Jermaine Deans

Executive Summary
Fiscal year 2000 was a disastrous one for the stocks and the stock market. However one company did not feel the ill effects of the downturn, in fact profited. Reebok International experienced a 2 0.!"# increase in its stock price between $anuary %&, 2000 and 'ecember %&, 2000. (he stock price went from ) .% in $anuary to )2 .%* in 'ecember. +pplyin, the -trate,ic .rofit /odel, created by professor 0oah 1arsky 2 department of +ccountancy, 3illanova 4niversity, I will try to explain the numbers supportin, such a return. 5xamination of the -trate,ic .rofit /odel reveals stron, financial showin, by Reebok in fiscal year 2000. 0et income 6umped )70,7 7& in 2000, up from )2%,!2 in &!!7 and )&&,0*8 in &!!!. (he firm had &%.%2 cents return per dollar of e9uity invested in 2000 compared with 2.&cents in &!!!. Return on assets followed suit revealin, a 8.8% cents return for every dollar of assets on the balance sheet. (he numbers don:t lie, but are direct result of other factors. Reebok had a seasoned campai,n of endorsers in 2000, namely +llen Iverson, -ha9uille ;:0eal, 3enus <illiams and .atrick Rafter. (he ;lympic ,ames also placed Reebok at center sta,e for the world to see and marvel at product performance. Reebok also stepped up marketin, and tried to produce appealin, merchandise. /ost important the firm was able to increase sales in a slowin, economy that saw the F5' lowerin, interest rates every few weeks.

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0umbers used are in thousands 2 taken from freeed,ar.com -ee -trate,ic .rofit /odel in appendix

Introduction
Reebok International became one of the ,reatest earners on the market for the fiscal year endin, 2000. 1i,,er fishes such as =isco and 0ike did not have as much a percenta,e ,ain as Reebok did. It is surprisin,, to me, especially after reviewin, their fi,ures for the years &!!*>&!!!. I will use the -trate,ic .rofit /odel ?-./@ developed by professor 0oah 1arsky ?'epartment of +ccountancy, 3illanova 4niversity@, to examine the balance sheets and income statements for the years &!!* 2 2000. (here is a sayin, that the numbers never lies, and I hope to 6ustify Reebok:s ,ain with clear evidence in the numbers. =ontributin, factors such as endorsement deals, new mana,ement focus and overall product appeal are to be blamed for Reebok:s stock performance for fiscal year ended 'ecember %&, 2000.

Company History
+ famous 5n,lish runner named $oseph Foster had such a passion for runnin, that he created his own shoe with spikes in them in &7!*%. 4pon seein, his invention, other runners liked them, which prompted Foster to his own shoe company, $< Foster and -ons in &7!*. +s time pro,ressed, Foster:s ,randsons formed the company Reebok that took over $< Foster and -ons, combinin, the two under one name. In &! ! .aulA Fireman noticed the shoe at a international trade show and decided to ac9uire the necessary license to distribute Reebok in +merica. (he company faced tou,h competition
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=ompany history information ,athered from 'ow $ones 0ews Retrieval database ?3illanova 4niversity library@

from established 0IB5, and was forced to formulate other product lines such as women:s fitness and aerobics shoe types. In &!78, Reebok 4-+ purchased Reebok 1ritain and formed a sin,le company we know today. In the same year, as stated in 'ow $ones 0ews Retrieval database > 3illanova 4niversity Cibrary, Reebok went public while ac9uirin, Rocport ?walkin, shoes, &!7"@, +via ?athletic -hoes, &7!7 @, Frye ?boots, &!7 2 sold &!7!@*. 0ot so lon, a,o Reebok had introduced hi,h tops, 1lack top, and pump technolo,y as a means of differentiation and to boost product sales. -uch models are no lon,er bein, produced but in &!!! the company launched its '/D technolo,y shoe. (he company had a seasoned campai,n for this shoe but it did not have a youth appeal, and hence did not do as well as expected. (oday Reebok is more rounded with varyin, endorsement deals, clothin, product lines, and a new attitude to business.

Company Overview
Reebok is an athletic shoe company that produces athletic shoes and apparel for both active competition and casual outin,s. (he company has four main divisions8 namelyE Reebok division > which is responsible for producin, Reebok shoe and apparel used by athletes, non>athletes, and <eebok brand made for kids. Rockport company 2 primarily responsible for producin, the Rockport brand of shoes.

=ompany history information ,athered from 'ow $ones 0ews Retrieval database ?3illanova 4niversity library@
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Information ,athered from /arket ,uide.com ?Reebok search@, and personal knowled,e.

Ralph auren !ootwear company 2 responsible for producin, products sold under the Ralph Cauren lo,o, and .olo lo,o as can be seen everywhere.

"re# $orman Division 2 produces products under the Fre, 0orman brand.

(he company has been one of the leaders in this industry, which portray he same 9ualities such as hu,e endorsement deals, sponsorships, and lavish commercials. Reebok operates more than 200 stores nation wide whether under the Reebok name or one of the other divisions. 1ased In =anton /assachusetts lends its name to a =anadian water bottlin, company ?=learly =anadian@ to form Reebok Fitness <ater. Reebok is holdin, its ,round in the apparel footwear industry, and faces the tou,h tasks, as any, to meet the chan,in, re9uirements of athletes and such the like.

Industry %rends
Reebok International competes in the footwear apparel industry, mainly with other athletic counterparts. =urrently, 0ike has ma6ority market share with a * # stake, while Reebok is runnin, second with a &8# piece of the pie" ?,oo,le.com@. (o close out the top four, +didas and Fila both hold "# market share each. In &!!! the industry showed positive trends as the consumers had money to spend due to a stron, economy and boomin, stock market. +lso durin, this time companies had leaner inventories with inventory to sales ratio of &.% in 'ecember &!!! ?apparel and footwear industry trends 2 ,oo,le.com@. +pparel and footwear sales started to taper off in the second 9uarter of fiscal year 2000 due to a slowin, economy and the fact of over saturation of styles. + ti,htenin,
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Industry trends found at Foo,le.com ?apparel and footwear industry trends@. +lso 'ow $ones 0ews Retrieval database > 3illanova 4niversity library.

market lead to pricin, pressures between top competitors in the industry. +n interestin, trend seen in fiscal year 2000 is that of firm:s levera,in, their products by licensin, their brands for accessories such as sun,lasses, wallets, and watches.

&arket 'nalysis
Fiscal year 2000 came and went like a natural disaster for the stock market and companies as a whole. .rior to this era, the market buGG was centered on technolo,y stocks and the tech industry. =ompanies that had the Internet as an inte,ral part of their business process were bein, valued way in excess of what they were worth . +ddin, to this is the fact that consumers had cash on hand because of a boomin, economy and too many available 6obs. I.;:s had record first day ,ains and it seemed everyone firm and their family decided to come to market to raise additional e9uity. Firms that had millions of dollars of losses on their financial statements were valued as thou,h they were earnin, billions. However, there was the buGG that the market would ,ive back all the multiple ,ains, but no one heeded the warnin,s. (hen came February of 2000 when the landslide started ,ush down <all -treet. =ompanies were findin, it harder to earn a buck as the economy turned into a tailspin. -tocks lost up to 70# > !0# of their value by the end of 'ecember 2000. 'urin, the year, as well, consumers stopped spendin, on stocks and ,oods alike. It was hard for firms to turn a profit, a trend that is evidently seen today as companies release earnin,s reports. (he market has been and still is, in my opinion, the bear sta,e, and it is hard to predict when we will see the bottom.

Feneral readin, knowled,e over the course of the school year. +lso information ,athered in class

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Company !inancials
In order to take a closer look at Reeboks performance over the years &!!*>2000, I will examine the -./ developed by professor 0oah 1arsky, 3illanova 4niversity. (he year &!!* Reebok was much more a powerhouse in the industry than it is today. However, the in between years, especially &!!7 2 !!, Reebok had an astoundin, drop off in market presence. I:ll take a look at the numbers a means of assessin, the company:s performance. In &!!* Reebok had 0et income in the amount of )28*,* 77, which continued a free fall until &!!!, but rebounded in 2000 with a fi,ure of )70,7 7. (he company had a cumulative annual ,ross return ?=+FR@ of 220# on net income over this span. (his number can be a bit deceptive because last year:s net income ?)70,7 7@ was actually a =+FR of 7"# over &!!7 net income fi,ure of )2%,!2 . ;n the same token, the one>year =+FR between &!!! 2 2000 ?)2%,!2 > )70,7 7@ was a whoppin, "%2#. Indications of how well Reebok did last year compared to the former two years. Fross sales has a smaller %# =+FR for the years &!!*>2000, with )%,270,*&7 and )2,7"8,2*0 respectively. Interestin, to note is that the year 2000 fi,ure ?)2,7"8,2*0@ is the lowest since &!!* but over the period income taxes had a =+FR decrease of 220#. Receivables and inventory decreased as well, reflectin, in a hi,her net income fi,ure as seen in the -./ in the appendix. (otal assets remained virtually unchan,ed with a minor 22# decrease over the time frame. 5vidence that mana,ement did a better 6ob in 2000 with basically the same base from which to maximiGe shareholders wealth.
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+ll numbers taken from Freeed,ar.com and -trate,ic .rofit model in appendix. 0ote, numbers are in thousands.

Reebok:s return on e9uity peaked, &!!* 22000, in &!!" with %".*# return or %".* cents profit per dollar of shareholders: e9uity. ;nce a,ain &!!! was the do, year with 2.&cents return per dollar of shareholders: e9uity, but fiscal year 2000 rebounded with &%.% cents return. + fi,ure shareholders are much happier with, especially in a time when the stock market was headed for bear territory. Return on assets followed suit with a 8.8% cents return on every dollar of assets on the balance sheet, for last year. &!!7 and &!!! had &.*2 cent and 0. & cent returns respectively, si,n of a stru,,lin, company. =an:t be out done is the overall profit mar,ins for Reebok. <ith poor R;5 and R;+ for &!!7 and &!!!, then it follows that profit mar,in would be poor as well. (he numbers clearly indicate a 0. *# and 0.%7# profit mar,in for the two years, but a 2.72# mar,in in 2000. (his represents a two>year =+FR of & 2# increase, and partially explains why Reebok became one of the top ,ainers in 2000. <ith such ,ains the firm:s investment risk actually improved over the same time frame. Financial levera,e hi,hli,hts what mana,ement earns in retrospect to the amount of e9uity on the balance sheet. In &!!* the firm had financial levera,e of &." or utiliGed )&." in total e9uity fro every dollar of shareholder:s e9uity. (his number 6umped )%.2& in &!!7 and )2.!" utiliGation. Fiscal year 2000 saw a drop off to )2.*& utiliGed for each dollar of e9uity. -till some deal of risk but much improved, from the investors point of view.

Reebok Stock 'nalysis

Reebok had a stock price of )%&.27 per share back in &!!*, the stron,est year demonstrated within the time frame I am usin,. (he hi,h over the same span was )*7."7

per share back in -eptember &!! . (his was when the bull market was ,ettin, ready to char,e down <all -treet, like a bull rushin, at a bull fi,hter in the rin,. +lso the industry on a whole had 9uality performances because consumers were buyin, athletic apparel and such the like. Incidentally, the stock price low came about when the market 6ust about peaked and was ready to ,ive back. (his was $anuary of 2000, where Reebok experienced a stock price of ) .%
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per share. 5xaminin, the five>year ,raph depicted in

the appendix, and the comparison ,raph you can see pictorial evidence of such a stock price movement. 1etween $anuary %&, 2000 and 'ecember %&, 2000, Reebok:s stock price 6umped an astoundin, 2 0.!"# to close at )2 .%* per share. (he avera,e investor would have been happy with a &0# ,ain, so what about a whoppin, 2 0# ,ain. 'urin, the same time, 0ike had a price of )*8.80 at the end of $anuary 2000, and closed out the year with )88.7& per share. ;nly a 22.""# increase in stock price, nowhere close to the return experienced by Reebok. =omparin, to a more notable firm, =isco -ystems lost 2"8.0 # of its stock price between $anuary 2000 and 'ecember 2000.(he =ompany had a stock price of )&0!.80 at the start of last year, but finished up with a price of )%7.28 at the end of 'ecember.

Contributin# !actors to Reeboks Stron# (er)ormance

(he company:s =hief 5xecutive ;fficer and =hairman .aul Fireman took control of the stru,,lin, Reebok brand at the end of fiscal year endin, 'ecember %&, &!!!&0. It was in his opinion that the brand was improperly mana,ed, lacked artistic style and
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(aken from Hahoo finance at Hahoo.com .aul Fireman:s letter to share holders in &!!!

creativity, and the overall appeal to consumers. (he main aim area of his focus, as mentioned in his letters to shareholders when he assumed the new post, was to recapture Reebok:s presence in the +merican market, which was ,ulfed up by 0ike. From personal experience, Reebok had very little presence in the stores I Fre9uented, namely Foot Cocker and +thlete:s Foot. Fireman also stated that the company had plans to beef up worldwide advertisin, campai,n, clearly seen in endorsement contracts over the course of the year. (his past summer the world experienced the ;lympics, once a,ain, in -ydney, +ustralia. Reebok:s presence was clearly evident as it sponsored the competin, uniforms for ma6ority of the nations that took part in the ,ames. In any ;lympic year companies usually beef up endorsement deals, ,iven to different individuals based on performance status. +lso noted (ennis star, 3enus <illiams won a few titles on the tennis circuit. <hen this happens, customers tend to affiliate more with the brand the athlete uses. Reebok made 3enus the lar,est endorsement deal for a woman when they offered her a )*0 million endorsement deal. (he impressive .atrick Rafter, tennis player, burst onto the scene in the tennis world. He is another prominent athlete who promotes Reebok, especially in his home country, +ustralia. 01+ icon +llen Iverson is also an endorser of Reebok products and in fact has his own shoe called the question. Hi,h sales of this product is directly attributed his popularity as a player with kids and adult a like. -ha9uille ;:0eal, the C.+. Cakers =enter also endorses Reebok and also has his own shoe line and won the 01+ championships last $une. -tayin, with athletes, 9uite a number of 01+, (rack, 1aseball, -occer and 0FC players wear Reebok products. ;n 'ecember &!, 2000, Reebok

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announced a new exclusive alliance with the 0ational Football Cea,ue. (his alliance will see Reebok in 2002 be,in an exclusive license to manufacture, market and sell 0FC licensed merchandise in the company:s key distribution channels. (he 0FC reaches over &00 million viewers each week, and Reebok can only profit from such free publicity, week in and week out. 0ot to be outdone is Fre, 0orman, well>known ,olfer, who has his own line of products with Reebok. In year 2000, the Fre, 0orman division successfully launched a new ,olf shirt called Play Dry. (his propelled sales in the ,olf arena, an area where 0ike has taken force with (i,er <oods, bein, the top endorser. (he Rocport brand saw improved sales 8.2# in the final 9uarter of 2000. Followin, suit was the .olo Ralph Cauren Footwear business, which had continued ,rowth throu,hout the year.

Reebok*s (lans )or +,,- and .eyond Reebok International and the 0ational Football Cea,ue, as mentioned earlier, have formed an exclusive alliance for the firm to produce licensed merchandise starin, in 2002&&. In February of this year, =learly =anadian 1evera,e announced it si,ned a deal with Reebok to distribute and sell a new bevera,e that athletes will use durin, competition or simply for the health conscious consumer. =learly =anadian will pay Reebok royalties based on a percenta,e of net sales of Reebok Fitness <ater ?market ,uide 2 Reebok news@. +lso in February, the firm and 3enator Froup decided to reintroduce the pump technolo,y, exclusively to be sold at Foot Cocker. (he shoe will retail for )&00 and is available in all siGes. (his move should prove profitable for Reebok

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Reebok:s home pa,e and Hahoo Finance 2 Reebok news.

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based on past reaction when the pump technolo,y came to market in the late ei,hties to early nineties.

Conclusion
Reebok International has been able to put perform notable companies such as =isco and 0ike. /ore interestin,ly, the firm:s stock had a 2 0.!"# return over an eleven month period from $anuary %&, 2000 throu,h 'ecember %&, 2000, outperformin, the market and anyone:s expectations. ;ver the same period the stock price went from ) .% in $anuary to )2 .%* in 'ecemberA simply remarkable especially when the market was in a tailspin and headed for bear territory. (he end result was a hu,e stock price appreciation, but there were key underlyin, factors. 5xamination of the -trate,ic .rofit /odel ?professor 0oah 1arsky 2 3illanova 4niversity, department of +ccountancy@ reveals stron, financial showin, by Reebok in fiscal year 2000. 0et income ,rew =+FR over a two>year period ?&!!7>2000@ "%2# with fi,ures of )2%,!2 in &!!7 and )702.7 7 in 2000. Income tax expense decreased =+FR of 220# from &!!* 2 2000, a si,n of efficient mana,ement. Return on 59uity and Return on +ssets rebounded substantially from &!!7 and &!!! fi,ures. In year 2000, Reebok had R;5 of &%.% cents for every dollar of e9uity invested. In &!!7 and &!!!, the firm saw a return of *." cents and 2.& cents respectively. R;+ for year 2000 was 8.8% cents for every dollar of assets, while &!!7 and &!!! had returns of &.*2 cents and 0. & cents respectively. .rofit mar,in followed suit with a 2.72# mar,in in 2000 compared to 0. *# in &!!7 and 0.%7# in &!!!. (he overall risk of investin, in the firm decreased as well from %.2& financial levera,e in &!!7 to 2.*& in 2000.

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;ther contributin, factors include the ;lympics held this past summer. (he ,ames facilitated a sta,e where Reebok could be center sta,e to billions of people worldwide, and most importantly, for free. 1asketball stars such as +llen Iverson and -ha9uille ;:0eal, (ennis: 3enus <illiams and .atrick Rafter play their part as active endorsers of Reebok products for the fiscal year ended 'ecember %&, 2000. (hou,h all these factors played ma6or roles in Reebok:s success, the firm:s re6uvenated effort to product desi,n and marketin, efforts added the final touch. Reebok International did extremely well in sales, mana,ement and overall stock price. -hareholders could not be happier with last year:s 2 0# returns on their invested e9uity. <here else in the world would you ,et half this profit on any investmentI I would like to say, well done Reebok.

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