Stride Rite Reports Increased Second Quarter Sales



    LEXINGTON, MASS., June 26 /CNW/ - The Stride Rite Corporation (NYSE:   SRR)
today reported record second quarter fiscal 2007 sales of $209.2 million, an
increase of 8% compared to the same period in the prior year. Net income for
the second quarter totaled $14.2 million or $.38 per diluted share, compared
to the net income of $16.9 million or $.45 per diluted share in the second
quarter of 2006. The second quarter financial results in 2006 included the
reversal of certain prior period reserves for income tax exposures that were
no longer required and resulted in a lower quarterly tax rate for that period.

    The 2007 second quarter tax rate increased to 34.7% from 19.3% in the
comparable period of the prior year. The lower tax rate in the prior year 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 higher tax rate was $.09 compared to last year.

    The second quarter fiscal 2007 financial results include pre-tax expenses
of $0.8 million related to Robeez integration costs and the pending merger
with Payless ShoeSource, Inc. The prior year second quarter financial results
included pre-tax Saucony acquisition related integration expenses of $1.0
million.

    Excluding acquisition-related merger and integration costs, net income
would have been $14.6 million, while diluted earnings per share would have
been $.39 for the second quarter of fiscal 2007. Excluding acquisition-related
integration costs, net income would have been $17.5 million for the second
quarter of fiscal 2006, 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 an
additional description of these Non-GAAP Measures.

    For the first six months of fiscal 2007, net sales were $403.9 million,
an increase of 7% from the net sales of $377.4 million for the same period in
fiscal 2006. On a diluted basis, earnings per share were $.67 in the first
half of fiscal 2007 compared to $.67 in fiscal 2006. Net income for the first
half of fiscal 2007 totaled $25.3 million, versus the $25.2 million reported
in the comparable period in 2006. The first half financial results in 2006
included the reversal of certain prior period reserves for income tax
exposures that were no longer required.

    The 2007 six-month financial results include pre-tax expenses of $1.1
million related to Robeez integration and costs related to the pending merger
with Payless ShoeSource, Inc. The prior year first half financial results
included pre-tax Saucony acquisition related integration expenses of $2.2
million. The 2006 first half financial results also included a pre-tax expense
of $2.6 million related to the flow through of the write-up of inventory
purchased in the Saucony acquisition to fair value as required by GAAP
accounting rules.

    Excluding acquisition-related merger and integration costs, net income
would have been $25.9 million for the first six months of fiscal 2007, while
diluted earnings per share would have been $.69 for the first half of fiscal
2007. Excluding acquisition-related integration costs, the Saucony inventory
write-up, net income would have been $28.0 million for the first half of
fiscal 2006, 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 an
additional description of these Non-GAAP Measures.

    David Chamberlain, Chairman and CEO of Stride Rite commented, "Overall,
we continued to make progress in the second quarter."

    "The combined Children's Group second quarter sales decreased 1% compared
to last year. The Children's Retail Group sales were up 4% in the quarter and
same store comps were down 2.5%. Children's Group wholesale sales were down
16% compared to last year. Second quarter sales comparisons were impacted by
the earlier start to our annual pre-Easter promotion which positively affected
our first quarter results. We expect second half sales growth in our combined
Stride Rite children's business.

    "Keds had an improved second quarter, with sales down just 1%. The new,
younger product offerings met expectations, which helped to offset the decline
in women's core product and lower children's sales. We anticipate a positive
sales trend for the remainder of the year.

    "Sperry Top-Sider, up 23%, enjoyed another strong quarter of sales. Most
of the products are performing well. We expect another year of strong growth.

    "Saucony domestic sales were up 2% over a year ago. We are seeing
excellent response to our updated technical running lines, particularly in the
Triumph, Omni and Hurricane models, which all feature our new ProGrid
technology. Saucony should enjoy a solid year.

    "International sales were up 18%. Keds continues to enjoy strong sales
growth in Europe and Canada. The marketing campaign and younger products are
driving the Keds momentum. Saucony delivered solid growth in Europe.

    "Our Tommy Hilfiger footwear sales were 4% above last year. We are
pleased with the progress of the Tommy Hilfiger brand. The second half sales
are anticipated to be weaker due in part to relocating our product line in a
key department store.

    "Robeez results continued to meet financial expectations for the
quarter."

    Mr. Chamberlain continued, "Assuming reasonable retail and economic
conditions in 2007, we are reaffirming our projected sales growth of 5% to 8%
and earnings per share of $1.10 - $1.15, including a full year of Robeez
financial results and excluding any integration and merger related costs."

    NET SALES HIGHLIGHTS:

    --  Net sales for the quarters ended June 1, 2007 and June 2, 2006 are
summarized in the table as follows:

    

                         The Stride Rite Corporation
                           Net Sales (in thousands)

                                Second Quarter
    ----------------------------------------------------------------------
                                                                Percentage
                                              2007      2006      Change
                                            --------- --------- ----------
                                                (Unaudited)

    Stride Rite Children's Group - Wholesale $15,408   $18,292    (16)%
    Stride Rite Children's Group - Retail     57,987    55,789      4%
                                            --------- --------- ----------
    Stride Rite Children's Group - Combined   73,395    74,081     (1)%

    Keds                                      34,406    34,924     (1)%
    Sperry Top-Sider                          35,025    28,519     23%
    International                             22,551    19,171     18%
    Saucony                                   22,691    22,208      2%
    Hind                                       2,525     3,418    (26)%
                                            --------- --------- ----------
    Other Wholesale - Combined               117,198   108,240      8%

    Tommy Hilfiger Adult                      15,170    14,583      4%

    Robeez                                     5,941         -     n/a

    Intercompany Eliminations                 (2,503)   (2,897)    n/a
                                            --------- --------- ----------
    Total                                   $209,201  $194,007      8%
                                            --------- --------- ----------
    

    --  Net sales for the six months ended June 1, 2007 and June 2, 2006 are
summarized in the table as follows:

    
                         The Stride Rite Corporation
                           Net Sales (in thousands)

                             Fiscal Year to Date
    ----------------------------------------------------------------------
                                                                Percentage
                                              2007      2006      Change
                                            --------- --------- ----------
                                                (Unaudited)

    Stride Rite Children's Group - Wholesale $36,388   $39,448     (8)%
    Stride Rite Children's Group - Retail    101,117    93,713      8%
                                            --------- --------- ----------
    Stride Rite Children's Group - Combined  137,505   133,161      3%

    Keds                                      72,503    76,916     (6)%
    Sperry Top-Sider                          61,040    52,107     17%
    International                             45,846    41,990      9%
    Saucony                                   45,103    43,282      4%
    Hind                                       4,940     6,906    (28)%
                                            --------- --------- ----------
    Other Wholesale - Combined               229,432   221,201      4%

    Tommy Hilfiger Adult                      30,642    29,516      4%

    Robeez                                    13,025         -     n/a

    Intercompany Eliminations                 (6,732)   (6,455)    n/a
                                            --------- --------- ----------
    Total                                   $403,872  $377,423      7%
                                            --------- --------- ----------
    

    --  Stride Rite Children's Group-Wholesale net sales were down 16% for
the quarter and 8% for the first half as compared to the prior year. This
decrease was primarily attributable to decreased sales of first quality
products, mainly in the Stride Rite and Tommy Hilfiger product lines, as well
as a decrease in closeout products sales. Offsetting these declines were
positive sales of Sperry Top-Sider and Saucony children's products.

    --  Net sales of the Stride Rite Children's Group-Retail division
increased 4% in the second quarter and 8% for the first six months versus the
prior year. Sales at comparable Children's Group retail stores (open 52 weeks
in each fiscal year) decreased 2.5% for the second quarter and were up 1.2%
for the first six months of 2007. At quarter-end, the Stride Rite Children's
Group-Retail operated 326 stores, including 11 Saucony stores. This is a net
increase of 22 stores, or 7% from the comparable period last year.

    --  Net sales in the Keds division decreased 1% for the second quarter
and were down 6% for the first half of fiscal 2007. The Keds sales decline was
primarily attributable to a decrease in women's core product sales in the
mid-tier and value sales channels, as well as lower children's sales. The
younger themed product offerings have performed well.

    --  Sperry Top-Sider net sales increased 23% for the second quarter and
17% for the first half of 2007 on higher sales of men's and women's products.

    --  Saucony domestic net sales were up 2% for the second quarter and 4%
for the first six months of 2007. Saucony technical running and athletic
products performed well in the quarter.

    --  The Stride Rite International division's net sales were up 18% in the
second quarter and 9% for the first half of fiscal 2007. The sales increase in
the quarter was primarily the result of strong sales of Saucony and Keds
products in Europe, Keds sales increases in Canada and Tommy Hilfiger sales
increases Latin America.

    --  Net sales of Tommy Hilfiger products increased 4% for the second
quarter and were up 4% for the first six months of 2007 with positive trends
in both women's and men's product lines.

    OTHER FINANCIAL HIGHLIGHTS:

    --  The second quarter gross profit percentage of 43.3% increased 0.9
percentage points compared to the same period in the prior year. For the first
six months and excluding the prior year flow through of the inventory write-up
related to the Saucony purchase, the gross profit percentage increased 0.2
percentage points to 42.1%. The Stride Rite Children's Group, Sperry Top-Sider
and International all had strong gross profit percentage improvements in the
second quarter compared to the prior year.

    --  Operating expenses increased 13% for the second quarter and 8% for
the first six months compared to the comparable periods in the prior year. As
planned, the major operating cost increases were related Robeez expenses,
investments in European operations and Stride Rite Children's Group-Retail
store expansion.

    --  For the second quarter, operating income increased 3% and was up 2%
excluding the acquisition related merger and integration costs in each period.
For the first six months, operating income increased 14% and was up 3% for the
first six months excluding the merger and acquisition related integration
costs in each period and the flow through of the inventory write up ($2.6
million) recorded in the first quarter of fiscal 2006.

    --  Accounts receivable increased 14% compared to last year due to the
sales increase and the timing of product shipments in the quarter. DSO was 44
days, an increase of two days versus the comparable period last year.

    --  Inventories of $125.5 million were up 2% versus the comparable period
of 2006. The increase was due in part to the addition of Robeez.

    --  Cash and cash equivalents were $21.3 million at the end of the second
quarter with $54.2 million in outstanding debt. The outstanding debt balance
was reduced by $44.3 million compared to the balance at the end of the prior
quarter.

    --  The Company did not repurchase any common shares under the share
repurchase program during the second quarter. As of June 1, 2007 we had
approximately 3.0 million shares remaining on our share repurchase
authorization. The Company does not anticipate making any further share
repurchases due to the pending merger with Payless ShoeSource, Inc.

    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, PRO-Keds, Sperry Top-Sider, Robeez, Tommy Hilfiger, Saucony,
Grasshoppers, Munchkin and Spot-bilt. 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 26, 2007.
An on-line replay will follow two hours after the call and will continue
through July, 5 2007. Information about the Company's brands and product lines
is available at: www.striderite.com, www.keds.com, www.sperrytopsider.com,
www.robeez.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 Yuan; the possible failure to retain the
Tommy Hilfiger footwear license or other current license agreements; the
possible failure to successfully integrate the Robeez brand into the Company
operations; increased leverage from the financing of our recent acquisitions;
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 acquisitions, 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.

    
                         The Stride Rite Corporation
                       Summarized Financial Information
             for the periods ended June 1, 2007 and June 2, 2006
                             Statements of Income

    (in thousands)                  Second Quarter         Six Months
                                  -------------------  -------------------

                                    2007      2006       2007      2006
                                  --------- ---------  --------- ---------
                                      (Unaudited)          (Unaudited)
     Net sales                    $209,201  $194,007   $403,872  $377,423
     Cost of sales                 118,517   111,728    233,698   221,912
                                  --------- ---------  --------- ---------
     Gross profit                   90,684    82,279    170,174   155,511
     Selling and administrative
      expenses                      68,022    60,291    128,821   119,201
                                  --------- ---------  --------- ---------
     Operating income               22,662    21,988     41,353    36,310
     Other income (expense), net      (964)   (1,064)    (2,014)   (1,887)
                                  --------- ---------  --------- ---------
     Income before income taxes     21,698    20,924     39,339    34,423
     Provision for income taxes      7,533     4,031     14,079     9,245
                                  --------- ---------  --------- ---------
     Net income                    $14,165   $16,893    $25,260   $25,178
                                  --------- ---------  --------- ---------

    Earnings per share:
        Diluted                      $0.38     $0.45      $0.67     $0.67
        Basic                        $0.39     $0.46      $0.69     $0.69

    Weighted average shares
     outstanding:
        Diluted                     37,602    37,623     37,567    37,619
        Basic                       36,684    36,650     36,620    36,625

                      Balance Sheets

                                    Second Quarter
                                  -------------------

                                    2007      2006
                                  --------- ---------
    Assets:                           (Unaudited)
    Cash and cash equivalents      $21,340   $23,349
    Accounts receivable            109,953    96,102
    Inventories                    125,496   123,108
    Deferred income taxes           14,290    13,620
    Other current assets             8,421    15,741
                                  --------- ---------
         Total current assets      279,500   271,920
    Property and equipment, net     53,621    52,373
    Goodwill                        70,277    56,794
    Trademarks                      71,890    58,590
    Other assets                    18,115    18,736
                                  --------- ---------
         Total assets             $493,403  $458,413
                                  --------- ---------
    Liabilities and Stockholders'
     Equity:
    Current liabilities             77,012    61,236
    Long-term debt                  54,200    68,000
    Deferred income taxes and
     other liabilities              40,176    39,674
    Stockholders' equity           322,015   289,503
                                  --------- ---------
         Total liabilities and
          stockholders' equity    $493,403  $458,413
                                  --------- ---------
    

    
                         The Stride Rite Corporation
                     Reconciliation of Non-GAAP Measures
                      (in thousands, except share data)

                      For the Quarter Ended June 1, 2007

                                                                Adjusted
                                  Reported                       Results
                                   Second                        Second
                                   Quarter                       Quarter
                                    2007     Adjustments          2007
                                 ----------- -----------       -----------

     Net sales                     $209,201                      $209,201

     Operating income                22,662        $795   (a)      23,457

     Provision for income taxes       7,533         332   (b)       7,865

     Net income                     $14,165        $463 (a),(b)   $14,628
    Earnings per share:
        Diluted                       $0.38                         $0.39
        Basic                         $0.39                         $0.40
    Weighted average shares outstanding:
        Diluted                      37,602                        37,602
        Basic                        36,684                        36,684

    Pro forma adjustments:

    (a) Robeez integration expenses $.3 million (pre-tax), Payless merger
     expenses $.5 million (pre-tax).
    (b) Income tax effect at the incremental rate.


                    For the Six Months Ended June 1, 2007

                                                                Adjusted
                                  Reported                       Results
                                 Six Months                    Six Months
                                    2007     Adjustments          2007
                                 ----------- -----------       -----------

     Net sales                     $403,872                      $403,872

     Operating income                41,353      $1,114   (a)      42,467

     Provision for income taxes      14,079         465   (b)      14,544

     Net income                     $25,260        $649 (a),(b)   $25,909
    Earnings per share:
        Diluted                       $0.67                         $0.69
        Basic                         $0.69                         $0.71
    Weighted average shares outstanding:
        Diluted                      37,567                        37,567
        Basic                        36,620                        36,620

    Pro forma adjustments:

    (a) Robeez integration expenses $.6 million (pre-tax), Payless merger
     expenses $.5 million (pre-tax).
    (b) Income tax effect at the incremental rate.
    

    
                         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   (a)      22,978

     Provision for income taxes       4,031         404   (b)       4,435

     Net income                     $16,893        $586 (a),(b)   $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

    Pro forma adjustments:

    (a) Saucony integration expenses $1.0 million (pre-tax)
    (b) Income tax effect at the incremental rate.


                    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)      41,085

     Provision for income taxes       9,245       1,950   (b)      11,195

     Net income                     $25,178      $2,825 (a),(b)   $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) Saucony inventory write-up to fair value $2.6 million and Saucony
     integration expenses $2.2 million (pre-tax).
    (b) Income tax effect at the incremental rate.
    




For further information:

For further information: The Stride Rite Corporation Frank A. Caruso,
617-824-6611 Chief Financial Officer

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STRIDE RITE CORPORATION

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