Exhibit 99.1
THE STRIDE RITE CORPORATION March 30, 2006
NEWS RELEASE FOR IMMEDIATE RELEASE
CONTACT: Frank A. Caruso, Chief Financial Officer - (617)-824-6611
STRIDE RITE REPORTS INCREASED
FIRST QUARTER SALES AND
SOLID FINANCIAL RESULTS
- RESULTS INCLUDE SAUCONY ACQUISITION RELATED CHARGES AND EXPENSES RELATED TO
THE ADOPTION OF SFAS NO. 123R FOR SHARE BASED COMPENSATION -
Lexington, MA, March 30, 2006 - The Stride Rite Corporation (NYSE: SRR)
today reported record first quarter fiscal 2006 sales of $183.4 million, an
increase of 22% compared to the same period in the prior year. Net income for
the first quarter totaled $8.3 million or $.22 per diluted share, compared to
the net income of $8.2 million or $.22 per diluted share in the first quarter of
2005.
The first quarter financial results includes 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
current quarter includes pre-tax acquisition related integration expenses of
$1.2 million. Also, during the first quarter, the Company adopted SFAS No. 123R,
"Share-Based Payment", the impact of which increased pre-tax expenses by
approximately $700 thousand.
Excluding acquisition related integration costs and the flow through of the
inventory write-up, net income would have been $10.6 million for the first
quarter, 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 additional description of these
Non-GAAP Measures.
David Chamberlain, Chairman and CEO of Stride Rite, commented that the
first quarter of 2006 was a solid start to the year. "The positive impact of
Saucony sales and profits was evident in the quarter. We are on schedule with
our integration of the Saucony business. On March 20th we moved the Saucony
associates into our Lexington, Massachusetts headquarters and Saucony began
shipping from our existing warehouse facility in Louisville, Kentucky."
"The Children's Group net sales were impacted by the later Easter holiday
this year and shifting of the preseason retail store event into the second
quarter. Our company-owned retail stores same store growth percentages were down
year-over-year as planned. March is off to a good start, and we expect strong
second quarter retail store comparative sales to result in positive single digit
comparative retail store sales for the half. Our 2006 retail strategy includes
the addition of 33 new Stride Rite Children's stores for a total of 302 stores.
In addition to the shift in the Easter holiday, our Stride Rite Children's
wholesale sales have been impacted by several factors including: the changed
strategy and buying patterns of certain department stores, the consolidation of
May Company by Federated Department Stores, a shift in value channel strategy
and a decline in the number of smaller accounts. Although the later Easter this
year should result in improvement in the second quarter, we expect to continue
to be impacted by those same factors and anticipate Stride Rite Children's
wholesale sales to be down for the first half. Overall, we remain on strategy to
continue growth in our Stride Rite children's business through new stores and
positive same store comparative sales. We are projecting to end the half with a
combined Stride Rite Children's Group sales increase."
"Keds had a challenging first quarter. The moderate retail channel
stabilized while the premium department store channel fell below last year, due
to strong prior year sell-in. The value channel sales were also below last year.
We are encouraged that a number of retailers are starting to enjoy solid Keds
product movement and good profitability. Our operating profit margins continued
to improve nicely in the brand."
"Sperry Top-Sider enjoyed another strong quarter of sales and profits. Our
products are strong, and we expect growth across all retail channels with
particular success in the women's area. This brand has a great deal of positive
momentum that should continue throughout the year."
"Saucony domestic sales were in line with expectations as we continue to
see strength in technical running and international. We feel positive about
Saucony growth opportunities in 2007, including originals and children's product
expansion."
"International had strong sales and profits, helped in part by sales of
Tommy Hilfiger products in Latin America and strong Saucony sales in Europe and
Canada."
"Our Tommy Hilfiger footwear sales were impacted by the soft business
trends in the broader Tommy Hilfiger brand. We are focused on maximizing that
business as we look for opportunities to improve profitability."
"We had a solid start to 2006, building off the acquisition of Saucony. The
addition of Saucony sales to our other brands has provided increased operating
leverage. With sound strategies in place and strong management teams, we
anticipate a year of meaningful progress and growth."
Mr. Chamberlain continued, "Assuming reasonable retail and economic
conditions in 2006, we are reaffirming our projected sales growth of 23% to 27%
and earnings per share of $.82 - $.88, including a full year of Saucony
financial results. 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 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 are estimated at
approximately $2.5 million or $.04 per diluted share for the year and are also
included in the earnings projections."
NET SALES HIGHLIGHTS:
o Net sales for the quarters ended March 3, 2006 and March 4, 2005 are
summarized in the table as follows:
The Stride Rite Corporation
Net Sales (in thousands)
First Quarter
Percent
2006 2005 Change
(Unaudited)
Stride Rite Children's Group $21,156 $25,586 (17)%
- Wholesale
Stride Rite Children's Group 37,924 35,445 7%
- Retail
---------- ---------- ---------
Stride Rite Children's Group 59,080 61,031 (3)%
- Combined
Keds 41,991 45,799 (8)%
Sperry Top-Sider 23,588 19,444 21%
International (includes 22,818 8,810 159%
Saucony)
Saucony Domestic (includes 24,563 - n/a
Hind)
---------- ---------- ---------
Other Wholesale - Combined 112,960 74,053 53%
Tommy Hilfiger Adult 14,933 18,121 (18)%
Intercompany Eliminations (3,557) (2,614) n/a
---------- ---------- ---------
Total $183,416 $150,591 22%
========== ========== =========
o Stride Rite Children's Group-Wholesale net sales decreased 17% for the
quarter as compared to the prior year. This decrease was primarily
attributable to the shift in the Easter holiday to second quarter,
particularly in department stores and smaller independent retailers. In
addition, fewer promotional product sales impacted the sales results.
o Net sales of the Stride Rite Children's Group-Retail division increased
7% in the first quarter versus the prior year. Sales at comparable
Children's Group retail stores (open 52 weeks in each fiscal year)
decreased 3.4% for the first quarter of 2006. In the prior year,
benefiting from the earlier Easter holiday and spring promotion, same
store comparative sales increased 7.8% versus 2004. At quarter-end,
the Stride Rite Children's Group-Retail operated 280 Stride Rite
outlets and children's shoe stores. This is a net increase of 26
stores, or 10% from the comparable period last year. In addition,
Stride Rite Children's Group-Retail also operated 16 Saucony outlet
stores.
o Net sales in the Keds division decreased 8%. The strong prior year
product sell-in to the premium channels and fewer sales this quarter in
the value channel resulted in lower sales comparisons. Sperry Top-Sider
net sales increased 21% for the first quarter on strong sales of men's
and women's products, particularly in the marine and family shoe retail
channels. Saucony net sales were $24.6 million for the first quarter of
2006. Saucony technical running product sales were strong in the
quarter.
o International net sales increased 159%, mostly due to the addition of
Saucony international sales. Also contributing to the increase in
international sales were higher sales of Tommy Hilfiger in Canada and
Latin America, Keds footwear in Canada, and Sperry Top-Sider in Europe
and South Africa.
o Net sales of Tommy Hilfiger men's and women's products for the first
quarter decreased 18%, primarily due to a reductions in department
store product sales, promotional product sales and an overall decline
in the men's business. Last year's first quarter also had the sales of
the Tommy H product line, which has since been discontinued.
OTHER FINANCIAL HIGHLIGHTS:
o Excluding the flow through of the inventory write-up related to the
Saucony purchase, the gross profit percentage increased 1.2 percentage
points to 41.4% for the quarter. Keds, Tommy Hilfiger, Sperry Top-Sider
and International all had strong gross profit percentage improvements
versus last year.
o Operating expenses increased 24% for the first quarter. 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".
o Operating income increased 9% on a GAAP basis and was up 38% excluding
the acquisition related integration costs ($1.2 million) and the flow
through of the inventory write up ($2.6 million).
o Accounts receivable increased 34% compared to last year due to the
addition of Saucony and higher sales in the last month of the quarter.
DSO was 56 days, an increase of 4 days versus the same period last
year. The DSO increase was due to the addition of Saucony which
generally has offered somewhat longer credit terms to retailers.
o Inventories of $116 million were up 22% versus to the comparable period
of 2005. The increase was due primarily to the addition of Saucony.
o Cash and cash equivalents were $23 million at the end of the fiscal
quarter with $95 million in outstanding debt. The outstanding debt
increase versus year end is related to building inventory for spring
sales. The Company initially borrowed $85 million in mid-September 2005
to fund the acquisition of Saucony.
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 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 30, 2006. An on-line
replay will follow shortly after the call and will continue through April 5,
2006. Information about the Company's brands and product lines is available at
www.striderite.com, www.keds.com, www.sperrytopsider.com and www.saucony.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 inability to
fully realize the anticipated benefits from the acquisition of Saucony; the
challenges of achieving the expected synergies with Saucony; the possibility of
incurring costs or difficulties related to the integration of the businesses of
Stride Rite and Saucony; the possible failure to retain the Tommy Hilfiger
footwear license; 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
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. We expressly disclaim any responsibility
to update forward-looking statements.
NON-GAAP PRO FORMA FINANCIAL MEASURES:
This release contains certain non-GAAP financial measures. In particular,
Stride Rite provides historic and future anticipated net income and diluted
earnings per share excluding certain cash and non-cash charges, which are
non-GAAP financial measures. These results are included as a complement to
results provided in accordance with GAAP because management believes these
non-GAAP financial measures help indicate underlying trends in Stride Rite's
business and provide useful information to both management and investors by
excluding certain items that are not indicative of Stride Rite's core operating
results. These 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 non-GAAP information provided by Stride Rite may be
different from the non-GAAP information provided by other companies.
7
The Stride Rite Corporation
Summarized Financial Information
For the periods ended March 3, 2006 and March 4, 2005
Statements of Income
(in thousands) First Quarter
2006 2005
---- ----
(Unaudited)
Net sales $183,416 $150,591
Cost of sales 110,184 90,059
-------------- --------------
Gross profit 73,232 60,532
Selling and administrative expenses 58,910 47,451
-------------- --------------
Operating income 14,322 13,081
Other income (expense), net (823) 162
-------------- --------------
Income before income taxes 13,499 13,243
Provision for income taxes 5,214 5,082
-------------- --------------
Net income $8,285 $8,161
============== ==============
Earnings per share:
Diluted $0.22 $0.22
Basic $0.23 $0.23
Weighted average shares outstanding:
Diluted 37,703 36,963
Basic 36,588 36,007
Balance Sheets
2006 2005
---- ----
Assets: (Unaudited)
Cash and cash equivalents $23,219 $24,222
Marketable securities - 20,400
Accounts receivable 121,098 90,257
Inventories 115,594 94,785
Deferred income taxes 14,262 12,816
Other current assets 18,074 13,368
-------------- --------------
Total current assets 292,247 255,848
Property and equipment, net 51,625 52,708
Goodwill 56,732 908
Trademarks 58,590 1,690
Other assets 19,301 11,197
-------------- --------------
Total assets $478,495 $322,351
============== ==============
Liabilities and Stockholders' Equity:
Current liabilities 67,765 57,930
Long-term debt 95,000 -
Deferred income taxes and other 38,933 11,647
liabilities
Stockholders' equity 276,797 252,774
-------------- --------------
Total liabilities and $478,495 $322,351
stockholders' equity ============== ==============
The Stride Rite Corporation
Reconciliation of Non-GAAP Measures
Unaudited Non-GAAP Pro Forma Statements of Income (in thousands)
For the Quarter Ended March 3, 2006
Reported Pro forma
First First
Quarter Pro forma Quarter
2006 Adjustments 2006
---- ----------- ----
Net sales $183,416 $183,416
Cost of sales 110,184 ($2,622) (a) 107,562
---------- ----------- -------------
Gross profit 73,232 2,622 75,854
Selling and administrative 58,910 (1,163) (b) 57,747
expenses
---------- ----------- -------------
Operating income 14,322 3,785 18,107
Other income (expense), net (823) (823)
---------- ----------- -------------
Income before income taxes 13,499 3,785 17,284
Provision for income taxes 5,214 1,461 (c) 6,675
---------- ----------- -------------
Net income $8,285 $2,324 $10,609
========== =========== =============
Non-GAAP 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 inventory write up to fair value (pre-tax)
(b) Saucony integration costs (pre-tax)
(c) Income tax effect at GAAP rate