Footwear and apparel company Reebok (NYSE:RBK), a Motley Fool Stock Advisor recommendation, had tough going in its third quarter.
Revenue, expected to clock in at $1.15 billion, fell short at $1.04 billion. The primary weakness was at the namesake Reebok brand, where sales fell from $1.16 billion in last year's third quarter to $1.04 million this year. Approximately half of the sales decline came from Foot Locker (NYSE:FL), a customer that is busy reducing its inventory level at the same time Reebok is transitioning from classic lines to new performance categories (which, over time, should benefit Reebok results).
Earnings per share increased 39.6%, but that included a $49 million gain from the sale of the Ralph Lauren Footwear business. If you exclude that gain and a one-time charge for legal costs related to the pending $59-a-share adidas acquisition of the company, net income fell 13% from the year-ago quarter.
Creating a headwind was what the company called "retailer uncertainty" over the adidas acquisition. Other problems were caused by news that the NHL season has stimulated a demand at the recently acquired The Hockey Company that the warehouse, with its start-up problems, couldn't keep up with. In other words: Shipping problems galore.
Reebok's next new thing in footwear, advanced pump technology, is still in its "early stages" -- code for "It's not jumping off the shelves and back-ordered to the hilt." But this is important long-term technology for Reebok (and adidas).
For the fourth quarter, the company expects flat sales compared to the year-ago period, and earnings in the range of $0.55 to $0.65 a share. Since the average analyst estimate was $0.63 a share (and their estimates ran as high as $0.75 a share), the earnings outlook is, in a word, disappointing.
The big news at Reebok is still its acquisition by adidas. The company will be able to recognize valuable cost synergies and expand its line of products to include areas previously not covered by either company separately. adidas is looking to become more competitive with Nike (NYSE:NKE), and today's hiccup at Reebok should not change adidas' business goals.
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Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click here to see the Motley Fool's disclosure policy.
