Reebok Business Performance
In 2007, Reebok made important progress in revitalizing the brand. While sales were below Management’s expectations, profitability developed in line with Management’s expectations. Currency-neutral sales for the Reebok segment were stable. In euro terms, this development represents a decrease of 6 % to € 2.333 billion in 2007 from € 2.473 billion in 2006. On a like-for-like basis, sales declined 5 %. The gross margin of the Reebok segment grew by 3.7 percentage points to 38.7 % in 2007 from 35.0 % in 2006. This increase was driven by the non-recurrence of negative purchase price allocation impacts and cost synergies from the combination of the adidas and Reebok sourcing activities, which positively impacted the segment’s cost of sales. In euro terms, Reebok’s gross profit grew 4 % to € 902 million in 2007 versus € 865 million in 2006. Reebok’s operating margin increased by 1.2 percentage points to 4.7 % in 2007 from 3.5 % in the prior year, as a result of the positive gross margin development, which was partly offset by higher operating expenses as a percentage of sales. As a result, Reebok’s operating profit increased by 27 % to € 109 million in 2007 versus € 86 million in the prior year.
REEBOK AT A GLANCE
€ in millions
| 2007 | 20061) | Change |
|
| Net sales | 2,333 | 2,473 | (6 %) |
| Gross profit |
902 | 865 | 4 % |
| Gross margin |
38.7 % | 35.0 % | 3.7 pp |
| Operating profit |
109 | 86 | 27 % |
| Operating margin |
4.7 % | 3.5 % | 1.2 pp |
1) Only includes eleven months of the twelve-month period.
|
REEBOK NET SALES BY QUARTER € in millions |
|
 |
|
| 1) | Only includes two months of the three-month period. |
TWELVE MONTHS OF REEBOK RESULTS CONSOLIDATED
IN 2007
Several factors impact the comparison of Reebok’s
financial
results to the prior year. In 2006, only eleven months
were consolidated due to the acquisition date (February 1, 2006).
In 2007, twelve months of Reebok’s results were consolidated.
This had a positive impact on the comparison of Reebok segment
sales to the prior year. The segment’s gross and operating
margins, however, were negatively affected, as the month of
January is traditionally characterized by higher-than-average
clearance activities. The first-time inclusion of the Greg Norman
Collection (GNC)-related sales which were generated through
Reebok’s own-retail outlets also positively affected the segment’s
revenue development. These operations were excluded
from the divestiture of the GNC business and transferred from
the TaylorMade-adidas
Golf to the Reebok segment, effective
January 1, 2007. However,
the transfer of the NBA and Liverpool
licensed businesses to brand adidas in the first half of 2006
had a negative effect on the segment’s sales development.
Purchase price allocation
charges also negatively impacted
Reebok’s
results, however
to a significantly lesser extent compared
to the prior year.
SEGMENT SALES STABLE ON A CURRENCY-NEUTRAL BASIS
In 2007, sales for the Reebok segment were stable on a currency-neutral
basis. This development was below Management’s
initial
expectation of a low-single-digit sales increase. It was
a result of the weakening market situation in Reebok’s most
important market, the USA, during 2007. While apparel revenues
grew, footwear and hardware sales decreased. The first-time
inclusion of January, which was not consolidated in 2006
due to the timing of the acquisition,
had a positive impact on
revenues. Incremental sales increases in several countries for
which Reebok had purchased the distribution rights, in particular
Russia and China, also contributed to this development.
Distribution buybacks were made to better control brand
management
and gain market share. 
see Reebok Strategy
