NEW YORK — Reebok International Ltd. continues to have problems with its own branded apparel, and now the company’s putting it under the microscope.
On a call Thursday morning discussing the company’s flat earnings in the first quarter, Reebok president Jay Margolis said, “We recently had all of our global branded apparel people in, and we spent a lot of time reviewing our business strategy as it relates to apparel….We’ve pared back America because we needed to upgrade the quality, to do what we did in footwear in that we put stories into this market that are more exciting, that are at a higher quality level, higher price points, to gain consumer acceptance.”
Reebok’s earnings for the first quarter were $41 million, or 63 cents a share, the same as last year’s first quarter. The earnings fell short of Wall Street expectations. Analysts on average were looking for the company to earn 67 cents a share. Total sales grew 4.2 percent to $832 million, up from $798 million last year.
Shares of the Canton, Mass.-based athletic giant dropped 9.2 percent to $38.11 Thursday in heavy trading on the New York Stock Exchange.
“We do not expect future revenue growth from our U.S.-branded apparel business until 2005,” Kenneth Watchmaker, Reebok’s chief financial officer and executive vice president, said in a conference call. “However, we do expect the sales decline to abate in the fourth quarter of this year.”
Reebok expects its sales of branded apparel to fall in percentage terms by double digits this year, but the company has said it intends to grow its performance and licensed apparel divisions. Earlier this year, Watchmaker said the company was concerned about the conditions for traditional branded apparel, and said, “The market is promotional, challenging and not currently fashionable.”
In the quarter, overall U.S. apparel sales for the Reebok brand rose 9 percent to $98 million.
“The U.S. apparel sales increase this quarter came from a strong double-digit increase in our sports licensed apparel product line,” said Paul Fireman, Reebok’s chairman and chief executive officer, in a statement. “That was partly offset by the decline in branded apparel.”
On the call, Watchmaker said the U.S. branded apparel off-price and closeout business was down 65 percent in the quarter. The company also said U.S. footwear revenues were hurt by the March 2 bankruptcy filing by Footstar. Foot Locker recently signed a deal to buy 350 of Footstar’s Footaction USA stores for about $160 million in cash, and Footstar said it would close all 88 of its Just for Feet stores and 75 of the 428 Footaction units.
Reebok’s U.S. footwear sales rose 2 percent over last year to $261 million in the quarter.
The company’s two-year-old Rbk division was a notable standout. Rbk includes the products introduced with hip-hop artists Jay-Z — the S. Carter line — and 50 Cent — the G-Unit brand. Both of these collections achieved “strong double-digit sell-through success,” Fireman said, adding that Reebok will expand both the S. Carter and G-Unit lines to include boots, tennis and cross-training models later this year.
International Reebok brand sales were up 6 percent to $338 million, while sales in the company’s other brands — Rockport, Ralph Lauren footwear and the Greg Norman collection — were up slightly to $135 million from $134 million.
The company also said Thursday that it has signed multiyear endorsement agreements with football players Kevin Jones from Virginia Tech and defensive back Sean Taylor from the University of Miami. They are projected as first-round selections in the NFL Draft this weekend.