Athletic apparel company Adidas might sell its Reebok brand, the company said Monday. Adidas officials said they’re developing a new five-year plan and mulling Reebok’s future role.
“These strategic alternatives include both a potential sale of Reebok as well as Reebok remaining a part of the company,” Adidas said in a statement, adding that a decision will be announced in March.
Reebok saw commercial success in the late-1990s after releasing then-NBA star Allen Iverson’s “Answer” sneaker line and Shaquille O’Neal’s “Shaqnosis” shoe. The company also had a 10-year, $ 250 million contract to manufacture jerseys for the National Football League.
All was going well at Reebok until the NFL decided not to renew its contract, and competitors started to grow, Wells Fargo analyst Tom Nikic told CBS MoneyWatch. Nike took the NFL contract; Under Armour took over in the athletic apparel space and Lululemon made gains in selling women’s apparel, Nikic said. Reebok has struggled ever since, he said.
Adidas acquired Reebok in 2005 for $ 3.8 billion with the goal of growing its sneaker and clothing revenue. Reebok sales slowed the following years, including significant declines in 2012. In 2016, Adidas implemented a turnaround plan for Reebok called Muscle Up. Adidas said Reebok turned a profit two years later, as a result.
Endorsement deals with singer Ariana Grande and rapper Cardi B, as well as closing 250 stores helped keep Reebok recover, analysts said.
Time to cash in
Adidas is now looking to sell Reebok because the once powerful brand has become a money pit, Nikic said.
“They’ve put a lot of time and effort into trying to enhance the brand and improve the profitability,” he said. “They got to profitability, then, last year the brand only grew 2%. They’ve reached a point where they’re saying, ‘We’ve done all that we can do with this brand.'”
Though Adidas hasn’t officially announced a deal, Nikic and other analysts believe a Reebok sale is all but assured.
“With the Reebok brand at $ 1.75 billion of full-year sales last year, and with below-average profitability, we can see the high-level rationale for Adidas to part ways,” analysts from Baird Equity said in a research note Monday.
Nikic said $ 1 billion is a reasonable price tag for Reebok. VFC — the parent company to Jansport, Timberland and The North Face — is a prime candidate to buy Reebok, Baird analysts said. VFC bought the streetwear clothing brand Supreme for a reported $ 2.1 billion last month.
Reebok reported $ 403 million in revenue for the most recent quarter ended September 30, a 7% decline from the same period last year. Adidas CEO Kasper Rorsted said in an earnings call with investors last month that Reebok suffers from not being attractive to runners and outdoorsmen, two customer segments that drive revenue for Adidas.
The executive also noted that Reebok’s business has been concentrated in North America, where recovery from the coronavirus pandemic has been slower than in Europe.