At Reebok, a Tale of Diversity and Distraction

The shoe company believes its greatest strength is its diversity, but so far it hasn't capitalized.
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If there is one quality that marks the past decade at



, it's endurance. Despite failure after failure, the second-largest athletic footwear manufacturer has shown, for better or worse, a remarkable determination to stay the course.

In addition to the strategies that bombed -- the big money lavished on superstar athletes to win endorsements that never quite paid off, for instance -- there have been some successes.

Those wins, however few and far between, have fed the fans, who say they are taking advantage of a rare opportunity to buy a brand name trading at 9 times forward earnings and sporting a price-to-sales ratio of 0.19. "In five years, you could make a lot of money on this stock," says Donald Yacktman, president of

Yacktman Asset Management

, which owns 400,000 Reebok shares.

Yacktman, for instance, says he's encouraged by the company's ability to cut costs and its willingness to plow savings from a $24.3 million restructuring in the third quarter into building on those nascent successes.

Take the


technology that was introduced last year and has begun to pick up steam. Sneakers equipped with DMX, a technology that allows air to move along with a runner's foot, accounted for 35%, or $78.2 million, of Reebok's $223.5 million in U.S. footwear sales in the third quarter. In the year-ago period, DMX accounted for 25%, or $67.7 million, of Reebok's $270.8 million in U.S. footwear sales.

And the popularity of DMX shoes is expected to increase, now that Reebok has given the sneakers a facelift.

"DMX is a wonderful product," says John Shanley, an analyst with

First Security Van Kasper

who rates Reebok a neutral. "But it had a problem for most of the past year: It was perceived by many retailers as ugly." (His firm hasn't underwritten for the company.)

To focus on the cosmetics, Reebok hired Chris Lee, a 32-year-old from Liverpool, England, as creative director. Lee's designs are being shown to retailers at trade shows and will be available to the public early next year. "We're already getting a very positive response," says Carl Yankowski, president and chief executive of the Reebok brand.

There are other initiatives in the works. Starting in the first quarter, Reebok will launch a major advertising campaign to support its


line of lifestyle shoes.

It recently signed Steve Francis, of the

NBA's Houston Rockets

, to endorse its

Blacktop Collection

. The sneakers are scheduled for a limited release, which is similar to


(NKE) - Get Report

approach of providing different retailers with exclusive products. Yankowski says Reebok already has a major retailer committed to buy half a million pairs, although he declines to provide a name.

And this Christmas, Reebok will introduce a new line of sneakers for kids. Called

, the sneakers contain a computer chip that allows kids to measure how high they can jump. Kids can compare their leaping skills with others on's Web site.

Whether these plans will be enough to pull Reebok out of its slump (see related

story) is a question up for debate. Sneaker companies have come to rely less and less on celebrity-endorsement deals to sell their products.

And marketing dollars may be misspent unless Reebok defines its image more clearly. Is it an athletic brand or a lifestyle brand? In a letter to shareholders posted on Reebok's Web site, Paul Fireman, who founded the company in 1979 and serves as its president and chief executive, touts the benefits of Reebok's range.

"Diversity is one of our greatest -- yet most underappreciated -- strengths," Fireman writes in a letter titled, "We are not just a sneaker company."

That strategy has yet to pay off for Reebok or its shareholders.