Saucony relied on a 500 basis point improvement in gross margin to post a 44% improvement in net income and a 40% increase in diluted EPS in the second quarter. However, the improved bottom line masked issues on the top line as sales for the quarter decreased.
There appears to be little relief in sight as the company reported futures backlog through November inched up just 2.3% and cancels continue to cut into the orders already on the books.
U.S. Saucony brand sales fell 9.0% to $22.7 million for the quarter, but are still up 1.0% to $46.3 million YTD. International sales were flat as $7.1 million. The Outlets and HIND business was up 9.0% to $4.5 million and up 12% for the year to $10.5 million. Saucony footwear was 87% of Q2 sales, with “cross-over” footwear now at 28% of total sales and 24% of backlog. At-once was 25% – 30% of the Q2 business and cancellation rates were twice the normal average.
Still, the company was able to manage inventory down 24% from Q2 LY and, when coupled with the weaker dollar upside, produced a GM gain despite the cancellation issue. Net income for Q2 included a pre-tax benefit of $566,000 under the G&A line as a result of a litigation settlement agreement with the trustee appointed to oversee asset liquidation of a former customer.
In other news, Saucony entered into a Share Purchase Agreement with the minority shareholder of Saucony Canada, Inc. in a deal worth $539,000, increasing its ownership percentage in the unit to 95% from 85%.
Looking ahead, SCNY expects Q3 sales to be in the $32 million to $33 million range with diluted EPS ranging from 25 cents to 27 cents. Full year sales are seen between $131 million and $133 million with diluted EPS at $1.09 to $1.14 for the year.
>>> The issues here mirror much of what we see and hear in performance running, with cancels and inventory building at adidas and many of the non-public companies that rely on the category
