REEBOK UP DESPITE SALES LAG

Byline: Jennifer Weitzman

NEW YORK — Sales were down at Reebok International due to continued weakness in its apparel business and unfavorable currency translations, but the sports apparel and footwear company said third-quarter operating income was lifted 17 percent on cost-cutting initiatives.
That sent shares of the company up $2.94 to $19.19, a jump of 18.1 percent on the New York Stock Exchange on Thursday.
The company warned it would take a hit in fourth-quarter gross margins because of the weak euro and British pound. Still, Kenneth I. Watchmaker, executive vice president, chief financial officer and treasurer, said overall margins will remain in line with previous company guidance, down 70 basis points.
Income increased tenfold to $32.3 million, or 56 cents a share, in the quarter ended Sept. 30, 4 cents above consensus estimates. That compared with year-ago earnings of $3.2 million, or 6 cents, which included a special after-tax charge of $24.3 million for facility consolidation and employee severance. Sales were down 0.7 percent to $787.8 million from $793.9 million. On a constant dollar basis, sales would be up 2.8 percent or $21.5 million.
Apparel sales have been a sore spot for the Canton, Mass.-based company all year. U.S. apparel sales, including sales from the Greg Norman Collection, were down 15.9 percent. Domestic apparel sales fell 10.6 percent in the second quarter and 15.4 percent in the first. The company has previously stated it does not expect to see improvements in this division until next year at the earliest. International apparel sales were up 3 percent.
Watchmaker said fashion sameness hurt sales at the firm’s athletic apparel business during the past three years. As a result, the company decided to scale back the business by two-thirds.
But executives see more opportunity in the approaching new year. “The operating performance and future outlook has improved dramatically over the past nine months,” Fireman said.
Starting this holiday season with a limited retail release, Watchmaker said Reebok hopes to build back its business by offering a more stylish, upscale collection of athleticwear ranging from T-shirts to leather jackets for men and women.
Watchmaker said Reebok’s backlog of open customer apparel orders is up 8.2 percent in Europe and has turned slightly positive for the first time in three years in the U.S.
Reebok footwear sales in the U.S. increased 4.4 percent to $233.3 million from sales of $223.5 million last year.
International sales of the Reebok brand fell 0.7 percent to $353.5 million, but would have risen 7.2 percent when calculated on a constant-dollar basis. Sales of the Rockport subsidiary were $116.2 million, a drop of 1.8 percent. The Ralph Lauren Footwear unit was also down, falling 0.8 percent to $26 million.
Gross margins for the quarter were 37.9 percent, a reduction of 110 basis points compared to the 39 percent achieved last year. Fireman said the decline was due to the weakness in the euro and British pound against the dollar.
For the nine months, earnings improved to $74.7 million, or $1.30 a share, from $25.7 million, or 45 cents. Sales totaled $2.24 billion from $2.28 billion in the prior year.

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