Reebok 2006 Annual Report Download - page 97
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093
» Reebok Business Performance
Development by Segment ›
European Sales Decrease 13% on a Currency-Neutral Basis
Sales for the Reebok segment in Europe in the period from
February to December 2006 decreased 13% on a currency-
neutral basis. In euro terms, revenues also decreased 13%
to € 768 million in 2006 from € 885 million in 2005. Sales
increases in the region’s emerging markets, in particular
Russia, could not offset a particularly strong decline in the UK.
Currency-Neutral Sales in North America Decline 9%
On a currency-neutral basis, Reebok segment sales in North
America declined 9% in the period between February and
December 2006. In euro terms, revenues also declined 9% to
€ 1.408 billion in 2006 from € 1.543 billion in 2005. Revenues
decreased in both the USA and Canada.
Currency-Neutral Sales in Asia Grow 12%
Reebok segment sales in Asia grew 12% on a currency-
neutral basis in the period between February and December
2006. This represents an increase of 11% in euro terms to
€ 229 million in 2006 from € 206 million in 2005. The strong
sales growth was mainly a result of solid double-digit sales
increases in India and Korea.
Currency-Neutral Sales Decline 5% in Latin America
Reebok segment sales in Latin America decreased 5% on a
currency-neutral basis. In euro terms, sales declined 6% to
€ 69 million in 2006 from € 74 million in the prior year.
Purchase Price Allocation Negatively Impacts Gross Margin
Reebok’s gross margin was 35.0% in the period from Feb-
ruary to December 2006. This represents a gross profit of
€ 865 million, significantly impacted by negative accounting
effects of € 76 million related to the purchase price allocation
for the Reebok segment. Excluding these effects, the Reebok
gross margin was 38.0%. This margin is lower than the adidas
Group’s average gross margin due to Reebok’s overpropor-
tionate exposure to North America, where average gross mar-
gins in our industry are generally lower than in other regions.
In addition, Reebok’s gross margin was negatively impacted
by higher closeouts and increased promotional activities.
Royalty and Commission Income at € 34 million
For the period from February to December 2006, royalty and
commission income at Reebok was € 34 million. This relates
primarily to royalty income from distribution partners and fit-
ness equipment.
Operating Expenses Significantly Below Group Average
Reebok operating expenses reached 32.8% as a percentage
of sales in the period from February to December 2006. This
level is significantly below the Group average as a result of
Reebok’s lower marketing working budget as a percentage of
sales. In absolute terms, operating expenses were € 812 mil-
lion, which included purchase price allocation effects of
€ 13 million.
Operating Margin Negatively Impacted by PPA
The operating margin of the Reebok segment was 3.5% in
the period from February to December 2006. Reebok’s oper-
ating profit amounted to € 86 million, significantly impacted
by the purchase price allocation for the Reebok segment,
which totaled € 89 million. The majority of this effect will not
be repeated in 2007 (see Subsequent Events and Outlook,
p. 106). Excluding this effect, Reebok’s operating margin was
7.1% in 2006.
Reebok Net Sales by Region1)
Latin America 3% North America 57%
Asia 9%
Europe 31%
1) Only includes eleven months of the twelve-month period.
Reebok Gross Margin by Quarter in %
Q1 20061)
Q2 2006
Q3 2006
Q4 2006
35.7
31.9
36.4
35.4
1) Only includes two months of the three-month period.
Reebok Operating Profit by Quarter € in millions
Q1 20061)
Q2 2006
Q3 2006
Q4 2006
17)
(4)
58)
15)
1) Only includes two months of the three-month period.