The Stride Rite Corporation (NYSE: SRR) today reported record first
quarter fiscal 2007 sales of $194.7 million, an increase of 6%
compared to the same period in the prior year. Net income for the
first quarter totaled $11.1 million or $.30 per diluted share,
compared to the net income of $8.3 million or $.22 per diluted
share in the first quarter of 2006. The first quarter financial
results include a pre-tax expense of $0.3 million related to Robeez
integration costs. The prior year first quarter financial results
included a pre-tax expense of $2.6 million related to the flow
through of the remaining write-up of inventory purchased in the
Saucony acquisition as required by GAAP accounting rules. In
addition, the prior year first quarter results included pre-tax
Saucony acquisition related integration expenses of $1.2 million.
Excluding acquisition-related integration costs, net income would
have been $11.3 million for the first quarter, while diluted
earnings per share remain at $.30 for the first quarter of fiscal
2007. Excluding acquisition-related integration costs and the
Saucony inventory write-up, net income would have been $10.6
million for the first quarter of fiscal 2006, while diluted
earnings per share would have been $.28. 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, �Although we made progress in the
first quarter, the uneven retail environment had an effect on the
first quarter results. "The combined Children�s Group first quarter
sales increased 9% compared to last year. The Children�s Retail
Group sales were up 14% in the quarter. Same store comps were up
6.3%. February retail sales were helped by an earlier start to our
annual pre-Easter promotion. We expect retail to continue with
positive comps for the year. However, wholesale sales were down 1%.
The introduction of our Saucony children�s line in December has
enjoyed a solid start in both our stores and wholesale businesses.
Over time, this should allow us to open new distribution. We remain
on target to turn in another year of growth in our Stride Rite
children�s business. "Keds had a weak first quarter, with sales
down 9%. The new, younger product offerings met expectations, but
could not offset the decline in women�s core product and lower
children�s sales. We anticipate an improving sales trend for the
remainder of the year. "Sperry Top-Sider, up 10%, enjoyed another
strong quarter of sales. Our products are performing well. We
expect a year of solid growth. "Saucony domestic sales were up 6%
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. We
feel positive about the steps we are taking to build Saucony.
"International sales were up 2%. Keds continues to enjoy strong
sales growth in Europe, Canada and Australia. The Mischa Barton
campaign and younger products are driving the Keds momentum. "Our
Tommy Hilfiger footwear sales were 4% above last year. We are
pleased with the progress of the Tommy Hilfiger brand. However, we
remain cautious in our outlook for the year. "Robeez results met
expectations for the quarter.� Mr. Chamberlain continued, �The
strength of our brands and the acquisition of Robeez has provided
sales growth in the quarter. We are committed to delivering the
financial results this year, while we invest to support long-term
growth. 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 Robeez integration
costs. Acquisition related integration costs are estimated at
approximately $1.0 million or $.02 per diluted share for the year.�
NET SALES HIGHLIGHTS: Net sales for the quarters ended March 2,
2007 and March 3, 2006 are summarized in the table as follows: The
Stride Rite Corporation Net Sales (in thousands) � First Quarter
Percentage 2007� 2006� Change (Unaudited) � Stride Rite Children's
Group - Wholesale $20,980� $21,156� (1)% Stride Rite Children's
Group - Retail 43,130� 37,924� 14% Stride Rite Children's Group -
Combined 64,110� 59,080� 9% � Keds 38,097� 41,991� (9)% Sperry
Top-Sider 26,015� 23,588� 10% International 23,295� 22,818� 2%
Saucony 22,412� 21,075� 6% Hind 2,415� 3,488� (31)% Other Wholesale
- Combined 112,234� 112,960� (1)% � Tommy Hilfiger Adult 15,472�
14,933� 4% � Robeez 7,084� -� 100% � Intercompany Eliminations
(4,229) (3,557) n/a� Total $194,671� $183,416� 6% Stride Rite
Children�s Group-Wholesale net sales were down 1% for the quarter
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 14% in the first quarter versus the prior year. Sales at
comparable Children�s Group retail stores (open 52 weeks in each
fiscal year) increased 6.3% for the first quarter of 2007. At
quarter-end, the Stride Rite Children�s Group-Retail operated 322
stores, including 15 Saucony stores. This is a net increase of 26
stores, or 9% from the comparable period last year. Net sales in
the Keds division decreased 9%. 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 product offerings have performed
well. Sperry Top-Sider net sales increased 10% for the first
quarter on higher sales of men�s and women�s products. Saucony
domestic net sales were up 6% for the first quarter of 2007.
Saucony technical running and athletic products performed well in
the quarter. The Stride Rite International division�s net sales
growth of 2% in the first quarter of fiscal 2007 was primarily the
result of strong sales of Saucony and Keds products in Europe, as
well as Keds sales increases in Canada. Net sales of Tommy Hilfiger
products for the first quarter increased 4% with positive trends in
both women�s and men�s product lines. OTHER FINANCIAL HIGHLIGHTS:
The gross profit rate of 40.8% was improved 0.9 percentage points
compared to 39.9% reported in the comparable period in 2006. The
prior year gross profit rate was negatively impacted 1.5 percentage
points by the $2.6 million flow through of the remaining acquired
Saucony inventory write-up to fair value. The current year gross
profit margin was adversely affected by increased promotional
activity in our Stride Rite children�s company-owned retail stores
and a shift in product mix. Operating expenses increased 3% for the
quarter. As planned, the major operating cost increases were
related to Robeez expenses, investments in European operations and
Stride Rite Children�s Group-Retail store expansion. Operating
income increased 31% on a GAAP basis and was up 5% excluding the
acquisition related integration costs of $0.3 million and $1.2
million for 2007 and 2006, respectively and the $2.6 million flow
through of the remaining acquired Saucony acquisition related
inventory write-up to fair value in 2006. Accounts receivable
increased 6% compared to last year consistent with the sales
increase in the quarter. DSO was 56 days, which is flat versus the
comparable period last year. Inventories of $127 million were up
10% versus the comparable period of 2006. The increase was due in
part to the addition of Robeez and the timing of certain product
receipts. Cash and cash equivalents were $20 million at the end of
the first quarter with $99 million in outstanding debt. The
outstanding debt increase versus our 2006 year-end balance is
related primarily to building inventory for spring sales. The
Company did not repurchase any common shares under the share
repurchase program during the first quarter. As of March 2, 2007 we
had approximately 3.0 million shares remaining on our share
repurchase authorization. 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 first 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 March 29, 2007. An
on-line replay will follow two hours after the call and will
continue through April, 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 March 2, 2007 and March 3, 2006 Statements of Income � (in
thousands) First Quarter � 2007� 2006� (Unaudited) Net sales
$194,671� $183,416� Cost of sales 115,181� 110,184� Gross profit
79,490� 73,232� Selling and administrative expenses 60,799� 58,910�
Operating income 18,691� 14,322� Other income (expense), net
(1,050) (823) Income before income taxes 17,641� 13,499� Provision
for income taxes 6,546� 5,214� Net income $11,095� $8,285� �
Earnings per share: Diluted $0.30� $0.22� Basic $0.30� $0.23� �
Weighted average shares outstanding: Diluted 37,537� 37,703� Basic
36,556� 36,588� � Balance Sheets � First Quarter � 2007� 2006�
Assets: (Unaudited) Cash and cash equivalents $19,982� $23,219�
Accounts receivable 128,733� 121,098� Inventories 126,651� 115,594�
Deferred income taxes 14,275� 14,262� Other current assets 17,048�
18,074� Total current assets 306,689� 292,247� Property and
equipment, net 52,950� 51,625� Goodwill 70,257� 56,732� Trademarks
71,890� 58,590� Other assets 18,731� 19,301� Total assets $520,517�
$478,495� Liabilities and Stockholders' Equity: Current liabilities
74,237� 67,765� Long-term debt 98,500� 95,000� Deferred income
taxes and other liabilities 39,840� 38,934� Stockholders' equity
307,940� 276,796� Total liabilities and stockholders' equity
$520,517� $478,495� The Stride Rite Corporation Reconciliation of
Non-GAAP Measures (in thousands, except share data) � For the
Quarter Ended March 2, 2007 � Reported Adjusted Results First
Quarter First Quarter 2007� Adjustments 2007� � Net sales $194,671�
$194,671� � Operating income 18,691� $320� (a) 19,011� � Provision
for income taxes 6,546� 134� (b) 6,680� � Net income $11,095� $186�
(a),(b) $11,281� Earnings per share: Diluted $0.30� $0.30� Basic
$0.30� $0.31� Weighted average shares outstanding: Diluted 37,537�
37,537� Basic 36,556� 36,556� � � Pro forma adjustments: � (a)
Robeez integration expenses $.3 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 March 3, 2006 � Reported Adjusted
Results First Quarter First Quarter 2006� Adjustments 2006� � Net
sales $183,416� $183,416� � Operating income 14,322� $3,785� (a)
18,107� � Provision for income taxes 5,214� 1,461� (b) 6,675� � Net
income $8,285� $2,324� (a),(b) $10,609� Earnings per share: Diluted
$0.22� $0.28� Basic $0.23� $0.29� Weighted average shares
outstanding: Diluted 37,703� 37,703� Basic 36,588� 36,588� � � Pro
forma adjustments: � (a) Flow through of the Saucony inventory
write-up to fair value $2.6 million and Saucony integration
expenses $1.2 million (pre-tax). � (b) Income tax effect at the
effective rate.
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