Weekly News 4/29/05 APRIL 29, 2005 -- Brooks sales rose more than 30 percent in the first quarter, outpacing the brand's own expectations, according to a report by its new parent Russell Corp. “We are pleased that Brooks has made such a significant contribution and exceeded our expectations for the quarter,” said Jack Ward, CEO of Russell, which acquired Brooks in December 2004. Overall, Russell's earnings $2.2 million, or $.07 per diluted share, versus earnings of $0.5 million, or $.02 per diluted share, in first quarter 2004. Sales rose 24.4 percent to $313.2 million. RML's ongoing businesses, in addition to $54 million of incremental sales from acquisitions owned for less than a year. Excluding the impact of the revenue associated with the Major League Baseball contract, which expired in '04, company-wide organic sales were up 5% over a year ago. Domestic sales were up 27% to $281 million. The Athletic Group benefitted from the acquisitions of Brooks, Huffy Sport and AAI. Otherwise the business unit would have been down. . Sales in the group were up 39% to $157 million. Mossy Oak disappointed, and the MLB contract was not renewed. Russell also owns Moving Comfort and Jerzees. Puma reported earnings rose 13.5% to EUR 90.9 million while sales climbed 11.9 percent to $1.3 billion. Although results were positive, analysts were concerned by lower sales in Europe. Sales there were up 7.8% in 1Q to EUR 338 million. Gross margin rose to a staggering 56.9% from 54.7%. But bookings were down 5.5% to EUR 522 million. This was attributed to stronger than expected 1Q sales and an economic weakness in Western Europe. Furthermore, last year's number was positively influenced by major sporting events in the summer of '04. Currency-adjusted, 1Q sales in the Americas region jumped 37.7% and in euro terms 29.5% to EUR 94 million. The region accounts for 19% of consolidated sales. In addition, gross profit margin improved significantly by 130 bps to 46.1%. The currency-adjusted order volume was up a strong 48%, or 38.8% in euros to EUR 170 million. In the US market, sales increased 29.5% to $96 million and order growth was 36.3% to $190 million at the end of March. Asia/Pacific sales increased currency-neutral 3.2% (in euros -1.5%) to EUR 44 million and contributed 8.8% to consolidated sales. The gross profit margin in this region improved 180 bps to 50.9%. Orders on hand were up 15% currency-adjusted (in euros +9.9%) and totaled EUR 90 million. In branded sales, the Asian region developed very positively with growth rates of over 22% and 28%, currency adjusted. In Africa/Middle East, sales increased significantly by 59.4% to EUR 20 million, accounting for 4.1% of consolidated sales. The gross profit margin climbed strongly from 29.1% to 34.6%. Puma's worldwide branded sales, which include consolidated and license sales, rose 18.1% currency-neutral or, in euros 16.3% to EUR 639 million. Footwear sales improved 13.3% (in euros +11.5%) to EUR 376 million; and apparel 21.5% (+19.7%) to EUR 211 million. Accessories grew 46.9% (+45.1%) to EUR 52 million. Consolidated sales increased for the 25th consecutive quarter and continued with another double-digit growth of 13.7% currency-neutral in 1Q. Futures stood currency-adjusted 6.2% above last year, marking the 37th consecutive quarter of orders increase. In euros, orders grew 4.6% to EUR 812 million. Footwear orders were up 6.1% (in euros +4.1%) to EUR 555 million and apparel totaled EUR 207 million, an increase of 2.1% (+1.4%). Strongest growth was realized in accessories, with orders up 29.5% (+27.4%) to EUR 51million. Management confirmed '05 sales and earnings expectations. Taking into account a strong performance in 1Q, management expects to show mid to high single-digit sales growth and reaffirms the guidance given earlier this year for the outlook FY05. The license business should increase in a double-digit range. Depending on product and regional mix, the gross profit margin is now expected in a range between 51% and 52%. Inventory increased 8.1% to EUR 190 million and receivables were up 14.8% to EUR 387 million. Excluding a first-time consolidation effect, inventories are up 3.4% and receivables 6%. Cash and cash equivalents grew from EUR 184 million to EUR 323 million, and bank debts remained at last year's level of EUR 22 million. With a 16 percent hike in running footwear, Reebok International reported earnings climbed 5.2% to $42.2 million. Revenues climbed 11.2% to $925 million . In the US, Reebok footwear (including THC) rose 4.6% to $272.7 million. Inclusion the THC represented less than 1% of the increase. During 1Q, fillins increased and cancellations fell. Sales in the outlet stores comped flat. Sales of Iverson product improved. Sales of RBK product increased double-digits. US sales of performance product increased 8%. Sales of running footwear were up 16%. Sales of cleated football and baseball shoes rose 280%. As for Classics, sales increased in constant dollars globally, but were off in the US. US apparel increased 16.0% $113.6 million. The Hockey Co. accounted for about 6%. Licensed apparel sales rose double digits, as did branded apparel. Gross margins improved as the company focused on quality rather than quantity. RBK is still in need of a head of apparel. The company shifted its licensed strategy to supplying lower initial orders and filling in more in season. NFL apparel doubled on a small base. Sales increased in the UK, France, Italy, Eastern Europe and Russia. New markets for NFL apparel include Poland an the Middle East. International sales of branded products were $396.9 million in 1Q, an increase of about 17%. THC sales were $16 million. Removing the impact of currency and THC, international sales increased about 8%. Internationally, footwear sales increased 22%, while apparel sales of increased 11.2%. On a constant-dollar basis, international footwear sales increased 17 %, and international apparel sales increased 7%. Substantially all of the apparel sales increase is due to THC On a category basis, the footwear sales improvement came from the adventure, Classic, training, kids, running, tennis and walking categories. Internationally, RBK product sales currently represent less than 5% of total footwear sales. In constant dollars, sales rose in Europe, Africa and the Middle East. There were positive results in Austria, Belgium, Germany, Holland, Poland, Portugal, Russia, Scandinavia and, most importantly, in the UK, whereas sales declined in France, Italy and Spain. In the UK, the company reported strong sales with a double-digit constant-dollar footwear sales increase and a 7% constant dollar apparel sales increase. Footwear business in Germany reported a 29% constant-dollar sales increase. The company blamed the high unemployment rate in France for soft results there. Yet, Germany has a huge unemployment rate and is on the brink of recession, but sales were growing. In the US, footwear backlog is up about 5%. Much of the improvement is coming from the performance categories: Basketball, tennis, soccer, cleated, running, adventure and training categories. All reported double-digit backlog increases. The improvement in basketball backlog is coming from a significant increase in Iverson orders. Partially offsetting the strong backlog position of performance categories is a decline in RBK footwear products endorsed by music icons. The company intends carefully allocate the amount of product it puts into the market to ensure strong consumer demand and to launch new product into the market around events like new album releases and concert tours around the world. EVP/CFO Ken Watchmaker said the company intends to market additional products pertaining to new associations with selective music icons, thereby broadening number of collections and marketing. Experience has taught the company that its rap artist collections fall off at retail without an album release or concert tour. US apparel backlog, which includes both brandedand licensed apparel, increased by 7%. Internationally, backlog increased about 3% from the prior year, with an 11% increase in footwear and a 7% decrease in apparel. On a constant-dollar basis, the international backlog was down about 3% with footwear up and apparel down. “However,” Watchmaker said, “as I said last quarter, it's important to note that we believe that open backlog trends are becoming less of an indicator of our future sales performance. For '05 we believe our international sales will exceed our backlog trend. As you know we do not include independent distributors in backlog because our open order position that we report represents only orders from retail customers. Furthermore, with respect to our owned subsidiaries in many markets such as Japan, Korea, India and Mexico, their open order position at a point in time are not significant.” Worldwide inventories were $470 million vs $409 million. Accounts receivable were $708 million vs $564 million. The increase in accounts receivable and inventory are primarily related to THC and to the effect of currency. Excluding their impact, inventory decreased approximately $14 million, or about 3%, and accounts receivable increased about $83 million, or 15%. Much of the sales growth is coming from regions where DSOs and receivables are longer than the company's average. As a result, DSOs have increased. World Shoe Association Renews GES Exposition Deal   The World Shoe Association has signed a contract with GES Exposition Services, replacing a  previous contract that was scheduled to expire in 2005. World Shoe Association holds two premier marketplace shows per year and GES will be the Official Services Contractor for all eight shows held from 2006 until 2009. Paul Dykstra, president and chief executive officer of GES, said: "the World Shoe Association and its exhibitors will continue to benefit from the GES National Servicenter, which provides exhibitors with a single point of contact to arrange for door-to-door transportation services, custom fabrication and rental exhibit systems during all North American business hours." The WSA Shows will be held in Las Vegas, bringing more than 33,000 participants and 6,000 plus key brands, covering 1.8 million square feet of space. Las Vegas-based GES Exposition Services, a subsidiary of Viad Corp, services every major convention market across North America. GES provides a wide range of services including exhibition planning and design, exhibit rental and fabrication, material handling, staging and rigging, temporary electrical equipment, signs and graphics manufacturing, installation and dismantling, carpet and furnishings, and transportation services. The World Shoe Association is the largest association serving the footwear trade, and each of the biannual shows rank in the top 20 of Tradeshow Week 200 largest tradeshows in the US and Canada. For the fifth time in as many reviews, ASICS scored a prestigious honor from Runner’s World® magazine. In the June issue, the new GEL-Foundation® VI was named ‘Best Update’ as part of the magazine’s Summer 2005 Shoe Review. “The fit of this update has been much improved, thanks to its roomier heel and forefoot. ASICS also added more gel in the heel and forefoot for better cushioning. The firmer mid-sole is reinforced with ASICS Trusstic System to support the foot and help the foot transition more efficiently from heel-strike to toe-off.” A favorite among wear-testers, one remarked, “These shoes are a great combination of lightness and stability.” In earlier shoe reviews, the GEL-Evolution™ (September 2004), GT-2100™ (December 2004) and GEL-1100™ (March 2005) have won the prestigious ‘Editor’s Choice’ awards and most recently, the GEL-Trail Attack™ (April 2005) was named ‘Best Debut’. The GEL-Foundation VI ™ will be available June 1st at participating retail stores. To find a retailer near you, please call 1.800.678.9435 or visit www.asicsamerica.com. To read the review from Runner’s World® visit www.runnersworld.com. New Balance Athletic Shoe said Runner’s World magazine has named the New Balance 754 running shoe an “Editor’s Choice” award winner in its Summer 2005 Shoe Buyer’s Guide.    “Recommended for runners with normal arches who want a neutral-cushioned shoe that also happens to be stable,” said the Runner’s World editors.    The 754 is the most recent update in the very successful New Balance 750 responsive neutral cushioning series.  The 754 is designed with innovative New Balance technology including the Abzorb® cushioning in the heel and forefoot and a Stability Web® system.  The 754 also features an Acteva® midsole that resists compression, an N-durance® outsole for long-wearing durability in high wear areas, and a blown rubber outsole to ensure a lightweight and cushioned ride.  Air mesh on the upper ensures the 754 is lightweight and breathable while reflective details provide safety for night running.   This combination of New Balance technology provides runners with the best balance of comfort, stability, durability, and cushioning, while maintaining a lightweight and responsive ride.  As one tester commented, “I loved the great ride and good impact protection.”  Another tester noted, “The forefoot fit and the support of the shoe are exceptional.”    The NB running team made significant improvements to the shoe, specifically making it firmer than its predecessor, the 753. Runner’s World writes, “The 754’s last is more supportive in the arch and provides a better heel wrap.  New Balance added Abzorb cushioning foam in the forefoot and heel for more impact protection.  The shoe [also] features New Balance’s ‘knotty laces,’ which never come undone.”  The no-slip lace design ensures shoes stay tied and as with all in-line New Balance shoes, the 754 is available in multiple widths and sizes.   “The entire team at New Balance is extremely proud of this recognition from Runner’s World,” says Scott Wicker, marketing manager, running at New Balance.  “We strive to engineer functional, innovative, and technical products that suit the needs of runners and are thrilled the 754 was recognized for this distinction.” adidas and the Boston Athletic Association (B.A.A.) will announce a new sponsorship deal that allows adidas to display its logo on the official race bibs of the Boston Marathon. The deal is effective as of this year and will be officially announced at the Champions Breakfast over Marathon weekend in Boston. "This sponsorship is yet another example of the successful partnership between the Boston Athletic Association and adidas and we are very excited to add it to the long list of our joint ventures," said Guy Morse, Executive Director of the Boston Athletic Association. Martyn Brewer, the adidas Sport Marketing Director said: "The sponsorship of the official race bibs is an important step for us to further strengthen and expand our investment in the Boston Marathon. I would like to use this opportunity to thank the B.A.A. for their continued support and the great work we are able to do with them to support the Boston running community." Following the announcement, the two sponsorship partners will hold the "adidas Athlete for a Year" contest at the B.A.A. Relay Challenge. Special Guest Grete Waitz will draw two names from a pool of 20 randomly selected participants of the 2005 Boston Marathon. As part of the contest, these two winners will be treated as "honorary athletes" for a year including complete gear provided by adidas and a trip to the USA Track & Field Championship in July. adidas enters its 17th year as the Official Footwear and Apparel Outfitter of the Boston Marathon. The event is one of eight major marathons that make up the adidas Marathon Series and the only one adidas sponsors in the US. High Gear announced their sponsorship of the Vasque Ultrarunning team for the 2005 race season. High Gear will be the official electronics sponsor of this accomplished team, outfitting all 19 athletes with the best in altimeter watches, heart rate monitors and outdoor MP3 players. 2004 was the inaugural season for the Vasque Ultrarunning team. With 16 athletes on the 2004 roster, Vasque runners competed in 50 events, scoring top 5 finishes in 46 of them, including Western States 100, Angeles Crest 100 (2nd and 3rd), American River 50 and several other national races. Smith Optics , based in Ketchum, Idaho, hired Gabe Schroder as its new Ski and Outdoor Promotions Manager. Most recently, Schroder worked for Rossignol Ski Company as a Marketing and Promotions Specialist. He traveled the Intermountain Territory visiting retailers, scouting for up-and coming skiers and promoting the Rossignol brand. He was also a contributor to Powder Magazine, and managed Primedia's “Powder to the People Tour” for four years. Schroder will be managing all athlete relationships and marketing programs related to Smith's ski and outdoor programs. He will be taking over the duties of Promo Manager Tag Kleiner, who was promoted to Marketing Manger in December of last year. “Gabe's passion for our sports and personal energy make him a perfect fit at Smith Optics. He's a ripping skier, knows the majority of our athletes and his experiences with Powder and Rossignol will help him hit the ground running,” said Kleiner. La Sportiva said it topped the list of the fastest growing Trail Running shoes sold in Chain Stores, according to a recent report by the Leisure Trends Group. La Sportiva also said its the fourth-fastest growing brand amongst Specialty Stores, with more than 45 percent YTD growth in the study. La Sportiva said it has seen more than 25 percent YTD growth from 2004 to 2005 in their climbing shoe sales. "We're seeing rapid growth in the trail running category due to our cutting edge R&D efforts that have focused on the innovation of new products that increase the performance of the typical trail runner," says Sportiva Marketing Manager Jonathan Lantz. "By applying our knowledge of mountain footwear to the trail running category we have developed a new standard for running footwear design."