The Stride Rite Corporation reported sales of $177.5 million for the third quarter, an increase of 21% over $146.2 million in the same quarter last year. Net income for the quarter amounted to $8.5 million or 23 cents per diluted share, compared to net income of $7.7 million or 21 cents per diluted share in the third quarter of 2005.
Beginning in the first quarter of fiscal 2006, the Company adopted SFAS No. 123®, “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®, “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.
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 cents to 88 cents, 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:
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%
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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%
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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.
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.
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.
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.
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.
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:
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.
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®, “Share-Based Payment”.
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).
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.
Inventories of $118 million were up 37% versus the comparable period of 2005. The increase was due primarily to the addition of Saucony.
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.
The company does 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.
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
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Earnings per share:
Diluted $0.23 $0.21 $0.90 $0.74
Basic $0.23 $0.21 $0.92 $0.76
