Reebok International Ltd. (NYSE:RBK) today reported improved earnings for the second quarter ended June 30, 2002. Net income was $25 million, or $.39 per diluted share, an earnings per share increase of 63% as compared to net income of $14 million, or $.24 per diluted share in the second quarter of 2001. Net sales for the 2002 second quarter were $717 million, an increase of 1% from 2001 sales of $711 million. For the Reebok Brand, worldwide sales in the 2002 second quarter increased 2% to $585 million. In the U.S., sales of the Reebok Brand increased 6% to $334 million. Sales for the Company's Rockport subsidiary were $95 million in the second quarter of 2002, a decline of 3% from last year's second quarter sales of $98 million. The Company reported that its total worldwide backlog of open customer orders scheduled for delivery from July 2002 through December 2002 for the Reebok Brand increased 16% from the prior year's level. However, this comparison is not indicative of overall future sales trends since it includes the Company's new sports licensing business which did not begin operations until March of 2001. Furthermore, other factors such as currency fluctuations and the ratio of future orders to at-once shipments will impact future comparisons. On a constant dollar basis overall backlog for the Reebok Brand increased 11%. The Company currently estimates that for the balance of the year 2002, overall worldwide sales will increase in the mid to high single digit range.
Paul Fireman, the Company's Chairman and Chief Executive Officer said, “I am very pleased with the continued improvement in our Reebok Brand U.S. open order position and in particular with our new sports licensing business. Our U.S. footwear backlog comparisons have now been positive for ten consecutive quarters. And, most importantly, our open orders for U.S. footwear have grown in all of our primary channels of distribution. Internationally, our backlog comparisons are being affected by a generally weak European retail climate.” “As we entered 2002,” Fireman noted, “one of the primary goals of the Reebok Brand was to continue to grow quality market share in the critical athletic specialty and sporting goods channels of distribution. As part of this strategic initiative, our product creation teams introduced street inspired product under the marketing umbrella of Rbk. Rbk product is now being effectively presented in integrated retail displays with many of our key retail partners. And at retail, we are enjoying better than average sell-through results for many of our current Rbk products. To support the Rbk collection, we have successfully created culturally relevant advertising and marketing programs to drive young consumers into retail. The feedback on our marketing initiatives has been very positive and we are pleased with the results we are achieving.” “In the U.S. during the second quarter,” Fireman added, “we continued to see sales increases in the critical athletic specialty channel. For the quarter sales to this important channel of distribution increased 8% over the prior year. And in the quarter, Reebok's U.S. basketball business grew 37%, driven by strong sales of Iverson and other Rbk product. In addition, Reebok's retail presence has improved significantly with athletic specialty retailers. Rbk displays, Iverson towers, Classic walls and our licensed apparel are all helping to improve our sales performance and brand image at retail. To support the momentum we are beginning to experience at retail, we increased our U.S. media spend in the quarter by 28% over the prior year. For the first six months of 2002, our U.S. media spend has increased by 40%,” Fireman noted. “I am extremely pleased with the initial results of our new sports licensing business,” Fireman continued. “The current success of our partnerships with the NFL and NBA have exceeded my expectations and we are well on our way to building a significant business which generates substantial returns for both the leagues and our Company. We have seen a fairly broad based return to fashionability for sports licensed apparel and this has improved retail sell-throughs. During the third quarter we will introduce at retail new product segments for licensed merchandise such as “NFL Equipment” and “NFL Classic”. And, our agreement with the NBA expands this year to include 19 NBA teams in the 2002-03 season. Also in the 2002-03 season, Reebok will have exclusive rights to sell replica jerseys for all NBA, WNBA and NBDL teams,” Fireman said. “Our Rockport brand began to show improvement during this quarter in the implementation of their segmentation strategy which should enable them to grow revenues during the second half of 2002,” Fireman continued. “During the second quarter we were pleased that Rockport's men's department store business generated modest sales growth, reversing the trends of the past few quarters. However, in the value channel, where Rockport is implementing their new product segmentation strategy, retailers reduced their model stock inventory position on existing Rockport product to accommodate the introduction of the new products beginning in the third quarter of 2002. Looking forward, we believe Rockport has an effective merchandising strategy to service a broader consumer base in multiple channels of distribution. We are optimistic about the future prospects for growth for the Rockport brand both domestically and internationally,” Fireman said.The Company reported that its gross margin for the second quarter of 2002 was 38.6%, an improvement of 190 basis points when compared with the gross margin of 36.7% in the second quarter of 2001. Fireman noted that, “Reebok's U.S. footwear and branded apparel margins increased by 210 and 970 basis points respectively during the quarter as a result of improved initial pricing margins, reduced closeout sales and strong inventory management. In addition, during the quarter we had a positive settlement of certain outstanding international customs related matters which accounted for approximately 93 basis points of the margin improvement. However, international margins continue to be adversely affected by currency comparisons during the quarter,” Fireman said.
SG&A expense totaled $236 million, or 33% of sales in the second quarter of 2002, as compared with last year's second quarter of $228 million or 32% of sales. “Our SG&A spend is in line with our plans for the quarter,” Fireman stated. “As noted earlier, during the quarter we invested incrementally in working media in order to support the rollout of our Rbk products and integrated marketing. For the balance of the year as we launch Rbk in Europe, we expect to continue this investment in order to generate greater consumer demand to drive improved sell-throughs for our exciting new product offerings at retail,” Fireman added. Worldwide inventories at June 30, 2002 totaled $408 million compared to $475 million at June 30, 2001, a decrease of $67 million or 14%. “Our ability to manage our balance sheet has resulted in improved inventory turns, reduced days sales outstanding in accounts receivable and improved cash flow. Our cash on hand at quarter end increased by $270 million from June 30, 2001,” Fireman noted.
“I am pleased that we are on plan to achieve our earnings goals for the year. Our improved gross margins are allowing us to invest in brand building activities that are designed to drive improved brand awareness, create excitement at retail and position Reebok for improved sales performance next year,” Fireman concluded.