SRR Stride Rite Corp

The Stride Rite Corporation (NYSE: SRR) today reported financial results for its 2005 second fiscal quarter and six months ended June 3, 2005. Net sales for the second quarter of fiscal 2005 decreased 3% to $159.6 million from $165.0 million in the comparable quarter in fiscal 2004. Operating income in the second quarter of 2005 was $18.2 million, a 4% decrease from the prior year's quarter. Net income for the second quarter was $11.8 million, or $0.32 per diluted share, as compared to net income of $11.9 million, or $0.30 per diluted share, in last year's second quarter. For the first six months of fiscal 2005, net sales were $310.2 million, an increase of 3% from net sales of $301.1 million for the same period in fiscal 2004. Net income for the first half of fiscal 2005 was $19.9 million, an increase of 3% from $19.4 million in the comparable period in 2004. Diluted earnings per share were $0.54 in the first half of fiscal 2005 compared to $0.49 in the first half of fiscal 2004. Second quarter sales of the Stride Rite Children's Group were up 3% compared to the second quarter of fiscal 2004. The Children's Group company-owned retail stores had a sales increase of 7% for the second quarter over the same period of fiscal 2004. Sales at comparable Children's Group retail stores increased 1.9% in the second quarter reflecting, in part, the timing of the earlier Easter holiday. For the first six months, our net store count was 259, up 8 stores. Children's Group wholesale sales decreased 5% during the same period. Sales of the Sperry Top-Sider and International increased 17% and 12%, respectively, in the second quarter of fiscal 2005 from the comparable period of fiscal 2004. Sales of the Keds and Tommy Hilfiger Footwear brands decreased 15% and 14%, respectively, in the second quarter from the comparable period in fiscal 2004. Gross profit was 40.8% of sales in the second quarter of fiscal 2005, an improvement of 2.3 percentage points over the same period last year, due principally to fewer Keds closeout sales and lower markdown allowances. Operating expenses in the second quarter of 2005 increased 5% compared to the prior year. As planned, the major operating cost increases for the quarter related to the Stride Rite Children's Group retail store expansion and higher advertising costs. The quarter-end balance sheet was solid. Accounts receivable was down 8% from last year and days sales outstanding (DSO) was 42 days. Inventories increased 22% compared to last year, with the growth related predominantly to higher levels of in-line styles. Quarter-end net cash and marketable securities were $70 million and the Company has no outstanding debt. David M. Chamberlain, Chairman and Chief Executive Officer, commented, "The quarterly sales were heavily impacted by the Keds transition to an upscale active lifestyle brand. Keds sales were down 15% for the quarter and 4% for the six-month spring season, resulting primarily from our strategic decision to significantly reduce value channel and closeout business as we reposition the brand as higher-priced and aspirational, with improved styling. We enjoyed solid success in the premium department and specialty stores, while the mid-tier channels had slower sales than anticipated as a result of higher pricing. We will continue the advertising campaign featuring Mischa Barton of 'The O.C.' into the fall season as part of our brand building strategy to attract younger customers. The Stride Rite's Children's Group had a strong six month spring season with sales up 7%, retail sales up 13% and comparable store sales up 4.4%. Sperry Top-Sider sales were up 23% for the six-month period with an increase in men's and women's product sales. Tommy sales, excluding PRO-Keds which is now licensed, were down 8% for the six months primarily due to a decline in men's product sales. International was up 21% for the six month spring season." Mr. Chamberlain concluded, "We believe our strategies are sound and our products are right. We remain particularly enthusiastic about our pending acquisition of Saucony, which will provide a new platform for growth in the performance athletic segment. As we move into the second half, we are reaffirming our 2005 full-year guidance of 3-5% growth in sales and 5-10% growth in earnings." A summary of sales and net income for the second quarter (unaudited) is provided below. A more detailed balance sheet and income statement follows this release. -0- *T (in thousands, except per share amounts) For the Quarter For the Six Months Ended Ended ---------------------------------------- June 3, May 28, June 3, May 28, 2005 2004 2005 2004 ---------------------------------------- Net sales $159,641 $165,009 $310,232 $301,143 Net income 11,752 11,900 19,913 19,384 Net income per common share: Diluted .32 .30 .54 .49 Basic .32 .31 .55 .50 Average common shares used in per share computations: Diluted 37,185 39,450 37,075 39,887 Basic 36,175 38,637 36,091 39,029 *T The Stride Rite Corporation markets the leading brand of high quality children's shoes in the United States. Other footwear products for children and adults are marketed by the Company under well-known brand names, including Keds, Sperry Top-Sider, Tommy Hilfiger, Grasshoppers and Munchkin. Information about the Company is available on our website - www.strideritecorp.com. The Company will provide a live webcast of its second quarter conference call. The live broadcast of Stride Rite's quarterly conference call will be available on the Company's website and at www.streetevents.com, beginning at 10:00AM ET on June 28, 2005. An on-line replay will follow shortly after the call and will continue through July 5, 2005. Information about the Company's brands and product lines is available at www.striderite.com, www.keds.com and www.sperrytopsider.com. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This announcement includes forward-looking statements which reflect our current views with respect to the future events or financial performance discussed in the release, based on management's beliefs and assumptions and information currently available. When used, the words "believe", "anticipate", "estimate", "project", "should", "expect", "appear" and similar expressions, which do not relate solely to historical matters identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future events or performance, which may be affected by known and unknown risks, trends and uncertainties. Should one or more of these risks or uncertainties materialize, or should our assumptions prove incorrect, actual results may vary materially from those anticipated, projected or implied. Factors that may cause such a variance include, among others: the pending acquisition of Saucony may not be consummated; the opening of new stores may be delayed; the volume of anticipated sales may decline; revenues from new product lines may fall below expectations; the launch of new product lines may be delayed; new retail concepts may not achieve expected results; general retail sales trends may be below expectations; current license agreements may be terminated; consumer fashion trends may shift to footwear styling not currently included in our product lines; our retail customers, including large department stores, may consolidate or restructure operations resulting in unexpected store closings; and additional factors discussed from time to time in our filings with the Securities and Exchange Commission. We expressly disclaim any responsibility to update forward-looking statements. -0- *T The Stride Rite Corporation Summarized Financial Information for the periods ended June 3, 2005 and May 28, 2004 Statements of Income (in thousands) Second Quarter Six Months -------------------- -------------------- 2005 2004 2005 2004 ---------- --------- ---------- --------- (Unaudited) (Unaudited) Net sales $159,641 $165,009 $310,232 $301,143 Cost of sales 94,430 101,507 184,489 184,628 ---------- --------- ---------- --------- Gross profit 65,211 63,502 125,743 116,515 Selling and administrative expenses 47,028 44,589 94,479 85,929 ---------- --------- ---------- --------- Operating income 18,183 18,913 31,264 30,586 Other income, net 208 321 370 740 ---------- --------- ---------- --------- Income before income taxes 18,391 19,234 31,634 31,326 Provision for income taxes 6,639 7,334 11,721 11,942 ---------- --------- ---------- --------- Net income $11,752 $11,900 $19,913 $19,384 ========== ========= ========== ========= Balance Sheets 2005 2004 ------------- ----------- Assets: (Unaudited) Cash and cash equivalents $30,376 $17,324 Marketable securities 40,000 62,250 Accounts receivable 73,079 79,278 Inventories 98,476 80,749 Deferred income taxes 15,134 15,178 Other current assets 11,179 10,734 ------------- ----------- Total current assets 268,244 265,513 Property and equipment, net 51,758 57,793 Other assets 13,104 13,193 ------------- ----------- Total assets $333,106 $336,499 ============= =========== Liabilities and Stockholders' Equity: Current liabilities 52,908 58,456 Deferred income taxes and other liabilities 16,767 13,989 Stockholders' equity 263,431 264,054 ------------- ----------- Total liabilities and stockholders' equity $333,106 $336,499 ============= =========== *T