Is There More to Reebok’s Woes? – NIKE, Inc. (NKE)

The last twelve months have been really difficult for footwear industry players, especially Adidas (NASDAQOTH:ADDYY). Along with problems of low demand, high costs and a dull holiday season the company’s Reebok brand saw a major fraud in its Indian operations. Additionally, a 10 year American football contract came to an end. The German sportswear giant posted a dull fourth quarter mainly because of goodwill impairment charges and lower sales for the Reebok brand.

NIKE Inc. (NKE)

Troubles to continue

For the fourth quarter the company reported a net loss of $353 million compared to a positive bottom line last year. The goodwill impairment loss, due to Reebok, amounted to $334 million. The previous year results have been restated because of irregularities discovered at Reebok India Co.

Number two in sales of sporting good, Adidas has also dropped the plan of selling its hockey business since the offers weren’t good. The footwear retailer did not do well in most of the geographic regions. The only place where the company seems to be doing well is China. The company has more than 7000 outlets there and plans to expand it further. The reason could be that the consumers want to break from the monotony of NIKE, Inc. (NYSE:NKE)’s products. It also means that the consumers are demanding variations from a different retailer and the demand hasn’t slowed down. A few innovations can help Adidas gain greater momentum.

Hitting a bump…

Taking a deeper look will help us understand that Reebok is shutting stores in India. Adidas’ Reebok outlets are providing huge discounts on existing inventory and are eventually closing down. The existing stores haven’t got fresh supplies in the last 5 months. Till date, a total of 200 stores have already been closed in India. This has fueled speculation that it may be the end of the road for Reebok in India. However, the management does not intend to scale down operations in India and wants to keep the brand active.

The other side

Though the company’s muscle tone products failed to create demand in American markets, Adidas recently launched shoes called “Energy Boost” are going to compete with NIKE, Inc. (NYSE:NKE)’s Flyknit. NIKE, Inc. (NYSE:NKE), on the other hand, has been increasingly active on the innovation front and does not leave a single opportunity to lure customers. It has a range of new product offerings from Flyknit to NIKE, Inc. (NYSE:NKE) Free. Even Nike+ is enjoying a successful run and customers are willing to pay more for the product.

What lies ahead?

Despite various problems, the management of Adidas announced a 35% increase in dividend and stuck to a viewpoint of earnings improvement for 2013. The company has to bring a something new to the table to gain consumers’ attention. But the question is “Can they take risk?” From an investor point of view the company has a number of internal problems to deal with before getting things straight. A little time should be provided to let the company’s restructuring to settle down and for rebranding of Reebok. As of now there are better stocks to invest in the footwear industry.

The article Is There More to Reebok’s Woes? originally appeared on Fool.com and is written by Pratik Thacker.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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