Reebok Lightens the Load

By Richard McCaffery (TMF Gibson) (TMF Gibson)
September 10, 1999

Investors hoping to find quick appreciation in a down-on-its-luck company like Reebok (NYSE: RBK) better have diversified stock portfolios. It doesn't look like the Stoughton, Massachusetts sneaker company will be making tracks anytime soon.

Investors also should hope they know the ins and outs of getting around SEC filings (which is a must anyway) when researching Reebok, since its website promotes the company's sponsorship of the Argentine Football Association, but doesn't provide investor relations contacts, a list of financial reports, or an archive of press releases.

However, the company cut 120 jobs yesterday and plans to reduce its worldwide workforce of 6,480 by about 10% in the coming months to offset sales declines in virtually all of its businesses, Bloomberg and Reuters reported. (If the company issued a press release on the topic, good luck finding it.) These aren't the first cuts in a long-standing effort to improve operations. Reebok took a $24 million charge to cut 485 jobs in the first quarter of 1998.

Founded in 1979, Reebok is the number two sneaker maker in the United States. The company has four divisions: Reebok, the Greg Norman division, the Rockport Co., and Ralph Lauren Footwear. Almost all of its products are produced by independent manufacturers outside the United States.

Reebok's sales have slid from $3.6 billion in 1997 to $3.2 billion in 1998. Net income dropped from $254 million in 1994 to $24 million last year. The company has lost market share to number one sneaker maker Nike (NYSE: NKE), and results from efforts to capitalize on the "brown shoe" trend, which has Americans buying more casual shoes, haven't produced much in the way of sales growth.

Reebok has reduced its long-term debt from a high of $854 million in 1996 to $554 million at the end of last year. Shareholder's equity is on the rise again and the company has improved its margins. For the quarter ended June 30, the company trimmed receivables and inventory from the year-earlier period by 5.6% and 15.9%, respectively. A look at the company's cash flow statement shows it was cash flow positive for the first six months of the year.

Reebok deserves credit for streamlining operations. But it doesn't amount to much if the company can't halt declining sales. That's not an easy trick in a fashion sensitive, mature industry, especially with competitors like Nike. Until management gets the company's feet moving, investors should find another ride.

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