The Stride Rite Corporation first quarter fiscal 2007 sales were $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 cents per diluted share, compared to the net income of $8.3 million or 22 cents 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 cents 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 cents. 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:
The Stride Rite Corporation
Net Sales (in thousands)
First Quarter
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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%
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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)%
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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%
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- 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.
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
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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
