Perhaps it was the Red Sox coming back to crush the Yankees in the ALCS, or perhaps it was the renewed vigor he now feels he has to attack the business after his heart bypass surgery two years ago. Whatever the reason, Paul Fireman feels he has the energy to drive the Reebok brand business once again, telling analysts on a conference call Thursday that Jay Margolis, who “resigned” from his position as president and COO of Reebok, was no longer needed because he (Paul) was in better health now. He said Jay was brought in at a time when Fireman and Reebok needed his help; help they apparently no longer need.
Paul told the analysts that he and the Board decided to streamline the management team so there was one clear leader. Margolis also resigned his position on the Reebok Board. Fireman said he committed to the Board that he would enter into a new long-term employment agreement and assume day-to-day leadership responsibilities of the company “after a brief transition period.” He intimated that an internal successor would be groomed.
The change at the top really comes as no surprise to anyone close to the company. Margolis was seen as a creative guy focused on product and brand development, the very areas where Fireman also sees his strengths. After spending the last few years flirting with outsiders from Nike, adidas, and elsewhere, perhaps this move will now provide opportunity to others within the company to develop from the sales or operations area, segments of the business where Fireman may see less kinship or competency.
Regardless of the focus of Fireman or the remaining management team, the company will certainly need to dig deep to get back the energy that swirled around the Reebok brand over the last two years. After posting strong gains in both sales and profits, pulling off major coups to corral exclusive deals with the NFL and NBA, and pushing RBK shares back up to the mid-30s from a dismal $8 per share, the company again finds itself looking for the next exciting product or deal.
On the surface, it appears that Reebok brand sales had a decent quarter in Q3 until you start to factor in the upside from the inclusion of The Hockey Company business into the Reebok brand business.
No, The Hockey Company brands are not considered “Other Brands” like Rockport, Greg Norman Collection, or Ralph Lauren Footwear. It has been rolled up under the Reebok brand, with skates consolidated under Footwear and equipment reported under Apparel.
Part of the rationale here was managements contention that they always saw the THC deal as a way to expand the Reebok brand. He pointed to the recent World Cup of Hockey as an example, an event where Reebok launched RBK skates, gloves, sticks, and helmets. He said team uniforms will also be co-branded with THCs CCM, KOHO, and JOFA brands in the future.
Reebok needs to be careful here as well, and learn from what worked and didnt work for Nike and its Bauer acquisition. Hockey players are purists and may reject attempts to water down their traditional on-ice brand favorites.
Reebok EVP/CFO Ken Watchmaker said that THC represented about 75% of the total reported increase for the Reebok brand and 70% of the International increase for the brand. Using those figures, it would appear that THC saw sales decline to approximately $79.3 million from $81.1 million in the year-ago period as a stand-alone company. THCs U.S. sales for Q3 2004 would be pegged at around $19.2 million using Mr. Watchmakers guidelines.
Excluding THC, it appears that worldwide Reebok brand sales grew just 2.5% for the period and U.S. brand sales were basically flat.
It appears that declines in the U.S. Apparel business is starting to eat back into gains on the Footwear side. THC accounted for a big chunk of the total U.S. increase, but one has to wonder how much Apparel actually declined without including THC for buoyancy. Skates were said to have represented only a “small portion” of U.S. Footwear sales.
As Brand Makes Progress with Running and Puts Rbk Out Front….
Watchmaker said the full price fill-in Footwear business increased for the quarter and returns declined as a percent of sales. He also said that U.S. Footwear sales would have increased 11% if they excluded the lost Footstar business. He did not indicate why that business was not replaced when Foot Locker acquired the stores. Looking ahead, the business there is expected to improve as open orders for the acquired stores are close to last years open orders for all of Footstar.
The company feels there are making progress in the running performance category, led by their Premier category of shoes. Two newer models are reportedly seeing double-digit sell-through at “many Running Specialty accounts” in the U.S., while the Q3 fill-in business jumped 31% at those accounts when compared to Q2. Reebok now boasts penetration at 223 U.S. Running Specialty accounts versus just 38 two years ago and are looking to have 300 stores by the end of the year. Watchmaker said U.S. Running Footwear sales tripled versus the year-ago period.
The company now plans to expand distribution into Athletic Specialty and Sporting Goods.
On the Rbk side, sales of the 50 Cent and Jay-Z product “more than doubled” from Q3 last year. ATR basketball reportedly “slowed down” at retail, a trend the company said was due to staying with the double-lasted look for too long. Iverson was also impacted this year, with Watchmaker pointing to the players injuries during last season and the poor play of the 76ers.
Surprisingly, they will not launch an Iverson shoe for the NBA All Star game, instead deciding to put him in the new Pump shoe in advance of his own Iverson Pump shoe in the back half of 2005.
Rbk will play a much larger role for the brand as Fireman looks to expand its presence beyond its basketball roots, focusing on a channel strategy rather than a category strategy. Rbk will be limited to distribution in Athletic Specialty and better Sporting Goods. Rbk will also take the lead in the brands presence at owned-retail, with the exception of the outlet stores.
All of the U.S. Apparel sales decline came from the Branded end of the business, but there was clearly trouble in paradise on the Licensed side as well. The NFL business declined due to a shift from a fashion- to fan-based business and the companys implementation of new software at the Indy warehouse pushed deliveries back in the quarter, hurting both initial deliveries and potential fill-ins.
On the NBA side, the company is working through a small glut of retail inventories dumped in the market as others exited the business and Reeboks exclusive deal came on line. Watchmaker rattled off YTD channel growth percentages for the Licensed business, but declined to offer specifics for the quarter.
In the Reebok brand backlog, The Hockey Company accounted for roughly 2.0% of the 5.1% increase for the brand. Since 70% of the International sales increase came from THC in Q3, one could assume that a fair portion of the 1.9% currency-neutral backlog increase would be THC as well.
At Rockport, sales to better department stores were said to have increased 34% for the quarter, while sales to volume retailers and closeouts declined 30%. They also saw a 17% gain in sales to the independent retail channel.
Greg Norman Collection saw double-digit increases in sales and operating profits for the seventh consecutive quarter. Net sales for the company increased 11%, with its core Green Grass increasing 14% for Q3.
Driving growth in the core Golf trade channel were significant increases in tournament business. In addition, sales with key Green Grass management groups are up 51% for the quarter. GNC cited other strengths include growth in its full price business across all categories especially among its specialty store business, which is a strategic development area for the company and has doubled its business year-to-date.
THC also impacted total RIL inventories and accounts receivable. Excluding THC, and the impact of FX rates, inventories increased approximately 5.0% and A/R was up around 2.0% at quarter-end.
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