Wednesday, April 27, 2005


My family has owned Reebok (RBK) since 1985. The stock has done well and we are in no hurry to sell. However "well" is a relative term.
During the time we owned RBK it has increased in value by 1,100%. When we bought the stock, it looked like a value relative to Nike (NKE); it still does. During the time that we made 1,100%, NKE went up 7,600%! RBK pays a slightly larger dividend than NKE and this dividend is in addition to the capital appreciation. Jeremy Siegel makes the case that dividends add more to the total return than one would think but I doubt that the small dividend difference in these companies is enough to worry over. One lesson to take away is that generally it is best to buy the industry leader.
"Well" really is a relative term. Had we purchased Russell Corp. (RML) on January 2, 1985, our capital capital appreciation would have been 17%; not 17% per year but 17% total since 1985.
Comparing a "t-shirt" maker to Nike is unfair; calling Russell a "t-shirt" maker is unfair; but remember one of our themes is to buy stocks that are "under-loved". We now know that Nike is one of the most successful brands ever. Russell makes quality products and survived a very difficult 20 years in the apparel industry. The comparison of the three companies, shows that investing is an art. Buying good value is always the right approach, but value is a reflection of growth potential, management skill and many other factors.
The following report is about a solid company. A company that is probably a better company than is commonly thought. It does not have the panache of Nike but it is a cheap stock by several measures and we have made it our Stock of the Week.

Russell Corporation has the products to meet the needs of the serious athlete, the weekend warrior and everyone in between. Founded in 1902, The Russell Corporation located in Atlanta, GA. runs every step of the manufacturing process, from weaving raw fibers into fabric to dyeing, cutting, and sewing. RML designs, manufactures and markets a variety of apparel products. These products include fleece, t-shirts, casual shirts, jackets, athletic shorts, socks and camouflage attire for men, women, boys and girls. With eleven brands, Russell Corporation has something for everyone.

The Russell Athletic division is the world's largest supplier of team uniforms and is the Official Uniform Supplier to 14 Major League Baseball(R) teams, Little League Baseball(R), and USA Baseball(TM). Russell outfits over 200 NCAA(R) Division I college teams and is an Official Sponsor of the Women's Basketball Coaches Association (WBCA), the American Baseball Coaches Association (ABCA), and the National Fastpitch Coaches Association (NFCA). Russell apparel can be found in a variety of department stores and sports specialty retailers nationwide.

The JERZEES division is a major supplier of fleecewear and T-shirts to retailers and screen printers. Russell purchased SHC's sporting goods business (Spalding and all other non-golf brands) in May 2003.

The company holds a firm commitment to a very simple philosophy, "do the right things for the right reasons." In today's competitive global marketplace, Russell feels its greatest strength is its people. It employees 14,400.

Russell Corporation supports non-profit organizations with product donations, cash contributions and employee volunteer hours. The company focuses its efforts on programs, projects and activities that benefit the communities where its employees live and work. By working hand-in-hand with the local communities, Russell strives to make a difference in the towns and cities around the world that its employees call home.

Over the last two years, Russell has made the following acquisitions:
* December, 04 acquired Brooke Sports
* July, 04 acquired Huffy Sports
* April, 03 acquired Spalding
* Jan, 03 acquired Bike Athletic

On February 23, 2005 Russell Corporation reported fiscal 2004 fourth quarter sales of $334.0 million, an increase of 10.5% over the same period a year ago; 9.4% for the year. Sales for the quarter ended January 1, 2005, reflect a 3% increase in the Company's ongoing businesses in addition to approximately $22 million dollars in incremental sales from acquisitions owned for less than a year. Sales gains were again recorded for the Activewear Group, the Athletic Group and the International apparel segment.

"During the fourth quarter, sales increases in our domestic segment were led by our Athletic Group. Increases in Athletic were driven by our recent acquisitions, which have solidified and grown our position as a leading branded athletic and sporting goods company. Our International apparel segment continued its sales growth pace, with increases of more than 20% for the quarter and the year," said Jack Ward, chairman and chief executive officer. "For the quarter, our Activewear Group had a 3% increase in revenues, led by our JERZEES(R) sports apparel in the mass channel."

For the full year ending January 1, 2005, net sales increased $112 million to $1.298 billion, a 9.4% increase over the prior year's sales of $1.186 billion.

Those of you who are familiar with Jack Ward, know a fierce competitor. Back in the days when he was at Sara Lee, there was no one in Winston-Salem who garnered more respect. I lost track of Jack some years ago but seeing the number of acquisitions made by Russell in recent years and then reading Jack's name as CEO was a revelation. It made the idea of buying this historically slow growing stock a no brainer.

Russell expects sales for fiscal 2005 to increase approximately 15% to 17%, to approximately $1.50 billion to $1.52 billion.

The 52-wk high (12/28/2004) is $ 19.78 and 52-wk low (5/18/2004) is $ 15.60. The closing on April 27th was $17.70.
We hope you are a disciplined investor. One who diversifies into 12 to 20 stocks, who trades infrequently, who makes his own decisions, who lets winners run and cuts losers short and one who keeps commissions low. AS ALWAYS, WE MAKE NO RECOMMENDATIONS. INVEST AT YOUR OWN RISK!