THE STRIDE RITE CORPORATION September 26, 2006
NEWS RELEASE FOR IMMEDIATE RELEASE
CONTACT: Frank A. Caruso, Chief Financial Officer - (617) 824-6611
STRIDE RITE REPORTS INCREASED THIRD QUARTER
SALES AND PROFITS
- RESULTS INCLUDE SAUCONY ACQUISITION-RELATED CHARGES AND EXPENSES
CONNECTED TO THE ADOPTION OF SFAS NO. 123(R) FOR SHARE BASED COMPENSATION -
Lexington, MA, September 26, 2006 - The Stride Rite Corporation (NYSE: SRR)
today reported third quarter fiscal 2006 sales of $177.5 million, an increase of
21% compared to the same period in the prior year. Net income for the third
quarter totaled $8.5 million or $.23 per diluted share, compared to net income
of $7.7 million or $.21 per diluted share in the third quarter of 2005.
Beginning in the first quarter of fiscal 2006, the Company adopted SFAS No.
123(R), "Share-Based Payment", the impact of which increased pre-tax expenses by
approximately $0.6 million for the third quarter of fiscal 2006. In addition,
the current quarter results include pre-tax acquisition-related integration
expenses of $0.7 million.
Excluding acquisition-related integration costs, net income would have been
$8.9 million for the third quarter, while diluted earnings per share would have
been $.24. 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 nine months of fiscal 2006, net sales were $554.9 million, an
increase of 22% from the net sales of $456.5 million for the same period in
fiscal 2005. On a diluted basis, earnings per share were $.90 in the first nine
months of fiscal 2006 compared to $.74 in fiscal 2005. Net income for the first
nine months of fiscal 2006 totaled $33.7 million, an increase of 22% from the
$27.6 million reported in the comparable period in 2005.
The first nine months 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 nine months results include pre-tax acquisition-related integration
expenses of $2.8 million. The adoption of SFAS No. 123(R), "Share-Based
Payment", increased pre-tax expenses by approximately $2.2 million for the first
nine months of fiscal 2006.
Excluding acquisition-related integration costs and the flow through of the
inventory write-up, net income would have been $36.9 million for the first nine
months, while diluted earnings per share would have been $.99. 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 "We made
solid progress in executing our brand strategies.
The Stride Rite Children's Group's sales were up 8%, with retail store
comps up 4.1%. Our strategy of adding stores and growing store comps combined
with strong brands and developing great product is working.
Keds made meaningful progress on its turnaround strategy. Despite being
down 12% overall in sales for the quarter, the younger profile product enjoyed
significant sell-through success in all retail channels. We are successfully
opening desirable accounts not previously available to the brand. We anticipate
the fourth quarter sales will be relatively flat.
Sperry Top-Sider was up 15% and continued its strong performance in both
men's and women's products. We expect this momentum to continue in the fourth
quarter.
Saucony continues to enjoy success in the specialty run business. New
strong technical product, an updated originals line and a separate children's
line have been developed for Spring, 2007.
Tommy Hilfiger footwear sales declined significantly in the third quarter
reflecting lower sales across all retail channels. The fourth quarter should see
a less significant decline than in the first nine months. We have renewed the
license for another year through March, 2008.
International sales which reflect the inclusion of Saucony were solid and
are expected to continue in the fourth quarter. We believe the International
market offers a significant opportunity for growth and are investing in our
infrastructure in Europe.
We completed the acquisition of Robeez on September 5, 2006. Robeez enjoys
a leadership position in the Age 0 - 3 market with their high-quality, soft-sole
brand. We believe it has upside growth opportunities both domestically and
internationally.
Based on our earnings performance to date, we are reconfirming our
full-year earnings guidance of $.82 to $.88, excluding the lower tax rate impact
discussed last quarter. This assumes reasonable economic and retail conditions
continue."
Included in the fiscal 2006 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 $3.2
million or $.05 per diluted share for the year are also included in the earnings
projections.
NET SALES HIGHLIGHTS PER SEGMENT:
o Net sales for the quarters ended September 1, 2006 and September 2,
2005 are summarized in the table as follows:
The Stride Rite Corporation
Net Sales (in thousands)
Third Quarter
-------------
Percent
2006 2005 Change
---- ---- -------
(Unaudited)
Stride Rite Children's Group
- Wholesale $27,310 $29,169 (6)%
Stride Rite Children's Group
- Retail 56,545 48,193 17%
--------- --------- ----------
Stride Rite Children's Group
- Combined 83,855 77,362 8%
Keds 22,127 25,244 (12)%
Sperry Top-Sider 20,858 18,067 15%
International (includes
Saucony) 22,339 10,198 119%
Saucony Domestic (includes
Hind) 21,142 - n/a
--------- --------- ----------
Other Wholesale - Combined 86,466 53,509 62%
Tommy Hilfiger Adult 11,565 18,187 (36)%
Intercompany Eliminations (4,365) (2,821) n/a
--------- --------- ----------
Total $177,521 $146,237 21%
========= ========= ==========
o Net sales for the nine months ended September 1, 2006 and September 2,
2005 are summarized in the table as follows:
The Stride Rite Corporation
Net Sales (in thousands)
Nine Months
-----------
Percent
2006 2005 Change
---- ---- -------
(Unaudited)
Stride Rite Children's Group
- Wholesale $66,758 $74,247 (10)%
Stride Rite Children's Group
- Retail 150,258 129,615 16%
--------- --------- ----------
Stride Rite Children's Group
- Combined 217,016 203,862 6%
Keds 99,043 112,762 (12)%
Sperry Top-Sider 72,965 60,595 20%
International (includes
Saucony) 64,329 26,886 139%
Saucony Domestic (includes
Hind) 71,328 - n/a
--------- --------- ----------
Other Wholesale - Combined 307,665 200,243 54%
Tommy Hilfiger Adult 41,081 60,867 (33)%
Intercompany Eliminations (10,818) (8,503) n/a
--------- --------- ----------
Total $554,944 $456,469 22%
========= ========= ==========
o Total Stride Rite Children's Group net sales increased 8% in the third
quarter and 6% for the first nine months compared to last year.
- Stride Rite Children's Group-Wholesale net sales decreased 6% for
the quarter and 10% for the first nine months as compared to the
prior year. This sales decrease was principally Tommy Hilfiger
product in the department store channel.
- Net sales of the Stride Rite Children's Group-Retail division
increased 17% in the third quarter and 16% for the first nine
months versus the prior year. Sales at comparable Children's Group
retail stores (open 52 weeks in each fiscal year) increased
4.1% for the third quarter and 3.7% for the first nine months
of fiscal 2006. At quarter-end, the Stride Rite Children's
Group-Retail operated 296 Stride Rite children's shoe stores
and outlets as well as 15 Saucony outlet stores.
o Net sales in the Keds division decreased 12% for the third quarter and
the first nine months compared to the comparable periods in the prior
year. The increased sales to premier specialty retail accounts did not
offset the sales declines of basic products in the mid-tier and value
retailers.
o Sperry Top-Sider net sales increased 15% for the third quarter and 20%
for the first nine months on strong sales of men's and women's
products, particularly in the marine and family shoe retail channels.
o Saucony net sales were $21.1 million for the third quarter and $71.3
million for the first nine months of 2006. The third quarter sales
results reflect a refocused emphasis on technical in-line product and
less promotional business.
o International net sales increased 119% for the third quarter and 139%
for the first nine months compared to fiscal 2005, due primarily to the
addition of Saucony international sales.
o Net sales of Tommy Hilfiger men's and women's products decreased 36%
for the third quarter and 33% for the first nine months compared to
last year, with sales declines due to a reduction in the customer base
and uncertainty over the sale of the brand.
OTHER FINANCIAL HIGHLIGHTS:
o The third quarter gross profit percentage of 41.6% increased 1.8
percentage points compared to the same period in the prior year. For
the quarter, the primary improvement related to lower closeout sales
and increased company-owned retail store sales.
o Operating expenses increased 25% for the third quarter and 26% for the
first nine months versus 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. 123(R), "Share-Based Payment".
o For the third quarter, operating income increased 35% and was up 42%
excluding the acquisition-related integration costs ($0.7 million). For
the first nine months, operating income increased 21% and was up 34%
for the first nine months excluding the acquisition-related integration
costs ($2.8 million) and the flow through of the inventory write up
($2.6 million).
o Accounts receivable increased 31% versus the comparable period last
year due primarily to the addition of Saucony and higher sales in the
last month of the quarter. DSO of 43 days was 3 days higher compared to
the same period last year.
o Inventories of $118 million were up 37% versus the comparable period of
2005. The increase was due primarily to the addition of Saucony.
o The Company repurchased approximately 366 thousand shares of company
stock during the third quarter at a cost of $4.5 million. For the first
nine months, approximately 814 thousand shares have been repurchased at
a cost of $10.8 million.
o We do not expect the September 5, 2006 acquisition of Robeez to have a
material impact on earnings in 2006 or 2007, before any non-cash
purchase accounting inventory impact.
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 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 third
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 September 26, 2006. An on-line
replay will follow shortly after the call and will continue through October 3,
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 Yuan; 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.
The Stride Rite Corporation
Summarized Financial Information
for the periods ended September 1, 2006 and September 2, 2005
Statements of Income
(in thousands) Third Quarter Nine Months
------------- -----------
2006 2005 2006 2005
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $177,521 $146,237 $554,944 $456,469
Cost of sales 103,656 88,047 325,568 272,536
--------- --------- --------- ---------
Gross profit 73,865 58,190 229,376 183,933
Selling and administrative
expenses 58,901 47,136 178,102 141,615
--------- --------- --------- ---------
Operating income 14,964 11,054 51,274 42,318
Other income (expense), net ( 683) 695 (2,570) 1,065
--------- --------- --------- ---------
Income before income taxes 14,281 11,749 48,704 43,383
Provision for income taxes 5,797 4,034 15,042 15,755
--------- --------- --------- ---------
Net income $8,484 $7,715 $33,662 $27,628
========= ========= ========= =========
Earnings per share:
Diluted $0.23 $0.21 $0.90 $0.74
Basic $0.23 $0.21 $0.92 $0.76
Weighted average shares outstanding:
Diluted 37,138 37,396 37,458 37,188
Basic 36,261 36,292 36,504 36,158
Balance Sheets
Third Quarter
-------------
2006 2005
---- ----
Assets: (Unaudited)
Cash and cash equivalents $24,346 $92,281
Accounts receivable 91,967 70,440
Inventories 118,463 86,171
Deferred income taxes 13,748 16,363
Other current assets 7,462 7,066
--------- ---------
Total current assets 255,986 272,321
Property and equipment, net 52,253 50,964
Goodwill 56,893 908
Trademarks 58,590 1,690
Other assets 17,354 11,441
--------- ---------
Total assets $441,076 $337,324
========= =========
Liabilities and Stockholders' Equity:
Current liabilities 53,889 55,531
Long-term debt 55,000 -
Deferred income taxes and
other liabilities 39,968 13,169
Stockholders' equity 292,219 268,624
--------- ---------
Total liabilities and
stockholders' equity $441,076 $337,324
========= =========
Reconciliation of Non-GAAP Measures
(in thousands, except share data)
For the Quarter Ended September 1, 2006
Reported Adjusted Results
Third Quarter Third Quarter
2006 Adjustments 2006
---- ----------- ----
Net sales $177,521 $177,521
Operating income 14,964 $685 (b) 15,649
Provision for income taxes 5,797 275 (c) 6,072
Net income $8,484 $410 (b),(c) $8,894
Earnings per share:
Diluted $0.23 $0.24
Basic $0.23 $0.25
Weighted average shares outstanding:
Diluted 37,138 37,138
Basic 36,261 36,261
For the Nine Months Ended September 1, 2006
Reported Adjusted Results
Nine Months Nine Months
2006 Adjustments 2006
---- ----------- ----
Net sales $554,944 $554,944
Operating income 51,274 $5,460 (a),(b) 56,734
Provision for income taxes 15,042 2,189 (c) 17,231
Net income $33,662 $3,271 (a),(b),(c) $36,933
Earnings per share:
Diluted $0.90 $0.99
Basic $0.92 $1.01
Weighted average shares outstanding:
Diluted 37,458 37,458
Basic 36,504 36,504
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