Saucony, Inc. announced net sales for the first quarter of 2003 increased 12.3% to $39.1 million compared to $34.8 million in the first quarter of 2002. Net income increased 100% to $2.6 million, or $0.42 per share on a diluted basis, compared to net income of $1.3 million, or $0.21 per share on a diluted basis, for the same period in 2002.
John H. Fisher, Saucony’s President and Chief Executive Officer stated, “Our better than expected results, which represent our sixth consecutive quarter of meeting or exceeding expectations, were driven by a combination of greater than anticipated net sales and gross margins. Our international and domestic footwear businesses as well as our Hind apparel business all exceeded our net sales expectations. Both our domestic and international footwear businesses exceeded our gross margin expectations. Our inventory management and supply chain initiatives are really taking hold and are resulting in continued and significant gross margin improvements.”
“Our ability to double earnings per share during the quarter underscores the strong progress the Company has made on a number of different levels,” Mr. Fisher further commented. “We continue to be pleased with the strengthening of the Saucony brand, particularly in the core technical running category. Moreover, the strategic initiatives implemented over the past 18 months continue to improve our operating efficiencies, highlighted by our bottom line performance and enhanced balance sheet position.”
At April 4, 2003, backlog scheduled for delivery within the next five months (April 5, 2003 – August 29, 2003) totaled approximately $41.6 million, compared to five month backlog of $42.7 million at the end of the first quarter in fiscal year 2002.
At April 4, 2003, open order backlog scheduled for delivery in the next 12 months was $50.9 million, compared to the April 5, 2002 12-month backlog of $50.2 million.
Mr. Fisher continued, “We believe that the current geopolitical environment, poor weather in the northeast in our first quarter and the general uncertainty that exists in the market has resulted in an increased level of conservatism among retailers. This has resulted in higher than expected order cancellations in the first quarter, impacting our order backlog trends.”
Mr. Fisher continued, “Our quarter ending cash position is once again very satisfying. Our proactive working capital management efforts continue to yield measurable improvements.”
Net sales for the first quarter of 2003 increased 12.3% to $39.1 million compared to $34.8 million in the first quarter of 2002 due primarily to increased Saucony footwear unit volumes and increased Hind apparel unit volumes. Domestic net sales increased 13% to $29.6 million compared to $26.2 million in the first quarter of 2002 due primarily to increased special makeup and Originals footwear unit volume and, to a lesser extent, increased technical footwear unit volume. International sales increased 11% to $9.5 million from $8.6 million in the first quarter of 2002 due primarily to the favorable impact of a weaker U.S. dollar and, to a lesser extent, increased Saucony technical footwear unit volume at our international subsidiaries. Saucony brand footwear accounted for approximately 83% of the Company’s first quarter 2003 sales, while a combination of Hind apparel and factory outlet store revenues accounted for the balance.
The Company’s gross margin in the first quarter of 2003 increased 470 basis points to 38.9% compared to 34.2% in the first quarter of 2002, due primarily to increased Saucony domestic sales levels of first quality footwear products at full margin. Other factors contributing to the margin increase were proportionately lower sales of closeout footwear, lower product cost, lower provisions for obsolete inventory and the favorable impact of a weaker U.S. dollar against European and Canadian currencies.
Selling, general and administrative expenses as a percentage of net sales were 28.0% in the first quarter of 2003 compared to 27.9% in the first quarter of 2002. In absolute dollars, selling, general and administrative expenses increased 13% due to increased incentive compensation, increased insurance costs, increased administrative payroll and fringe benefit costs and higher professional fees, partially offset by lower depreciation expense and reduced athlete sponsorship. Selling expenses as a percentage of net sales in the first quarter of 2003 decreased to 12.6% from 14.3% in the 2002 period, while general and administrative expenses increased to 15.4% of net sales compared to 13.6% in the first quarter of 2002.
The net income for the first quarter of 2003 was $2.6 million, or $0.42 per share on a diluted basis, compared to net income of $1.3 million, or $0.21 per share on a diluted basis, in the first quarter of 2002.
During the first quarter ended April 4, 2003, the Company repurchased approximately 10,000 shares of common stock at a cost of $103,000. The Company has repurchased approximately 572,000 shares of common stock at a cost of $5.3 million under the stock buyback program approved by the Company’s Board of Directors in May 1998.
The Company is providing guidance in this press release as to its anticipated results of operations for future periods. This guidance is based on the Company’s current information and expectations, and actual results may differ materially. The Company undertakes no obligation to update this information. Please see the further disclaimer in the last paragraph of this release. This guidance is updated from that previously issued. The following information replaces our previous guidance.
The Company expects fully diluted earnings per share to range from $0.20 to $0.22 for the second quarter of 2003 and to range from $1.02 to $1.09 for the year.
The Company expects second quarter net sales to range from $33.0 million to $35.0 million. The Company expects net sales for the year to range from $135.0 million to $138.0 million.
The Company expects gross margins to be approximately 38% for both the second quarter and for the year.
The Company expects selling, general and administration expenses to be approximately 32% of sales for the second quarter and approximately 30% for the year.
Mr. Fisher concluded, “We are very pleased with our start to fiscal 2003. Looking ahead, we are excited about upcoming new product introductions and remain enthusiastic about our growth prospects for the future. We are focused on maintaining Saucony’s premium brand equity among its target market, while simultaneously increasing our share of the technical footwear market.”
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the quarter ended April 4, 2003 and April 5, 2002
(Unaudited)
(Amounts in thousands, except per share data)
Quarter Quarter
Ended Ended
April 4, April 5,
2003 2002
Net sales $39,068 $34,787
Other revenue 95 64
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Total revenue 39,163 34,851
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Costs and expenses
Cost of sales 23,872 22,888
Selling expenses 4,932 4,961
General and administrative expenses 5,988 4,732
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Total costs and expenses 34,792 32,581
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Operating income 4,371 2,270
Non-operating income (expense)
Interest, net 72 86
Foreign currency (15) (25)
Other (11) 1
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Income before income taxes and minority interest 4,417 2,332
Provision for income taxes 1,750 967
Minority interest in income of
consolidated subsidiaries 64 64
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Net income $ 2,603 $ 1,301
