The Stride Rite Corporation saw continued weakness in the Keds business cut into gains elsewhere for the companys fiscal first quarter ended March 2. Net income growth still outpaced sales growth by a wide margin for the quarter, due in large part to a pre-tax expense of $2.6 million in the prior-year period related to the flow-through of the remaining write-up of inventory purchased in the Saucony acquisition, offset a bit by a pre-tax expense of $0.3 million this year related to Robeez integration costs. In addition, the prior year first quarter results included pre-tax Saucony acquisition related integration expenses of $1.2 million.
Excluding the extraordinary expenses, diluted EPS would have been up 7.1% from 28 cents in the prior-year quarter. Excluding $7.1 million in Robeez sales in the quarter, organic sales grew 2.3% for the period.
The combined Children's Group first quarter sales were up 8.5% to $64.1 million in the quarter. Wholesale sales were down 0.8% to $21.0 million, due to declines in the Stride Rite and Tommy Hilfiger Footwear brands. Retail sales in the childrens group jumped 13.7% to $43.1 million. Saucony childrens footwear, which was said to have gotten off to a strong start, is expected to open up new distribution for the company over time. Comp store sales were up 6.3%, “helped by a promotional calendar change.” SRR had 322 doors open at quarter-end, including 15 Saucony outlet doors. Total door count was up 9% from the year-ago period. SRR expects to open approximately 27 Stride Rite doors and close seven Stride Rite and six Saucony doors this year.
The Keds business came in below expectations for the quarter, posting a 9.3% decrease to $38.1 million. The Grasshoppers business was said to be “up slightly,” so the core Keds brand business was down even more than the reported decline. However, the business performed a little better outside the value channel, but still experienced a decline. Excluding the value channel, the overall Keds business was down 5% for the period. Management said they expect to see a mid-single-digit decline for the fiscal second quarter and improvements in the second half leading to a flat business for the total year.
Saucony sales were up 6.3% to $22.4 million. In addition to an increase seen in the running specialty business, the company is also posting gains in the sporting goods channel with two $65 silhouettes. They also added a $50 entry-level product. In better product, average selling prices climbed, with the Omni now at $100 from $90 and the Triumph now selling at $120 versus $115 last year.
International sales rose 2.1% to $23.3 million, with strong growth for Keds in Canada, Europe and Australia leading the gains. Management said International Keds sales would be up over 50% this year.
The 3.6% increase in the Tommy Hilfiger sales came as the company starts to anniversary the loss of the May Company and Dillards businesses in the prior year. Both mens and womens were said to be up. Management attributed the return to growth here on an improving TH apparel business.
Inventory increased 9.6% to $126.7 million at quarter-end, a gain management said was predominantly due to Sperry Top-Sider and Saucony, as well as the increased inventory required for the addition of owned-retail stores.
SRR reaffirmed projected sales growth of 5% to 8% and earnings per share of $1.10 to $1.15 for the full year.
| The Stride Rite Corp. | |||
| Fiscal First Quarter Results | |||
| ($ millions) | 2007 | 2006 | Change |
| Total Sales | $194.7 | $183.4 | 6.1% |
| Children's | $64.1 | $59.1 | 8.5% |
| Wholesale | $21.0 | $21.2 | -0.8% |
| Retail | $43.1 | $37.9 | 13.7% |
| Keds | $38.1 | $42.0 | -9.3% |
| Sperry | $26.0 | $23.6 | 10.3% |
| TH Footwear | $15.5 | $14.9 | 3.6% |
| International | $23.3 | $22.8 | 2.1% |
| Saucony | $22.4 | $21.1 | 6.3% |
| Hind | $2.4 | $3.5 | -30.8% |
| Robeez | $7.1 | — | — |
| GM % | 40.8% | 39.9% | +90 bps |
| Net Income | $11.1 | $8.3 | +33.9% |
| Diluted EPS | 30¢ | 22¢ | +36.4% |
| *at quarter-end | |||
