Adibok: Rise From the Ashes -- NOT

Per the FT, Reebok plans to overtake Puma as the third-largest sporting goods brand in 5-years. Yeah...and I plan to beat Rafael Nadal in straight sets over the same period. Neither is gonna happen...

 

I usually gloss over these sensationalistic 'rise from the ashes' stories about brand revitalization. But anything Reebok-related is getting hard to resist. Few brands have destroyed as shareholder value as Adidas has in acquiring Reebok.  Let's look at a few numbers. Since Adidas bought the company for about 9x 'reported' EBITDA, Reebok's top line in the US has fallen by about 40% ($800m) to $1.2bn. This is absolutely not surprising. Say what you want about Paul Fireman (former RBK CEO) but the fact of the matter is that he sold that company brilliantly (albeit unethically). He grew it until it was absolutely at capacity, and then instead of adding SG&A and other capital resources, he did the opposite. He cut costs while touting a growth story, and kept margins unsustainably high. US Investors increasingly doubted it, but apparently a very large German investor did not.

 

Why do I bring this up? Adidas' weekly apparel figures have started to show some signs of life. Not Reebok's - just Adidas. I'm the first to give credit where it's due. But we're waaaaay off from being at a point where we can declare victory. Brands don't resuscitate on their own. They need capital

 

Let's give Reebok the benefit of the doubt and assume that it is break-even with $60mm in D&A. What does that spell? A 50x EBITDA multiple on that original transaction. But hey...It's a good thing we're in a good credit environment where balance sheets don't matter and investors are tolerant of a 92% debt/equity ratio.

 

Adibok: Rise From the Ashes -- NOT - ADI Chart Sales ASP MRKT Share


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