Stride Rite Shows Solid Improvement in Second Quarter

The Stride Rite Corporation's sales for the second quarter of fiscal 2004 increased 7% to $165.0 million from $154.3 million in the comparable period of fiscal 2003. Net income for the second quarter totaled $11.9 million or $.30 per diluted share, as compared to net income of $11.2 million or $.28 per diluted share in last year's second quarter.

For the first six months of fiscal 2004, net sales were $301.1 million, a decrease of 2% from the net sales of $306.6 million for the same period in fiscal 2003. On a diluted basis, earnings per share were $.49 in the first half of fiscal 2004 compared to $.50 in fiscal 2003. Net income for the first half of fiscal 2004 totaled $19.4 million, a decrease of 3% from the $20.0 million reported in the comparable period in 2003.

Second quarter sales of the Stride Rite Children's Group increased 9% compared to the second quarter of fiscal 2003. The Children's Group company-owned retail stores had a sales increase of 10% for the second quarter over the same period of fiscal 2003. Sales at comparable Children's Group retail stores increased 7.8% in the second quarter. Children's Group wholesale sales increased 7% during the same period. The Stride Rite Children's Group operated 240 stores at the end of the second quarter, an increase of 4% from the prior year. Sales of Tommy Hilfiger Footwear and Sperry Top-Sider increased 19% and 6% in the second quarter of fiscal 2004, respectively, from the comparable period of fiscal 2003. Sales of the Keds brand decreased 3% in the second quarter from the comparable period in fiscal 2003. International sales for the second quarter increased 26% compared to the same period in 2003.

The Company's gross profit percentage of 38.5% in the second quarter of fiscal 2004 decreased one percentage point compared to the same period last year, due primarily to increased freight costs and higher closeout product sales. Operating expenses in the second quarter of 2004 increased one percent as compared to the same period last year.

The quarter-end balance sheet remained strong with the Company's cash balance at $80 million, a decrease of $2 million compared to last year. The Company repurchased approximately 2 million shares of Company stock at a cost of $21 million dollars in the quarter. Accounts receivable increased 13% compared to last year due to timing of shipments in the quarter. DSO was 41 days, an increase of one day versus the same period last year. Inventories of $81 million were up 5% compared to the same period of 2003. The Company has no outstanding debt.

David M. Chamberlain, Stride Rite's Chairman and Chief Executive Officer, commented, “As we anticipated, our second quarter sales were improved over last quarter and the prior year.

The second quarter Children's Group retail store comparable sales were very strong as we continue to build on our positive trend. The Children's Group wholesale business rebounded nicely with sales growth over last year's second quarter. We believe our Children's Group business will continue to grow in the subsequent quarters this year.

Our Keds sales recovered from a difficult first quarter on the strength of the Keds Microstretch(TM) product. However, underperforming sales in some other Keds styles negatively impacted second quarter results. We feel progress is being made in Keds which will provide the foundation for growth under the leadership of the newly hired Keds president.

Our Sperry Top-Sider division had a solid second quarter on the increased market penetration of its performance boat shoes. Tommy Hilfiger Footwear sales were strong in the quarter as the beachwear program was well received and the “H” Hilfiger and Tommy Girl product lines were introduced. The strong International sales increase was predominantly in Asia and Latin America.

Mr. Chamberlain continued, “Although we had a solid second quarter, the slower than anticipated Keds turnaround has required us to lower our full year guidance. We are now projecting flat to slightly higher sales versus last year and an earnings per share range of $.65 – $.68 for the full year.”

                           (in thousands, except per share amounts)
                           For the Quarter       For the Six Months
                                Ended                   Ended
                         May 29,     May 30,     May 29,     May 30,
                          2004        2003        2004        2003

Net sales                $165,009    $154,286    $301,143    $306,608
Net income                 11,900      11,219      19,384      20,040
Net income per common
  share:
 Diluted                      .30         .28         .49         .50
 Basic                        .31         .29         .50         .51
Average common shares
  used in per share
  computations:
 Diluted                   39,450      39,895      39,887      39,866
 Basic                     38,637      39,362      39,029      39,394

                     The Stride Rite Corporation

             Summarized Financial Information (Unaudited)

         for the periods ended May 28, 2004 and May 30, 2003

                         Statements of Income
(In thousands)                   Second Quarter        Six Months

                                 2004      2003      2004      2003
Net sales                     $165,009  $154,286  $301,143  $306,608

Cost of sales                  101,507    93,308   184,628   187,589

Gross profit                    63,502    60,978   116,515   119,019

Selling and administrative

 expenses                       44,589    44,002    85,929    88,378

Operating income                18,913    16,976    30,586    30,641

Other income, net                  321       820       740     1,270

Income before income taxes      19,234    17,796    31,326    31,911

Provision for income taxes       7,334     6,577    11,942    11,871

Net income                     $11,900   $11,219   $19,384   $20,040