The Stride Rite Corporation (NYSE: SRR) today reported record
second quarter fiscal 2006 sales of $194.0 million, an increase of
22% compared to the same period in the prior year. Net income for
the second quarter totaled $16.9 million or $.45 per diluted share,
compared to net income of $11.8 million or $.32 per diluted share
in the second quarter of 2005. The second quarter financial results
include the reversal of certain prior period reserves for income
tax exposures that are no longer required. The second quarter tax
rate decreased to 19.3% from 36.1% in the comparable period of the
prior year. The decrease was primarily attributable to the
favorable outcome of a tax audit which resulted in the reversal of
certain prior period reserves. The diluted per share impact of the
lower tax rate was $.09 compared to last year. The annual 2006 tax
rate is currently forecasted at approximately 32.0%. Beginning in
2006, the Company adopted SFAS No. 123R, "Share-Based Payment", the
impact of which increased pre-tax expenses by approximately $900
thousand for the second quarter of fiscal 2006. In addition, the
current quarter results include pre-tax acquisition related
integration expenses of $1.0 million. Excluding acquisition related
integration costs, net income would have been $17.5 million for the
second quarter, while diluted earnings per share would have been
$.46. See the section entitled "Non-GAAP Pro Forma Financial
Measures" and the "Reconciliation of Non-GAAP Measures" provided in
this release for additional information regarding these Non-GAAP
Measures. For the first six months of fiscal 2006, net sales were
$377.4 million, an increase of 22% from the net sales of $310.2
million for the same period in fiscal 2005. On a diluted basis,
earnings per share was $.67 in the first half of fiscal 2006
compared to $.54 in fiscal 2005. Net income for the first half of
fiscal 2006 totaled $25.2 million, an increase of 26% from the
$19.9 million reported in the comparable period in 2005. The first
half financial results include a pre-tax expense of $2.6 million
related to the flow through of the write-up of inventory purchased
in the Saucony acquisition as required by GAAP accounting rules. In
addition, the first half results include pre-tax acquisition
related integration expenses of $2.2 million. The SFAS No. 123R,
"Share-Based Payment", increased pre-tax expenses by approximately
$1.6 million for the first six months of fiscal 2006. Excluding
acquisition related integration costs and the flow through of the
inventory write-up, net income would have been $28.0 million for
the first six months, while diluted earnings per share would have
been $.74. See the section entitled "Non-GAAP Pro Forma Financial
Measures" and the "Reconciliation of Non-GAAP Measures" provided in
this release for additional information regarding these Non-GAAP
Measures. David Chamberlain, Chairman and CEO of Stride Rite,
commented "While the earnings for the quarter were solid, the sales
results by the divisions were mixed." "We are pleased with Saucony
which continues to enjoy solid growth in the specialty run
business. The technical product continues to perform well. An
updated originals line and a separate children's line have been
developed for spring 2007. The integration of Saucony into Stride
Rite has now been successfully completed." "Stride Rite Children's
Group performed as expected in the quarter with total sales up 13%.
Comparable sales at Stride Rite Children's Group company-owned
retail stores were up 8.7% for the second quarter and 3.4% for the
first six months of fiscal 2006. We expect Stride Rite Children's
Group sales to be up in the second half led by the retail area.
Second half wholesale sales should be flat to down slightly, which
will be an improvement over the first half." "The Tommy Hilfiger
Division declined significantly in the second quarter reflecting
lower sales across all retail channels. The second half will see a
continued sales decline, similar to the first half. Tommy Hilfiger
sales in our retail stores, children's product line and
international business continue to be reported as part of those
operating units and are important businesses for us." "Keds sales
performed below expectations, declining 16%. Lower than expected
reorders, particularly in the Champion and Microstretch products,
affected second quarter results. Sales to certain mid tier and
specialty accounts were up for the first six months of the year. We
are working with each account to complete the brand repositioning.
This month we will begin shipping Keds into all Journey's stores.
We expect the second half to be a continuation of the performance
seen in the first six months, particularly in the core products."
"Sperry Top-Sider continued its strong performance in both men's
and women's products. We expect them to continue to show a solid
second half." "International sales, which reflect the inclusion of
Saucony were very strong. That should continue in the second half.
We have hired a senior executive to oversee operations and to build
all of our brands in Europe. We expect this to pay significant
dividends in future years." Mr. Chamberlain continued, "Although
the Keds turnaround has been slower than anticipated and the Tommy
decline larger than expected, we are reconfirming our full year
earnings range forecast of $.82 - $.88. However, we are now
forecasting the range for sales growth this year to be 20% - 22%."
This earnings forecast excludes the impact of the lower tax rate
described previously. Included in the projected earnings is the
annual impact related to the expensing of stock options, which is
projected at approximately $.05 per diluted share. In addition,
these projections include the previously reported cost of sales
impact related to the flow through of the write-up of inventory
purchased in the Saucony acquisition, which reduced earnings per
diluted share by $.04 in the first quarter. Acquisition related
integration costs of $3.0 million or $.05 per diluted share for the
year are also included in the earnings projections. -0- *T NET
SALES HIGHLIGHTS PER SEGMENT: -- Net sales for the quarters ended
June 2, 2006 and June 3, 2005 are summarized in the table as
follows: The Stride Rite Corporation Net Sales (in thousands)
Second Quarter -------------- Percent 2006 2005 Change ----------
--------- -------- (Unaudited) Stride Rite Children's Group -
Wholesale $18,292 $19,491 (6)% Stride Rite Children's Group -
Retail 55,789 45,977 21% ---------- --------- -------- Stride Rite
Children's Group - Combined 74,081 65,468 13% Keds 34,925 41,720
(16)% Sperry Top-Sider 28,519 23,084 24% International (includes
Saucony) 19,172 7,877 143% Saucony Domestic (includes Hind) 25,623
- n/a ---------- --------- -------- Other Wholesale - Combined
108,239 72,681 49% Tommy Hilfiger Adult 14,583 24,559 (41)%
Intercompany Eliminations (2,896) (3,067) n/a ---------- ---------
-------- Total $194,007 $159,641 22% ========== ========= ========
-- Net sales for the six months ended June 2, 2006 and June 3, 2005
are summarized in the table as follows: The Stride Rite Corporation
Net Sales (in thousands) Six Months ---------- Percent 2006 2005
Change --------- --------- -------- (Unaudited) Stride Rite
Children's Group - Wholesale $39,448 $45,078 (12)% Stride Rite
Children's Group - Retail 93,713 81,422 15% --------- ---------
-------- Stride Rite Children's Group - Combined 133,161 126,500 5%
Keds 76,916 87,517 (12)% Sperry Top-Sider 52,107 42,528 23%
International (includes Saucony) 41,990 16,688 152% Saucony
Domestic (includes Hind) 50,186 - n/a --------- --------- --------
Other Wholesale - Combined 221,199 146,733 51% Tommy Hilfiger Adult
29,516 42,680 (31)% Intercompany Eliminations (6,453) (5,681) n/a
--------- --------- -------- Total $377,423 $310,232 22% =========
========= ======== -- Total Stride Rite Children's Group net sales
increased 13% in the second quarter and 5% for the first half
compared to last year. -- Stride Rite Children's Group-Wholesale
net sales decreased 6% for the quarter and 12% for the first six
months as compared to the prior year. This decrease was
attributable to several factors including: the changed product flow
of certain department stores, a shift in value channel buying
patterns and a decline in smaller accounts. -- Net sales of the
Stride Rite Children's Group-Retail division increased 21% in the
second quarter and 15% for the first six months versus the prior
year. Sales at comparable Children's Group retail stores (open 52
weeks in each fiscal year) increased 8.7% for the second quarter
and 3.4% for the first six months of fiscal 2006. At quarter-end,
the Stride Rite Children's Group-Retail operated 288 Stride Rite
children's shoe stores and outlets as well as 16 Saucony outlet
stores. -- Net sales in the Keds division decreased 16% for the
second quarter and 12% for the first six months compared to the
comparable periods in the prior year. The increased sales to
specialty and independent retail accounts did not offset the sales
declines in the department store, mid tier, and value channels. --
Sperry Top-Sider net sales increased 24% for the second quarter and
23% for the first half on strong sales of men's and women's
products, particularly in the marine and family shoe retail
channels. -- Saucony net sales were $25.6 million for the second
quarter and $50.2 million for the first half of 2006. Saucony
technical running product continued to perform well. --
International net sales increased 143% for the second quarter and
152% for the first six months compared to fiscal 2005, primarily
due to the addition of Saucony international sales. Contributing to
the first half increase in international sales versus last year
were higher sales of Tommy Hilfiger in Canada and Latin America,
Keds footwear in Canada, and Sperry Top-Sider in Europe. -- Net
sales of Tommy Hilfiger men's and women's products decreased 41%
for the second quarter and 31% for the first six months compared to
last year, with sales declines in all retail channels. OTHER
FINANCIAL HIGHLIGHTS: -- The second quarter gross profit percentage
of 42.4% increased 1.6 percentage points compared to the same
period in the prior year. For the first six months and excluding
the flow through of the inventory write-up related to the Saucony
purchase, the gross profit percentage increased 1.4 percentage
points to 41.9%. Keds, Sperry Top-Sider and International all had
strong gross profit percentage improvements in the first half
compared to the prior year. -- Operating expenses increased 28% for
the second quarter and 26% for the first six months compared to the
comparable periods in the prior year. As planned, the major
operating cost increases were related to Saucony expenses, higher
advertising costs and the Stride Rite Children's Group-Retail store
expansion. Also contributing to the increase in operating expenses
were integration costs and the impact of adopting SFAS No. 123R,
"Share-Based Payment". -- For the second quarter, operating income
increased 21% and was up 26% excluding the acquisition related
integration costs ($1.0 million). For the first six months,
operating income increased 16% and was up 31% for the first six
months excluding the acquisition related integration costs ($2.2
million) and the flow through of the inventory write up ($2.6
million). -- Accounts receivable increased 32% versus the
comparable period last year due to the addition of Saucony and
higher sales in the last month of the quarter. DSO of 42 days was
flat compared to the same period last year. -- Inventories of $123
million were up 25% versus the comparable period of 2005. The
increase was due primarily to the addition of Saucony. -- The
Company repurchased approximately 340 thousand shares of company
stock during the second quarter at a cost of $4.8 million. For the
first six months, approximately 448 thousand shares have been
repurchased at a cost of $6.3 million. *T COMPANY OVERVIEW &
CONFERENCE CALL INFORMATION: 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, Saucony, Grasshoppers,
Munchkin, Spot-bilt and Hind. Apparel products are marketed by the
Company under the Saucony and Hind brand names. 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 27, 2006. An
on-line replay will follow shortly after the call and will continue
through July 4, 2006. Information about the Company's brands and
product lines is available at www.striderite.com, www.keds.com,
www.sperrytopsider.com, www.grasshoppers.com, www.saucony.com and
www.hind.com. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995: This press release includes
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to
be covered by the safe harbors created thereby. These
forward-looking statements, including, but not limited to,
statements regarding upcoming product lines, division sales
expectations, growth expectations, and sales growth for the
Company, 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. Investors are cautioned that
forward-looking 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, and should not place undue reliance on these
statements. 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 or contribute to such differences
include, among others: international, national and local general
economic, political and market conditions; our reliance on
independent manufacturers in China and potential disruptions in
such manufacturing caused by difficulties associated with political
instability in China, the occurrence of a natural disaster or
outbreak of a pandemic disease in China, labor shortages or work
stoppages, and changes in duty structures; the impact of changes in
the value of foreign currencies, including the Chinese Yuen; the
possible failure to retain the Tommy Hilfiger footwear license or
other current license agreements; increased leverage from the
financing of our recent acquisition; intense competition among
sellers of footwear; delay in opening new stores; a decline in the
volume of anticipated sales; revenues from new product lines may
fall below expectations; a delay in the launch of new product
lines; an inability to achieve expected results for new retail
concepts; general retail sales trends may be below expectations;
consumer fashion trends may shift to footwear styles not currently
included in our product lines; our retail customers, including
large department stores, may continue to 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 (the "SEC"), all of which are
available at the SEC's website at www.sec.gov. We expressly
disclaim any responsibility to update forward-looking statements.
NON-GAAP PRO FORMA FINANCIAL MEASURES: This release contains
certain non-GAAP financial measures, specifically non-GAAP historic
and anticipated net income and diluted earnings per share, each of
which excludes certain cash and non-cash charges. These non-GAAP
financial measures are used by management to evaluate the Company's
historical and prospective financial performance and to indicate
underlying trends in the Company's business. Although the non-GAAP
measures provided by the Company may be different from the non-GAAP
measures provided by other companies, management believes that
these non-GAAP financial measures provide useful information to
investors because, by excluding non-cash items related to the
write-up to fair value of inventory and one-time cash items related
to integration costs of the Company's recent acquisition, it
provides investors with a better understanding of the performance
of the Company and allows investors to evaluate the effectiveness
of the methodology and information used by management in its
financial and operational decision-making. These non-GAAP financial
measures should be considered in addition to results prepared in
accordance with GAAP, but should not be considered a substitute for
or superior to GAAP results. The GAAP measures most directly
comparable to the non-GAAP measures are net income and diluted
earnings per share. -0- *T The Stride Rite Corporation Summarized
Financial Information for the periods ended June 2, 2006 and June
3, 2005 Statements of Income (in thousands) Second Quarter Six
Months --------------------- ------------------- 2006 2005 2006
2005 ---------- ---------- --------- --------- (Unaudited)
(Unaudited) Net sales $194,007 $159,641 $377,423 $310,232 Cost of
sales 111,728 94,430 221,912 184,489 ---------- ----------
--------- --------- Gross profit 82,279 65,211 155,511 125,743
Selling and administrative expenses 60,291 47,028 119,201 94,479
---------- ---------- --------- --------- Operating income 21,988
18,183 36,310 31,264 Other income (expense), net (1,064) 208
(1,887) 370 ---------- ---------- --------- --------- Income before
income taxes 20,924 18,391 34,423 31,634 Provision for income taxes
4,031 6,639 9,245 11,721 ---------- ---------- --------- ---------
Net income $16,893 $11,752 $25,178 $19,913 ========== ==========
========= ========= Earnings per share: Diluted $0.45 $0.32 $0.67
$0.54 Basic $0.46 $0.32 $0.69 $0.55 Weighted average shares
outstanding: Diluted 37,623 37,185 37,619 37,075 Basic 36,650
36,175 36,625 36,091 Balance Sheets Second Quarter
--------------------- 2006 2005 ---------- ---------- Assets:
(Unaudited) Cash and cash equivalents $23,349 $30,376 Marketable
securities - 40,000 Accounts receivable 96,102 73,079 Inventories
123,108 98,476 Deferred income taxes 13,620 15,134 Other current
assets 15,741 7,050 ---------- ---------- Total current assets
271,920 264,115 Property and equipment, net 52,373 51,758 Goodwill
56,794 908 Trademarks 58,590 1,690 Other assets 18,736 10,506
---------- ---------- Total assets $458,413 $328,977 ==========
========== Liabilities and Stockholders' Equity: Current
liabilities 61,236 52,909 Long-term debt 68,000 - Deferred income
taxes and other liabilities 39,674 12,638 Stockholders' equity
289,503 263,430 ---------- ---------- Total liabilities and
stockholders' equity $458,413 $328,977 ========== ========== The
Stride Rite Corporation Reconciliation of Non-GAAP Measures (in
thousands, except share data) For the Quarter Ended June 2, 2006
Adjusted Reported Results Second Second Quarter Quarter 2006
Adjustments 2006 ---------- ----------- ---------- Net sales
$194,007 $194,007 Operating income 21,988 $990(b) 22,978 Provision
for income taxes 4,031 404(c) 4,435 Net income $16,893 $586(b)(c)
$17,479 Earnings per share: Diluted $0.45 $0.46 Basic $0.46 $0.48
Weighted average shares outstanding: Diluted 37,623 37,623 Basic
36,650 36,650 For the Six Months Ended June 2, 2006 Adjusted
Reported Results Six Months Six Months 2006 Adjustments 2006
---------- ----------- ---------- Net sales $377,423 $377,423
Operating income 36,310 4,775(a)(b) 41,085 Provision for income
taxes 9,245 1,950(c) 11,195 Net income $25,178 $2,825(a)(b)(c)
$28,003 Earnings per share: Diluted $0.67 $0.74 Basic $0.69 $0.76
Weighted average shares outstanding: Diluted 37,619 37,619 Basic
36,625 36,625 Pro forma adjustments: (a) Flow through of the
inventory write up to fair value (pre-tax) (b) Saucony integration
costs (pre-tax) (c) Income tax effect at the incremental rate *T
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