Reebok Posts Jump in Profit, Lower Sales

Reebok International Ltd. (RBK) on Monday reported a 44 percent jump in quarterly profit on a gain from the sale of a business, but sales dipped as retailers worried about the No. 3 sporting goods maker's planned sale to Adidas-Salomon AG.

Reebok, which agreed to the $3.8 billion deal with Adidas in August, also said retailers were slashing prices to counter the economic strain of rising energy costs and Hurricanes Katrina and Rita. It expects that trend to continue for the rest of the year.

On a conference call with analysts, Reebok said lawyers advised the company not to answer any questions about the Adidas deal, and Reebok also refused to field any questions regarding its expectations for 2006.

Third-quarter net income rose to $117.7 million, or $1.87 per share, from $81.8 million, or $1.34 per share, a year earlier.

The results include an after-tax gain of $49 million on the sale of Reebok's Ralph Lauren footwear business and $2.5 million in legal and other costs from the Adidas deal.

Rival Nike Inc. (NKE), the world's biggest maker of athletic shoes, posted a bigger-than-expected quarterly profit last month, sending its stock soaring.

Reebok stocks, which had been underpinned by the pending $59 per share Adidas deal, trade at 15.7 times analysts' profit forecasts for next year, slightly ahead of Nike's 14.6 multiple.

Both companies are banking on premium athletic shoes -- a fiercely competitive business that relies on image and celebrity athlete endorsements to drive demand -- to boost profits.

Reebok's quarterly sales slipped to $1.04 billion from $1.16 billion a year earlier, missing analysts' average forecast of $1.14 billion, according to Reuters Estimates.

The company said news of the Adidas deal created some short-term uncertainty among retailers, which hurt sales and order intake in the quarter.

Reebok also reported a $46 million decline in sales to key customer Foot Locker Inc. (FL) as the retailer tries to cut inventory. Reebok said it was replacing some of its lower-end "classic" inventory at Foot Locker with higher-end "performance" shoes, which it hopes will boost demand.

Still, Reebok said the impact of Foot Locker's inventory reduction and merchandise shift hurt its business more than expected, cutting pretax profit by about $18 million.

For the fourth quarter, Reebok forecast earnings per share of 55 cents to 65 cents, excluding any one-time items. Analysts on average expect 60 cents, according to Reuters Estimates.

Reebok shares, which hit a year high of $57.75 earlier this month, were down 12 cents at $57.30 in midday New York Stock Exchange trading, while Nike was down 45 cents at $83.02.