Is Adidas Going To Sell Reebok?

Adidas bought Reebok for $3.8 billion in 2005 in a bid to expand its reach in Nike’s home market. Reebok at the time had apparel deals with the National Basketball Association and the National Football League.

Adidas may look to put its struggling Reebok brand on the market, in large part to take advantage of the athletic goods bull market, which has been a beacon in apparel during the pandy. On Monday, Adidas [$ADDYY] announced it was reviewing Reebok’s future, which could lead to a sale. The news comes ahead of the company’s five-year blueprint, which it is set to unravel in March, although the German athletic behemoth said it could opt to keep the brand.

Adidas bought Reebok for $3.6 billion in 2006, as it looked to extend its reach in the U.S. But the process wasn’t a smooth one, and Adidas CEO Kasper Rørsted leaked a turnaround plan for Reebok shortly after he took over in 2016. On the one hand, that has been a success in that Reebok once again became profitable, two years ahead of schedule, and last year increased U.S. sales by double digits.

However, in another sense, Reebok sits in a weak position in Adidas’s portfolio. It has fallen short during the pandy, with Q3 sales dropping 12.3%, nearly double the brand’s 6.7% decline. Some analysts forecast that Reebok could go for as little as $2.3 billion, far below what Adidas paid for it. Nike Earnings Expectation: Yuge

Store closures, cost reductions and endorsement deals with celebrities such as Ariana Grande and Cardi B helped Reebok turn a profit in 2018 and drive double digit sales growth in North America last year. But then the coronavirus pandemic hit, shutting the majority of Adidas and Reebok’s global stores in the early part of the year.

While many investors have called on Adidas to divest itself of the brand before, now could be an especially favorable time for such a move. The pandy has ravished demand for clothing and accessories in general, as people work from home, but athleisure has bucked that trend.

Companies such as Nike [$NKE] and Lululemon [$LULU] have seen sales shrink much less dramatically than peers in 2020, and have rallied 34.5% and 52%, respectively. Partner and third-party retailers, includingFoot Locker [$FL] and Nordstrom [$JWN], have shed light on this run in fitness categories, as well, in recent earnings reports.

If Adidas were to sell Reebok in the near future, it could fetch a higher price, especially if it can continue to show steady improvement throughout the holidays. That would bear good tidings for the stock. Compared with Nike and Lululemon, Adidas hasn’t quite kept up. Its American depositary receipts are up just over 7% YTD, and the European shares have been stragglers.

In the aftermath of losing its NBA and NFL deals, Reebok focused on fitness and cross training apparel. The narrower emphasis caused it to lose out on a global boom in the broader sportswear market, which has grown at a faster clip than the overall apparel and footwear industry, according to Euromonitor.

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