STUMBLING REEBOK REGAINS ITS FOOTING : STOCK, PROSPECTS CLIMB AT SHOE, APPAREL MAKER.

Byline: Marcia Vickers The New York Times

February was not the finest of months for Reebok International. First, the country's largest pension fund, the California Public Employees Retirement System, named it to its annual ``top 10 financial laggards.'' Calpers, which owns around 600,000 shares, vowed to urge the company to improve its performance.

Then, a week later, came a devilish marketing flap. Since last year, Reebok has been selling a women's running shoe dubbed the Incubus. Trouble was, as an Arizona newspaper reader pointed out, an incubus is an evil spirit that in medieval times was thought to prey on sleeping women, having sex with them. A red-faced Reebok asked retailers to black out the name on the shoe boxes; the name fortunately does not appear on the shoe.

Of course, Reebok has not been a stranger to bad news. While the women's fitness movement drove Reebok sales from $66 million in 1984 to $1.5 billion in 1987, revenue has not grown as impressively since then. Nor has its stock price: From December 1991 to December 1996, for instance, a $100 investment in Reebok would have become $133, while $100 in the Standard & Poor's Shoes index would have reached $232.

Nevertheless, Reebok may be making a comeback. While its 16 percent share of the athletic-shoe market pales next to Nike's 44 percent, and while it aces a mature domestic market and its own past problems with internal coordination, Reebok is now giving shareholders a run for their money, investors and analysts say.

For one, Reebok stock has gone from about $26 at the start of last year to 50-1/8 at Friday's close.

For another, the stock is still relatively cheap. It trades at 18.2 times its estimated earnings, compared with 26.2 for Nike.

And many people expect more good performance. ``Reebok stumbled in the early '90s,'' said Brett Barakett, a footwear, apparel and textile analyst at Salomon Brothers. ``They took their eye off product, which is the biggest driver of success in the athletic footwear industry. They became more of a fashion-driven, lifestyle company. But now they're focused on producing serious-performance athletic wear.''

Salomon's 12-month price target for Reebok stock is $55, up about 18 percent from its current price.

Reebok - whose major brands include Reebok; Rockport; Weebok, for infants and toddlers, and Greg Norman, a sportswear label - will introduce a new line of sports shoes this spring. Incorporating a technology called DMX Series 2000, the footwear is designed to increase internal air flow to cushion and stabilize the feet.

The series has made a good impression. ``The industry reviews we've seen are all very favorable for these new products,'' said David Katz, chief investment officer at Matrix Advisors, a New York money manager and Reebok shareholder. ``If these new products begin to sell, and we think they will, this is the beginning of a multiyear trend for Reebok.''

Indeed, because of the DMX Series 2000 and other new items, Reebok's back orders are increasing for the first time since 1994. At year-end 1996, the backlog of domestic orders was up 14.9 percent from a year earlier, and total orders were up 11.7 percent.

Reebok's recent success with celebrity endorsements is also contributing to the sales jump. Last year, for instance, Reebok signed an endorsement deal estimated at $55 million with Allen Iverson of the Philadelphia 76ers. The Iverson-endorsed shoe, The Question (his nickname is The Answer), met with such great demand that much of the inventory sold out when the shoe made its debut last month.

Moreover, sporting goods have staying power with consumers, analysts say. ``Now that Reebok is more focused on the athletics business, there's less of a risk,'' Barakett said. ``Fashion is too fleeting.''

Reebok is trying to get lean, too. Dogged by operating margins as low as 7 percent of sales in 1992, Reebok has raised the margin to about 9 percent and is striving to reach Nike's level of 15 percent.

``Reebok had a proliferation of too many products and too many distribution channels,'' said Tom Kolefas, a portfolio manager at Loomis Sayles, a New York money manager and Reebok shareholder. ``Too much inventory required them to cut prices. They're improving that.''

By extending the price of its top-line items from $99 to the $115 range, the company is also edging back into the high-end athletic-shoe market, which it lost to Nike several years ago. Repairs have also begun on Reebok's frayed relations with some retailers, and while still pursuing its new focus on athletic goods under the Reebok label, the company has nailed down a fashion coup for its Rockport division.

In April, Reebok signed a footwear licensing agreement with Polo Ralph Lauren that will produce more than $450 million in revenue by 2000, according to Barakett.

Indeed, citing a buyback of 23 percent of Reebok stock in August that has helped propel its price rise, some analysts even see signs of a new company attitude. ``Reebok has not always seemed to be terribly responsive to shareholders, so the buyback was a good sign,'' Katz said.

But Reebok has a long way to go to return to 1987, when it controlled 33 percent of the athletic-shoe market and Nike had just 20 percent. And the path back may be bumpy.

Nike, whose stock soared from the low $30s in January 1996 to 68-1/2 at Friday's close, continues to enjoy top-tier celebrity endorsements, like those of Michael Jordan and Tiger Woods. And smaller players, like Fila, with 7.5 percent, and Adidas, with 5.2 percent, cannot be counted out.

Moreover, the domestic market for sports shoes is mature, with growth expected to be in the single digits over the next several years. In the international arena, meanwhile, Nike's most recent annual revenues were $2.85 billion and Reebok's were just $1.47 billion.

And while many people brush off the Incubus problem as a mere mishap, Reebok will have to show that it is not proof that the company has failed to shed the poor communication and coordination for which it was once famous.

``Fireman would say one thing in terms of the corporate direction and the chief financial officer would say another,'' Katz said, referring to Paul B. Fireman, Reebok's founder and chief executive. ``Everyone was getting mixed signals.''

Fireman, 53, has run the company, based in Stoughton, Mass., for the last 18 years. He has been criticized at times as arrogant, unresponsive and a reason for Reebok's high management turnover, and is a major worry for Calpers.

``This is a leadership issue,'' said Patricia K. Macht, chief of public affairs at the pension fund. ``We don't see a great deal of board oversight on management.

``We realize Reebok has had some recent improvements, but the question is, `What's Fireman going to do if the strategy isn't successful?' ''

Nevertheless, the believers are confident. ``The turnaround for the company is here,'' said Greg Jackson, portfolio manager at the Yacktman Fund, which earned a 26 percent return last year and which holds Reebok shares. ``I think you'll see a good turn in 1997, but still a better one in 1998 and a continuation in 1999.''

Oddly, the company's fans even welcome its critics. ``We like what Calpers is doing, even though Reebok is well on the way to mending itself,'' Katz said.

A 1996 study by Wilshire Associates explains why: Calpers's efforts have worked well. The 62 companies tagged as laggards by Calpers from 1987 to 1995 have outperformed the Standard & Poor's 500, on average, by 33 percent for the years after they were so named. (Calpers stops following the stock after five years.) For the five years before being named, however, the companies underperformed the S&P 500 by an average of 85 percent.

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Chart: High Jump

Despite some recent embarrassments and some years of sluggishness, Reebok International has done well lately. Here is the percentage change, since January 1996, in Reebok's stock and in the Standard & Poor's 500-stock index.

The New York Times