve done this despite some pretty dramatic weakening in foreign currency and a fairly weak retail climate in several key markets.”
Ken Watchmaker, chief financial officer, in a conference call with analysts, projected an increase in 2001 earnings per share of between 20 to 25 percent, with sales growth of between 5 and 7 percent over last year’s $2.86 billion.
Although analysts congratulated company executives on a “great quarter” during a conference call, shares of Reebok were down in line with Tuesday’s overall market jitters. Reebok’s stock closed at $32.86, down $1.44, in trading on the New York Stock Exchange.
Jeffrey Edelman, apparel and footwear analyst at UBS Warburg, wrote in a research note on Tuesday that Reebok’s second quarter was “particularly impressive given the ongoing pressure from higher leather prices, currency and the highly promotional domestic retail environment.”
The analyst noted, “Reebok’s ongoing recovery within the domestic athletic specialty and sporting goods stores is particularly compelling. Shelf space, market share and penetration continue to be on the upswing as Reebok has delivered on performance product, exclusives and replenishment.”
Edelman raised his full year 2001 EPS estimate to $1.75 from $1.73, and his 2002 EPS estimate to $2.02 from $2. He maintained his “buy” rating, with a 12-month price target of $40. The analyst noted that Reebok needs to “develop and market products for the important youth market” and added that “competition for shelf space in the specialty and sporting goods sectors could intensify.”
The company said sales comparisons were adversely affected by the weakening exchange rates of most foreign currencies against the strong U.S. dollar. Eliminating the impact of currency fluctuations, second quarter sales increased $45.1 million, or 6.8 percent. Worldwide sales of the Reebok brand were up 8.7 percent to $588.9 million. Reebok apparel sales in the U.S., including the Greg Norman collection and the new National Football League licensed apparel products, skyrocketed 56.3 percent to $81.9 million. Reebok footwear sales were $250.3 million, up 1 percent from last year’s $247.8 million. International sales of Reebok products were $256.7 million, an increase of 6.2 percent.
Worldwide inventories as of June 30 totaled $474.9 million compared with $405.5 million in the same year-ago quarter. “The inventory increase is to support the growing backlog trends of both our U.S. and international businesses and are in line with our plans,” Fireman said.
On a constant dollar basis, the company’s total worldwide backlog of open customer orders scheduled for delivery from July 2001 through December 2001 for its core Reebok brand increased by 17 percent. U.S. apparel backlog, including NFL licensed apparel orders, increased 120.5 percent. Watchmaker told analysts during the conference call that U.S. apparel backlog, excluding NFL apparel, was up 12 percent.
The cfo also noted that the latest results were helped by the company’s relationships with key athletic icons — Allen Iverson helping to drive sales in the basketball category and Venus Williams impacting the tennis business — in the marketing of the Reebok brand.
The NFL tie-in has only strengthened this conviction. Calling the firm “pleased” with results since NFL shipments commenced during the second quarter, Fireman said, “Our product appears to be performing well at retail, with strong sell-throughs at major mall-based stores in what we view as an improving market for NFL licensed apparel.”