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Author: TMFMensa Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 129  
Subject: Earnings Date: 7/17/1997 7:48 PM
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STOUGHTON, Mass.--(BUSINESS WIRE)--July 17, 1997--Reebok International Ltd.
(NYSE:RBK) today reported net income for the second quarter ended June 30, 1997 of $20.3 million or $0.35 per share, compared to net income of $19.8 million or $0.27 per share in the second quarter of 1996.

Net sales in the 1997 second quarter were $841.1 million, an increase of 2.9% from 1996's second quarter net sales of $817.6 million, which included $22.6 million of sales from the Company's Avia subsidiary that was sold in June 1996. Worldwide sales for the Reebok brand in the 1997 second quarter were $722.5 million, an increase of 4.8% from 1996's second quarter sales of $689.3 million.

In the U.S., Reebok footwear sales were $308.5 million, a decrease of 4% from last year's sales of $321.2 million. Reebok apparel sales in the U.S. were $88.0 million for the quarter, an increase of 31.3% over 1996's apparel sales of $67.0 million.

Sales of the Reebok brand outside the U.S. -- including both footwear and apparel -- increased 8.3% in the 1997 second quarter to $326.0 million from $301.1 million in 1996. The strong U.S. dollar continues to adversely affect reported international results. On a constant dollar basis, international revenues of the Reebok brand grew 11.9% in the 1997 second quarter. Sales of the Company's Rockport subsidiary grew 12.2% to $118.6 million from $105.7 million in 1996.

Year-to-year per share comparisons benefited from the Company's share repurchase programs, including the Dutch Auction share repurchase concluded on August 27, 1996. Weighted average common shares outstanding for the quarter ended June 30, 1997 were 58,576,000 shares compared to 73,922,000 shares for the same period in 1996, a decrease of 20.8%.

The Company reported that its total backlog of open customer orders to be delivered from July 1997 through December 1997 for the Reebok brand was up 20.2%. North American backlog was up 30.6%, and international backlog was up 5.0%. On a constant dollar basis the international backlog was up 8.6%.

Paul Fireman, the Company's Chairman and Chief Executive Officer, said ``We are pleased with our performance during the second quarter. During the quarter we launched our revolutionary DMX Series 2000 active air transfer technology in a running shoe. This technology has been extremely well received by serious runners who, according to an independent research firm, prefer the cushioning of this product over two of our principal competitors' high end running products by margins of three to one, and two to one, respectively. Try-on vans all over the world have allowed over 1 million consumers to experience the superior cushioning characteristics of our DMX running shoe.'

``And in late June,' Fireman said, ``we launched another revolutionary technology, 3D Ultralite, in a performance running shoe, the 'Electrolyte``. This proprietary technology reinvents the way performance athletic footwear is made by combining mid-sole and out-sole constructions into a single molded bottom unit which is extremely lightweight yet very durable. The Ultralite compound, which mixes various chemical properties, is exclusive to Reebok and makes it possible to create
lightweight products with performance and wear characteristics not previously considered possible. When compared to our principal competitor's light weight running products, 3D Ultralite is approximately 20% lighter and is preferred by serious runners based on independent research. During the balance of 1997 we will incorporate this technology into new product introductions in basketball, cross-training and walking.'

``The Reebok brand is committed to delivering authentic and innovative products which enhance performance and deliver meaningful consumer benefits,' Fireman continued. ``These two new technologies have already begun to improve the sales of running shoes; in the second quarter alone these sales increased by approximately 60%, and our open backlog of customer orders for running products is up over 100% for the balance of 1997.'

``The overall health of our U.S. footwear unit is much improved from last year, despite a small decline in second quarter sales,' Fireman said. ``During the quarter, sales to athletic specialty accounts increased by 34% and for the quarter they represented 31% of the U.S. footwear business. Last year these retailers accounted for only 22% of the U.S.' total footwear sales. And, the overall shape of our U.S. footwear backlog is even more improved with open orders from athletic specialty retailers accounting for approximately 38% of the total dollars.'

``One of our key strategies has been to re-energize the brand by connecting with our target consumer in the athletic specialty channel of distribution.' Fireman said. ``We are a full year ahead of schedule in making this transition as we reposition the brand more towards the upper end of the market. We believe the increase in our backlog of open customer orders, particularly in the U.S. footwear segment, is a clear indication that our strategies are working. A healthy U.S. marketplace bodes well for future improvements in our international business.'

``Our Rockport operation experienced modest sales growth in the quarter, with increased sales principally coming from our walking business and international expansion. Our women's lifestyle
business was particularly slow in the quarter and it now appears that this segment of Rockport's business won't experience any sales growth until 1998.'

``During the quarter, Rockport continued to invest in retail presence,' Fireman continued. ``We opened five new independently owned Rockport shops at retail bringing the total to 20 shops as of June 30, 1997, and we increased our retail merchandising investments five fold. We will continue to expand our brand presence in better retail locations around the world.'

``Our Ralph Lauren footwear product lines which include the Ralph Lauren Brown Shoe business and Polo Sport Athletic continue to benefit from the expertise of both Rockport and Reebok. During the second quarter of 1998, we intend to expand our offerings in the Polo Sport fashion segment which will compliment Polo Sport apparel and accessories and capture the essence of Ralph Lauren's sense of style.'

The Company reported that its gross margin in the 1997 second quarter was 38.5% of sales, as compared with a gross margin of 38.2% of sales in the second quarter of 1996. SG&A expense which was $275 million in both 1997 and 1996, amounted to 32.7% of sales in the second quarter of 1997, as compared to 33.6% of sales in 1996's second quarter.

``While we are pleased that our gross margins improved slightly in the quarter,' Fireman said, ``we do expect substantial margin pressure over the next year or so as a result of our continuing investment in new technologies. The very favorable reception we have had from both retailers and consumers concerning our new proprietary technologies has caused us to ramp up capacity faster than originally anticipated. While over the long-term the margins on these products should improve, during the start-up phase they will return less than normal gross margins.'

``Our SG&A spending was basically flat in the quarter,' Fireman said. ``However, there continues to be a decided shift in the pattern of these expenditures. During the quarter we invested heavily in product research, design and development -- the lifeblood of our Company. These expenses increased almost 34% year on year, and we expect to continue to invest heavily in this area for the foreseeable future as we drive product innovations which deliver value to our consumers.'

The Company noted that total inventories at the end of the 1997 second quarter were $580.9 million, down 4.3% from second quarter 1996 levels, yet supporting a far more optimistic outlook as evidenced by the increase in open customer orders at June 30, 1997. In addition, the days sales outstanding in accounts receivable declined to 69 days from 71 days a year ago.

``As a result of the continuing progress in the management of our balance sheet and the improved prospects for our businesses, the Company's bank group amended our existing credit arrangements effective July 1, 1997,' Fireman said. ``These amendments represent an additional vote of confidence from our banks by granting more favorable terms to Reebok, including greater financial flexibility and reduced expenses.'

``As I've stated before, 1997 will be a year of focused execution. We are confident that the
strategies we've developed for all of our brands are capable of returning significant long-term shareholder value. We are excited by the prospects that lie ahead and look forward to improved operating performance as we execute these strategies into the millennium,' Mr. Fireman concluded.

Jeff
Sports Fool
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