Reebok Business Performance In 2008, the Reebok segment was ...

Reebok Business Performance
In 2008, the Reebok segment was impacted by
the deteriorating economic environment in key
markets and ongoing efforts to improve the
positioning of the Reebok brand. Sales and
profi tability both developed below Management’s
initial expectations. Currency-neutral
sales for the Reebok segment decreased 2%.
In euro terms, segment sales decreased 8% to
€ 2.148 billion in 2008 from € 2.333 billion in
2007. The gross margin of the Reebok segment
declined by 1.7 percentage points to 37.0% in
2008 from 38.7% in 2007. This was mainly a
result of higher clearance sales in the second
half of the year, compared to the previous year.
Gross profi t decreased 12% to € 795 million in
2008 versus € 902 million in 2007. Reebok’s
operating margin declined by 5.0 percentage
points to negative 0.3% in 2008 from positive
4.7% in the prior year. This was due to the
decline in gross margin and the increase in
net other operating expenses and income as
a percentage of sales. As a result, Reebok’s
operating profi t decreased to negative € 7 million
in 2008 versus positive € 109 million in the
prior year.
Reebok at a glance
€ in millions
102 Group Management Report – Our Financial Year Business Performance by Segment — Reebok Business Performance
2008 2007 Change
Net sales 2,148 2,333 (8%)
Gross profi t 795 902 (12%)
Gross margin 37.0% 38.7% (1.7pp)
Operating profi t (7) 109 (106%)
Operating margin (0.3%) 4.7% (5.0pp)
Reebok net sales by quarter
€ in millions
Q1 2007
Q1 2008
Q2 2007
Q2 2008
Q3 2007
Q3 2008
Q4 2007
Q4 2008
454
524
514
469
567
561
728
665
New companies in Latin America impact
sales and royalties
Effective April 1, 2008, the adidas Group acquired 99.99% of
the shares of Reebok Productos Esportivos Brasil Ltda. (formerly
Comercial Vulcabras Ltda.), the distribution company
for Reebok products in Brazil and Paraguay. Effective June 2,
2008, Reebok also founded a new company in Argentina, in
which the adidas Group holds 99.99% of the shares. This was
part of the Group’s strategy to bring the Reebok brand under
direct control in all regions.
Segment sales decline 2% on a currency-neutral basis
In 2008, sales for the Reebok segment decreased 2% on a
currency-neutral basis. This development was below Management’s
initial expectation of a low- to mid-single-digit sales
increase. Currency-neutral footwear sales were stable
compared to the prior year. Currency-neutral apparel sales,
however, decreased, while hardware sales increased. Currency
translation effects negatively impacted segment revenues in
euro terms. Sales decreased 8% to € 2.148 billion in 2008 from
€ 2.333 billion in 2007.
Growth in emerging markets offset by lower sales
in mature markets
In 2008, currency-neutral Reebok segment sales increased
in both Asia and Latin America, but decreased in Europe and
North America. In Europe, currency-neutral sales declined
3%, mainly as a result of a decline in the UK. This development
could only be partly offset by strong growth in the region’s
emerging markets, such as Russia. Currency-neutral revenues
in North America were down 16% as a result of declines in both
the USA and Canada. In Asia, currency-neutral sales increased
7%. Double-digit growth in India and China was partly offset
by a decline in Japan. Currency-neutral sales in Latin America
increased 192%, due to the fi rst-time consolidation of Reebok’s
new companies in the second quarter of 2008.

Currency translation effects negatively impacted sales in
euro terms in all regions. In euro terms, segment sales in
Europe decreased 8% to € 691 million in 2008 from € 748 million
in 2007. In North America, revenues declined 22% to
€ 964 million in 2008 from € 1.231 billion in 2007. Sales in Asia
decreased 1% to € 267 million in 2008 (2007: € 269 million),
and in Latin America revenues increased 170% to € 226 million
in 2008 (2007: € 84 million).
Currency-neutral sales of brand Reebok stable
Brand Reebok sales were almost unchanged compared to the
prior year on a currency-neutral basis. An increase in the running
category was offset by declines in lifestyle and in most
major sports categories. In euro terms, sales decreased 6% to
€ 1.717 billion (2007: € 1.831 billion).
Currency-neutral sales of Reebok-CCM Hockey down 6%
Sales of Reebok-CCM Hockey decreased 6% on a currencyneutral
basis in 2008. This was due to the decline in the
licensed jersey business compared to the prior year. In euro
terms, sales decreased 11% to € 188 million in 2008 versus
€ 210 million in the prior year.
Rockport sales decline 10% on a currency-neutral basis
Rockport sales decreased 10% on a currency-neutral basis
in 2008. This mainly refl ects the challenging market environment
in the USA, in particular in the department store and
mall-based retail channels. In euro terms, Rockport revenues
decreased 17% to € 243 million in 2008 (2007: € 291 million).
2008 Reebok net sales by division
Reebok 80%
2008 Reebok net sales by region
North America 45%
Europe 32%
Reebok-
CCM Hockey 9%
Rockport 11%
Latin America 11%
Asia 12%
Currency-neutral own-retail sales grow 17%
In 2008, Reebok own-retail sales grew 17% on a currencyneutral
basis. In euro terms, revenues increased 8% to
€ 379 million from € 350 million in 2007. The increase was
largely driven by new store openings in emerging markets,
especially Russia. Reebok own-retail activities made up 18% of
Reebok segment sales in 2008, up from 15% in the prior year.
The share of own-retail activities as a percentage of brand
sales at Rockport was signifi cantly above the segment average.
During the year, the number of Reebok and Rockport stores
increased by 123 to 647 (2007: 524). The store base at the end
of 2008 comprised 253 concept stores and 327 factory outlets.
Reebok segment gross margin declines 1.7 percentage points
The gross margin of the Reebok segment decreased 1.7 percentage
points to 37.0% in 2008 from 38.7% in 2007. This
development was below Management’s initial expectation of a
gross margin increase. The segment gross margin was negatively
affected by clearance initiatives in particular in the USA
and the UK in the second half of the year. Reebok gross profi t
decreased 12% to € 795 million in 2008 versus € 902 million in
2007.
adidas Group Annual Report 2008 103

Reebok gross margin by quarter
in %
Q1 2007
Q1 2008
Q2 2007
Q2 2008
Q3 2007
Q3 2008
Q4 2007
Q4 2008
Reebok operating profi t by quarter
€ in millions
Q1 2007
Q1 2008
Q2 2007
Q2 2008
Q3 2007
Q3 2008
Q4 2007
Q4 2008
6
(13)
(1)
(11)
(9)
21
25
36.8
37.1
39.1
41.2
40.2
36.4
38.1
34.1
84
Royalty and commission income decreases
In 2008, Reebok royalty and commission income decreased
29% to € 30 million from € 42 million in the prior year. The
decline was largely due to the non-recurrence of royalties
from distribution partners in Brazil /Paraguay and Argentina.
The distribution partnerships in these countries were replaced
by own companies whose sales were consolidated for the
fi rst time in 2008. Reebok’s royalty and commission income
primarily relates to royalty income for fi tness equipment.
Net other operating expenses and income increase
Net other operating expenses and income as a percentage
of sales increased by 2.9 percentage points to 38.7% in 2008
versus 35.8% in 2007. Reebok’s revenue decline in 2008 could
not be offset by a corresponding reduction in costs. On an
a bsolute basis, Reebok’s net other operating expenses and
income decreased modestly to € 831 million in 2008 from
€ 835 million in the prior year.
Lower operating margin
In 2008, the operating margin of the Reebok segment
decreased by 5.0 percentage points to negative 0.3% from
positive 4.7% in the prior year. This development was below
Management’s initial expectation of an operating margin
increase. This was due to a lower gross margin and higher
net other operating expenses and income as a percentage
of sales. As a result, Reebok’s operating profi t decreased to
negative € 7 million in 2008 versus positive € 109 million in
the prior year.
104 Group Management Report – Our Financial Year Business Performance by Segment — Reebok Business Performance — TaylorMade-adidas Golf Business Performance
Reebok own-retail stores
Concept Stores 253
Factory Outlets 327
Concession Corners 67
2008 2007
Total 647 524
164
287
73