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Adidas Sees Reebok Hitting $5 Billion in Sales

Reuters
Thursday, 1 Feb 2007 | 10:18 PM ET

Adidas expects growth overseas, particularly in Asia, to push sales at its Reebok division to $5 billion over the next three to five years, up from their current $3 billion level, Herbert Hainer, chairman and chief executive of Adidas, said on Thursday.

The world's second-largest sporting goods maker after Nike , also said it expected to cut costs across the company -- including at Reebok, which it acquired last year -- by about 87 million euros this year. That will more than offset integration costs, resulting in an overall cost savings of about 10 million to 20 million euros, Hainer said.

"For the Reebok brand, the main growth driver will be Asia, to a certain extent Europe as well," Hainer said in an interview with Reuters. "Key markets like Germany and France are underdeveloped, as is Russia. Emerging markets have a huge potential and we will grow in the U.S., but by far not at the pace of Asia."

Much of that growth will come toward the latter part of that period, though, with the brand expecting only "modest" revenue growth of mid-single-digit percentages, said Paul Harrington, president and CEO of the Reebok brand.

Adidas, of Germany, bought Reebok a year ago in a $3.8 billion deal, looking to complement its strength in Europe with a major U.S. brand that had greater strength in the fashion segment.

But the Reebok brand has been a drag on Adidas performance thus far. In November, the German company lowered its 2007 profit growth forecast to 15% from 20%, citing trouble at Reebok.

Adidas shares have slid almost 14% since the Reebok takeover closed on Jan. 31, 2006. Rival Nike's shares have risen about 24% over that time.

Eyes Asian Expansion

Reebok's sales have been lagging in the United States and the United Kingdom, though Adidas plans a big expansion for the brand in Asia, including about 3,200 stores in China, India and Russia by 2010. The brand also has an eye to expand in Turkey, Poland and other parts of eastern Europe, executives said. This year Reebok aims to open 90 stores in Russia and 200 in China, Harrington said.

Hainer said he also sees Japan and South Korea as ripe for Reebok expansion. In Brazil, Argentina, Switzerland and Spain the brand is still sold by third-party distributors. Hainer said the company is working to buy out those contracts, but that some may have to run their course through 2012.

Currently, about 40% of the Reebok brand's sales come from North America and 40% from Europe, with the balance coming from the rest of the world, which Reebok executives said could rise to represent a bigger part of overall sales, the executives said.

Part of what makes the expansion outside the United States so appealing is that profit margins for shoes and clothing tend to be higher in the rest of the world, Hainer said. "Consumption in the U.S. market for sport goods is very high. U.S. consumers on average buy seven to eight pairs (of sneakers) a year," Hainer said in the interview. "Where you have a high consumption, you are much more price-sensitive.

When you have a less high consumption you say, 'OK, if I only buy one pair of football boots per year then I want to have the best ... You have much higher quantity on the U.S. market, but you have much more value, higher (profit) margins on the European or Asian market."

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