Exhibit 99.1
THE STRIDE RITE CORPORATION June 26, 2007
NEWS RELEASE FOR IMMEDIATE RELEASE
CONTACT: Frank A. Caruso, Chief Financial Officer - (617)-824-6611
STRIDE RITE REPORTS INCREASED
SECOND QUARTER SALES
Lexington, MA, June 26, 2007 - 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:
o 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%
========= ========= ========
o 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%
========= ========= =======
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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' $493,403 $458,413
equity ============= =============
The Stride Rite Corporation
Reconciliation of Non-GAAP Measures
(in thousands, except share data)
For the Quarter Ended June 1, 2007
Reported Adjusted Results
Second Quarter Second 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
Reported Adjusted 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
Reported Adjusted Results
Second Quarter Second 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
Reported Adjusted 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.