introduction of footwear industry and reebok international ltd
Website: http://www.docs.vn Email : lienhe@docs.vn Tel (: 0918.775.368 c o n t e n t preface 2 Chapter 1 : introduction of footwear industry and reebok international ltd 3 I. Characteristics of the footwear industry 3 1.Overview .3 2.Characteristics of footwear industry and its products .3 3.Customers 4 4.Suppliers .4 5.Competitors 4 II. introduction of Reebok .6 1.History of the company .6 2.Brandnames .6 III. Strategies .7 IV. SWOT analysis .8 1.Strengths .8 2.Weaknesses 8 3.Opportunities .9 4.Threats .9 Chapter 2 : Finance reports and stock analysis .10 I. Finance reports 10 1.Balance sheet .10 2.Income statement .12 3.Cashflow statement 13 II. Stock analysis of 3 latest years 13 1.Stock price of Reebok 13 2.Earnings per share(EPS) 14 Chapter 3 : consultancy .18 I. Financial analysis of .20 Financial analysis of Reebok preface Human have so many wants and needs and they always try to find some ways to satisfy themselves. As a rule, Investors never keep money in their hand but not invest them in market. It is the reason why so many people are interested in analysing financial data, stock price of some company in order to decide whether they should risk their money or not. Before the year 2000, people seemed to be attracted in some high technology industry to invest due to its high growth rate. But after the collapse of some Bigs such as World.com, people tend into investing in some traditional industry or safety industry more and more. In order to understand profoundly the subject “ Finance accounting”, we - the group 4 th of A2 FBA K38 - have chance to research on Reebok company under the guide of Professor Master Nguyen Thuc Anh. As requested, we have analysed some data and index of the company’s financial state and stock price in order to give some advice for investors who interest in buying RBK stocks. In fact, after one and a haft month devoting our all efforts to study Reebok company in particular and other companies in general, we have gained so many useful things and experience. However, it is our first time to do that kind of reseach and due to our unexperienced knowledge we may not avoid making some mistakes. Therefore we highly appreciate to receive the comment from all of you, especially from out professor Master Nguyen Thuc Anh. Thank you for paying time to us. Hanoi, 12/2002 Group 4 th - A2 QTKD K38 Group 4 th - A2.FBA.K38 2 Financial analysis of Reebok Chapter 1 : introduction of footwear industry and reebok international ltd I. Characteristics of the footwear industry 1. Overview Sales picture of footwear industry over the past couple of years has been gloomy as a result of a glut of shoes store, gross oversupply and a general trend toward “ brown leather shoes”. These are the primary culprits causing the loss or none-profit overall the industry. However, business finally seems to be improving now and in some coming years, promising a great potential for companies in the industry. This kind of the industry is very sensible to variations of the market and it is also a seasonal business. So it requires all producers to be able to quickly react to new market demand, develop product range. Furthermore, the characteristic of the shoe-business can be indentified with entertainment industry, where the product have short-life cycles and success depends on what is flashy and stylish. Today’s athletic shoes market is a mixture between fashion and technology. So if a commpany wants to make a competitive distintion, it should have create a fashionable image for itself. 2. Characteristics of footwear industry and its products This industry is controlled by the large five: Nike (with market capture of 11,4 B $ up to Oct of the year 2002), Reebok ( with market capture of 1,5 B $), Converse, LA Gear,Striderite so this is a concentrated industry since the “big five” sets the trends. The athletic shoe wear industry is also an unique one in the way it is market driven instead of product driven. That means every reaction of the customers is noted by the producers and they will supply customers with satisfactory products. In this industry producers are likely to diversify their range of products easily since customers’ needs seem to be related to each others. Men's apparel and accessories marketed can push others needs of customers of products ranging from golf apparel, leather jackets and sweaters to activewear and swimwear. The threat of substitude products is low since this industry is a mixture between fashion and technology and only producers who have created the fame and fashionable image can sell goods. Futhermore, the industry is upgrading the products frequently to cope with flashy fads and the hottest fashion so there are not too many close substitude products to athletics shoes. However, some multipurpose shoes such as “ cross trainers” may be a possible substitude threat to the current highly diversified range of athletic shoes on the market. Group 4 th - A2.FBA.K38 3 Financial analysis of Reebok 3. Customers It is obvious that in the footwear industry there are many kinds of customers who have different tastes and income. Therefore, all producers need to supply a wide range of products in order to suit with every demand of the customers. Targeted customers of companies in this industry are women who use walking shoes and also males between the ages of 16 and 25, and a children's line targeted to boys and girls between the ages of 5 and 12. Besides those customers companies which operate in the footwear industry are designed to meet the demands of specific consumer types: image and fashion conscious athletes, sports and fitness enthusiasts, and casual athletic shoe buyers. Students have also been a key purchasing group because they are at the age forming their opinions about things. In general, a significant portion of the spending will be done by people age 18 to 37. As a whole, footwear industry is a field which can serves all kinds of people. It makes the producers have a full range of customers and must have their own division of market segment. The potential customers of this industry are people between the age of 5-37 including children, women, men and professional athletes with many different tastes. However, the bargainning power of the customers is medium to low.It is because the purchase of the customers is not concenrated in large volumes and products have difference thanks to the difference among different brand name. 4. Suppliers In this kind of industry, producers need many sources to produce their products, including material, machines, technique and services such as online marketing service, permisson-based mail marketing service This input is dominated by relative few companies. Therefore, the bargaining power of suppliers is medium to high since the product is unique and the switching costs are high. Futhermore, it is possible for producers (especially in foreign manufacturing) to intergrate forwards into the industry’ s business (in overseas market ) and become an opponent to companies in the footwear industry. 5. Competitors Competition in this industry is quite strong, mainly among the “large five” Nike, Reebok, Converse, LA Gear,Striderite and also among some branches like Polo, Timberland, Adidas .Each company has its own strategy and customers but there is always a dispute among them. However, now, the most serious threat of competition is NAFTA (North America free trade area). This area allows all competitors compete equally and freely and it leads companies to reduce their labor and manufacturing costs to maintain company’s profitabilitty. Competitors in the footwear field include a number of sports and fitness footwear and apparel companies, such as Nike, Adidas, Fila, New Balance and Group 4 th - A2.FBA.K38 4 Financial analysis of Reebok Skechers. Apparel competitors include numerous brands such as Nike, Adidas, Rocawear, Ecko, Brand Jordan, FUBU, Mecca and ENYCE. Competition among men's casual sportswear, golf apparel and footwear makers includes Timberland, Clarks, Ecco, Mephisto, Bass, Bostonian, Merrell, Easy Spirit, Nine West and Gabor Cole Haan, Tommy Hilfiger, Prada and Gucci. Reebok and Nike are the principal players in the industry. Although Nike has also experienced some rough times, revenue fell 8% in fiscal 1999 .but it has now moved back into a position where its gross margins are stronger than its competitors. Nike’s products also includes athletic footwear, apparel, swimsuit, leather goods and it is estimated that Nike capture 45% market share in the industry while Reebok ‘s part is 15%-18% of the pie only. All in all, Nike has more power to the market than others because they have righter strategy, faster long-term growth, stronger industry position, greater international exposure and better brand name management. Besides Nike, there are many current competitors which can be threat of any producer in this industry. We can mention to Timberland or Polo as examples.The Timberland Company headquartered in Stratham, New Hampshire, designs, engineers, markets and distributes premium quality footwear, apparel and accessories for men, women and children. Timberland® products are sold in the United States and internationally through independent retailers, better-grade department stores and athletic stores, in addition to the Company’s own retail locations.The most important product of Timberland is Timberland Footwear. Timberland has enjoyed significant expansion of its brand presence both domestically and abroad Timberland’s markets include Europe, United States, Asia and Asia- Pacific regions. Total market capture of Timberland up to Oct,2002 is 1.1B $. Polo Ralph Lauren Corp is a leader in the design marketing and distribution of premium lilfestyle product in 4 categories : apparel(which includes extensive collections for men’s, women’s, childen’s clothing), home (which offers coordinated products for the home, interior decor ), accessories ( which includes a broad range of products such as eyewear, jewelry, leather goods ) and frangrance(which includes skincare products). It constitutes one of the world’s most widely recognised families of consumer brands. Its main markets are United States, Europe and Asia. In fiscal 2002, the company estimates to have 1,1 B$ of wholesale which includes 6,3% wholesale net sales comes from chirlren wear; 41,8% comes from menswear; 8,6% comes from home; 8,7% come from fragrances; 9,4% comes from accessaries and 25,4% comes from womenswear. As we said above this kind of market is dominated by “the big five” so it is difficult to penetrate the market and cope directly with these Bigs (Not to mention the high capital requirements due to advertising, research and development). Furthermore, the relationship between dealers and distributers is tied up by internal relationship between distributors and producers. So it is really a challengence to anybody who wants to join this field. In conclusion, the Group 4 th - A2.FBA.K38 5 Financial analysis of Reebok threat of new entrants into the industry is low so in this industry there are not many potential competitors. II. introduction of Reebok 1. History of the company In the 1890s, Joseph William Foster - a famous English runner - made some of the first running shoes with spike in them and then Reebok’s United Kingdom-based ancestor company was founded. By 1895, Foster was in business making shoe by hand for top runners and with his sons, they developed an international clientele of distinguished athletic. In 1979, Paul Fireman, a partner in an outdoor sporting goods distributorship, spotted Reebok shoes at an international trade show. He negotiated for the North America distribution license and then introduced three running shoes in the US market as foundation of Reebok USA, Ltd. At that period, its original strategy was aimed at prestige and at high price. At $60, they were the most expensive running shoes in the market. In 1981, PLC a British wholesaler of footwear acquired 56%of the common stock in exchange for $77.500 in cash. Fireman and PLC agreed that neither party would sell its stock to third party. In 1985, Reebok USA purchase Reebok Britain to form a single company up to now. Since then, Reebok had many explosive steps to become a multinational firm. Its structure includes 4 groups: Reebok international, USA; Rockport company; Ralph Lauren Footwear and Greg Norman Collection. Products of Reebok are now available in over 140 countries including 3 main markets North America, Europe and Asia among them European market is the largest one with many subsidiaries ranging from Italy, Austria, German to Russia. 2. Brandnames Reebok is now a global company engaged in the design and market of sport and fitness products, including footwear, apparel and accessories as well as the design and marketing of footwear and apparel for non-athletic, “casual” use. * The Reebok brand The Reebok brand designs, produces and markets sports, fitness and casual footwear, appareel and accessories that combine characteristiics of sport and style. Products of company also include footwear and apparel for children sold under the Reebok and Weebok brands. Nowadays, The way reebok chooses to expand is implementing strategic licensing program in which its technologies and/or trademark are licensed to third paties. *Rockport company. Group 4 th - A2.FBA.K38 6 Financial analysis of Reebok Rockport focuses on specially engineered comfort footwear for both men and women. Its product line includes performance, casual and dress shoes. In 2001, Rockport concentrated on strengthening its men’product by introduction of some new collections. Besides, it continues to use proprietary technology to enhance women’s walking product and siged a license agreement for the development of children’s footwear. *The Greg Norman Collection. Originally a golf product line, the Greg Norman Collection has grown its line of men’s sportswear to include products ranging from leather jackets and sweaters to activewear and swimwear. In addition, it offers belts, small leather goods and hosiery product. In 2001, the Greg Norman Collection introduced men’s golf apparel marketed under Reebok name, continuing to offer a line of moisture management golf shirts under the trademark PLAYDRY. *The Ralph Lauren Footwear Co., Inc. Its product line features traditional classic with Polo Sport and Polo Jeans brand names which is targeted to males between the ages of 16 and 25, and to children between the ages of 5 and 12. The Ralph Lauren also offers dress and casual silhouettes. Internationally, it has distributors in Japan, Canada, Central America and Europe and its products are sold through top-tier retailers. III. Strategies Fireman has applied some right strategies that led to the amazing performance of Reebok First one Fireman chose to apply is a concentrated growth strategy. At the beginning of the company, it used all resources to penetrate into fixed market. By utilizing excellent marketing techniques and effective promotion program, fireman introduced only 3 styles of running shoe in only U.S market. Following this strategy, fireman started to apply a product development strategy. At that moment, company had built up its reputation so it only focused on some product line such as women’s aerobic shoe and tennis shoe – its traditional strong point and deliver them on so many market in order to pro- long product life cycle and attract satisfied customer to new products. For example, when there was a sign of reduction in sales in U.S market, the same product would be launched in South East Asia. The third strategy is market development one. With large diversification, fireman now concentrated growth on national and international expansion. Also, he started to attract other market segments. Finally, Fireman focused on horizontal integration. He set up acquisition of similar firms operating in the same market. This could eliminate potential competitors, provide access to new market, greatly expand operations Group 4 th - A2.FBA.K38 7 Financial analysis of Reebok as well as improve company’s diversification of its product line. For instant, in 1986, Rockport company – a manufacturer of high performance walking shoe was required or in 1987, Reebok purchased AVIA Group International – an Oregon based athletic shoe . This one greatly attributed to Reebok’s success. Reebok was able to require distribution channel, technical knowledge, enhance profits and finally create a favorable brand image of existing goods. Besides, it launches many campaigns on advertising by having agreement with music and sport stars, with National Football League (NFL) and The National Basketball Association to remain its market share in comparison with Nike. IV. SWOT analysis 1. Strengths The internal strengs of Reebok are all of the following: Firstly, company has an extremely strong financial position. Its growth has been phenomenal. It has the highest growth rate from 1983 – 1987 and since that sales has continued to increase, from $ 12.8 m in 1983 to more than $ 1.8 b in 1989 and certainly, earning per share has increased. Furthermore, Reebok has a high level of liquidity and operated with minimal long-term debt, so it has financial resources available to invest into market niches. Secondly, thanks to successful strategic acquisition of reputation companies, it is able to market a wide array of show–wear and is more diversified than any competitors. For example, Rockport is the most dominant brand in the walking shoe and a clear market leader in the tennis shoe market. In addition, with the longest history, the latest technology and prestige, Reebok is considered good and fashionable brand. Finally, Reebok’s top management is highly marketing oriented. This is strength for company, especially this industry is market driven instead of product driven. 2. Weaknesses The weaknesses of Reebok include all of the following: In the new reorganization, AVIA is no longer represented in group of four operating company. It was allowed to pursue its own strategies including aggressive competition with Reebok brand. This could cause internal tension within cooperation. On the other hand, due to managing style there is a conflict of interest in the top management between Fireman party and someone. It leaded to the resignation of Joseph Labonte - the former president and operating officer and Mark Goldston – the former chief marketing officer who had managerial experience in multibillion – dollar organization and in heavy marketing as well as in advertising of consumer brand name. As a result, Fireman took the position of chairman, president, and COF. That is an impossible task. The Group 4 th - A2.FBA.K38 8 Financial analysis of Reebok company is highly dependent on one single person who will not be able to effective handle all of the required. Moreover, Reebok’s main product-line weakness is in its apparel division. 3. Opportunities The opportunities of Reebok are the following: It may continue market diversification and expansion into inter-market in order to meet the potential customer’s demand. Besides, it can pro-long the product life cycle by marketing the different products in different nations. Moreover, it is Reebok’ weakness of apparel division that opens opportunity. Reebok should focus on merging or purchasing well-know apparel manufacturer as horizontal acquisition it has been doing. 4. Threats Although this is concentrated industry but the harsh competition from main competitors, especially Nike is significant. To remain the market share and penetrate the new market cost a lot of money ad put much pressure on marketing, research or development. Also, the short product life cycles play an important role in the return or investment in a particular product line. Furthermore, weakening markets may be a serious threat to Reebok. Are people willing to buy a pair of jogging at price of hundreds of dollars. In a weakening economy that is highly questionable. The most serious threat for Reebok is from NAFTA. High tariff and other non tariff regulations may be imposed on the company foreign manufactured goods while most of Reebok’s product is manufactured in South East Asia. Also, manufacturing and labor costs will increase in South East Asia and Reebok will confront higher costs of goods sold accounts which will directly impact on the net income. Group 4 th - A2.FBA.K38 9 Financial analysis of Reebok Chapter 2 : Finance reports and stock analysis I. Finance reports 1. Balance sheet Annual Balance Sheet In millions of USD 2001 2000 1999 assets Total current assets 1,294.7 1,225.2 1,243.1 Cash and short term Inv 413.3 268.7 281.7 Total receivable 383.4 423.8 417.4 Total inventory 362.9 393.6 414.6 Prepaid Expenses 30.8 37.4 41.2 Other current assets 104.3 101.7 88.1 Total long term assets 248.5 237.8 321 Tangible Fixed assets(PPE) 134.0 141.8 178.1 Total cost 349.5 356.0 421.7 Accum. Depre. (215.5) (214.1) (243.6) Intangible fixed assets & Goodwill 76.7 64.3 68.9 Other long term assets & Long term Investment 37.8 31.7 74.0 Total assets 1,543.2 1,463.0 1,564.1 liabilities and equity Total Liabilities (1)=(2)+(3)+(4)+(5)+(6) 823.2 855.2 1,035.3 Total Current Liability (2) 449.4 488.1 616.4 Accounts Payable 127.3 172.0 154.0 Accrued Expenses 269.7 272.1 241.3 Notes Payable/Short Term Debt (3) 11.8 8.9 27.6 Cur. Port. LT Debt/Capital Lease (4) 0.1 13.8 185.2 Other Current liabilities, Total 40.5 21.3 8.3 Long Term Debt (5) 351.2 345.0 370.3 Minority Interest (6) 22.6 22.0 48.6 Total Equity (7) 719.9 607.9 528.8 Comon Stock Treasury Stock Comon ($ Amount) 1.0 1.0 0.9 (660.4) (653.4) (617.6) Retained Earnings/Accum. Deficit 1,453.3 1,301.3 1,170.9 Other Equity, Total (74.0) (41.0) (25.4) Total Liability & Shareholder's Equity =(1)+(7) 1,543.1 1,463.1 1,564.1 Group 4 th - A2.FBA.K38 10 [...]... of 3 latest years 1 Stock price of Reebok Performing of RBK Stock: Reebok International Industry: Shoes Index: S&P 500 Look at the chart above, we can see the fluctuation of the three: the price of RBK, the Standard and Poor 500 Index and the price index of shoes industry Group 4th - A2.FBA.K38 Financial analysis of Reebok 14 (Standard & Poor's 500 index (S&P 500): A well-known, value-rated index of. .. relatively to its biggest competitor Nike The ROE and ROA numbers of Nike are larger than Reebok because the intangible assets of Nike are not recognized on its balance sheet and therefore are not recorded in the total Assets Besides, both current Ratio and Quick Ratio of Reebok are higher than Nike’s ones which indicate higher liquidity and in terms of inventory, Reebok takes about 80 days to sell its inventory... Reeboks performance over the years 1994-2000, we will find that in the year 1994 Reebok was much more a powerhouse in the industry than it is today However, beetween years 1994-1999, Reebok has an astonishing drop off in market presence Fiscal year 2000 came and went like a natural disaster for the stock market and company as a whole It was due to a slowing economy and the fact of over saturation of. .. transportation firms, 40 utilities firms, and 40 financial firms) - As we can see in the chart above, at the end of 1999 and the beginning of 2000, RBK’s price sharply decreased since the deflation of USA economy Fiscal year 2000 was a disastrous one for the stocks and the stock market However one company did not feel the ill effects of the downturn, in fact profited Reebok International experienced a 270.96%... 4th - A2.FBA.K38 Financial analysis of Reebok 17 1647 institutional investors own 86.1% of RBK’s shares outstanding A high number of institutional owners (80 or more) holding at least 50% of the shares outstanding tells us that a stock is a blue-chip company RBK has 59.7 million shares outstanding This shows that RBK has sufficient liquidity Stock Price Prediction of RBK Calculate Intrinsic Value Initial... ratio Days receivable outstanding Days Inventory Outstanding Nike 17.03 9.37 11.43 1.9 0.99 63.14 Reebok 14.28 5.67 9.19 2.51 1.42 62.07 91.47 80.57 Remark These ratios tell us how well Reebok is doing relative to its biggest competitor Nike The ROE and ROA numbers of Nike are larger than Reebok because the intangible assets of Nike are not recognized on its balance sheet and therefore are not recorded... members are overstarting the true value of Nike’s ROE and ROA Group 4th - A2.FBA.K38 12 Financial analysis of Reebok The days receivable number of approximately 62 days tell us that Reebok is taking about 2 months to collect payments from its customers Compared to Nike, Reebok is okay but it should try to decrease this number in the future In terms of inventory, Reebok takes about 80 days to sell its... to buy Reebok stocks You will not make a wrong decision and sure to have a real bargain So, What are you waiting for but buying some RBK stocks in your own ? Group 4th - A2.FBA.K38 20 Financial analysis of Reebok Ministry of education and training Ha noi foreign trade university Business accounting I Financial analysis of reebok international ltd Instructor Student : : Class : Mrs Nguyen thuc anh ngo... point of view As we mention above, the financial state and stock price of the company has performed extremely well in sales, management, and stock price (in the year 2000, returns on invested equity increased 270%) Morever, some vertical index of Reebok even is better than its main competitor Nike (such as current ratio, quick ratio, days inventory outstanding).These ratios tell us how well Reebok. .. 31, 2000 and December 31, 2000 The stock price went from $7.37 in January to $27.34 in December - In 2001 and 2002, due to creative marketing campaign, and other appropriate strategy, net income of the company increased continuously and affected positively the price of stock (We have mentioned in other parts) In 2001, price of RBK only increased 20 cents per share as investors undervalued it and the . Financial analysis of Reebok Chapter 1 : introduction of footwear industry and reebok international ltd I. Characteristics of the footwear industry 1. Overview. Chapter 1 : introduction of footwear industry and reebok international ltd. .............3 I. Characteristics of the footwear industry. .......................................................3