Saucony announced financial results for the second quarter ended July 4, 2003. Net income increased 44% to $2.2 million from $1.5 million in the comparable period of 2002, and diluted earnings per share increased 40% to $0.35, compared to diluted earnings per share of $0.25 for the comparable period in 2002. Net sales for the second quarter decreased 5.5% to $34.5 million, compared to $36.5 million in the second quarter of 2002.
For the six months ended July 4, 2003, net income increased 70% to $4.8 million from $2.9 million in the comparable period of 2002, and diluted earnings per share increased 67% to $0.77, compared to diluted earnings per share of $0.46 for the comparable period in 2002. Net sales increased 3.2% to $73.5 million, compared to $71.2 million in the comparable period of 2002.
Net income for the second quarter and for the six months ended July 4, 2003, includes a pre-tax benefit of $566,000 recorded in general and administrative expenses as a result of a litigation settlement agreement between the Company and the trustee appointed to oversee the liquidation of assets of a former customer.
John H. Fisher, President and Chief Executive Officer, commented, “Our strong bottom line performance was primarily driven by a 500 basis points increase in gross margin due to improved inventory management, supply chain execution and the favorable currency impact of a weaker US dollar, as well as the pre-tax benefit resulting from our litigation settlement. These results represent our 7th consecutive quarter of meeting or exceeding expectations. While the environment remains challenging, both Saucony and its retailers are cautiously optimistic in their outlook for the remainder of the year.”
Our backlog of open orders at July 4, 2003 scheduled for delivery within the next five months (July 5, 2003 – November 28, 2003) totaled approximately $36.0 million, compared to $35.2 million at the end of the second quarter of 2002.
At July 4, 2003, the open order backlog for delivery in the next 12 months was $41.7 million, compared to the July 5, 2002 backlog of $41.1 million.
Mr. Fisher continued, “We believe the persistent economic uncertainties have continued to result in conservatism among retailers. This has resulted in increased order cancellations through the first half of Fiscal 2003, impacting our order backlog trends.”
Mr. Fisher remarked, “Our inventory management execution has been exceptional during these challenging times. We believe our quarter ending inventories are high in quality and also position us well to take advantage of increases in the demand for our core products in the second half of 2003.”
On July 16, 2003 we paid our first regular quarterly dividend to all stockholders of record as of the close of business on June 18, 2003.
John H. Fisher stated, “The adoption of our first-ever regular quarterly dividend plan represents yet another significant accomplishment for our company. On behalf of all shareholders, I again congratulate our team for their fine efforts.”
Net sales for the second quarter of 2003 decreased 5.5% to $34.5 million, compared to $36.5 million in the second quarter of 2002. Domestic net sales decreased 7% to $27.2 million, compared to $29.2 million in the second quarter of 2002. International net sales remained constant at $7.3 million in the second quarter of 2003 compared to the second quarter of 2002. Saucony brand footwear accounted for approximately 87% of total second quarter 2003 net sales, while a combination of Hind apparel and factory outlet stores net sales accounted for the balance.
Net sales for the six months ended July 4, 2003 increased 3.2% to $73.5 million, compared to $71.2 million in the comparable period of 2002. Domestic net sales increased 2.7% to $56.8 million, compared to $55.3 million in the comparable period of 2002. International net sales increased 5.0% to $16.7 million, compared to $15.9 million in the comparable period of 2002. Saucony brand footwear accounted for approximately 85% of total sales during the first six months of 2003, while a combination of Hind apparel and factory outlet stores net sales accounted for the balance.
The Company's gross margin in the second quarter of 2003 increased to 39.0% compared to 34.0% in the second quarter of 2002, due primarily to improved margins on certain domestic footwear products, reduced Hind apparel inventory reserves, favorable currency exchange due to the impact of a weaker U.S. dollar against European and Canadian currencies and proportionately lower sales of closeout footwear.
For the first six months of 2003, gross margin increased to 38.9% versus to 34.1% in the comparable period of 2002 due primarily to improved margins on certain domestic footwear products, reduced Hind apparel inventory reserves, favorable currency exchange due to the impact of a weaker U.S. dollar against European and Canadian currencies and proportionately lower sales of closeout footwear.
Selling, general and administrative expenses as a percentage of net sales increased to 28.7% in the second quarter of 2003 compared to 26.8% in the second quarter of 2002. In absolute dollars, selling, general and administrative expenses increased 1%, due primarily to increased incentive compensation, increased insurance costs, increased administrative and selling payroll and increased employee healthcare costs, partially offset by lower provisions for bad debt expense, due to the litigation settlement and, to a lesser extent, lower depreciation expense and reduced variable selling expenses. Selling expenses as a percentage of net sales in the second quarter of 2003 were 14.3% compared to 14.0% in the 2002 period, while general and administrative expenses were 14.4% of net sales compared to 12.8% in the second quarter of 2002.
For the six months ended July 4, 2003, selling, general and administrative expenses as a percentage of net sales increased to 28.3% compared to 27.3% in the comparable period of 2002. In absolute dollars, selling, general and administrative expenses increased 7%, due primarily to increased incentive compensation, increased insurance costs, increased administrative and selling payroll, increased employee healthcare costs and higher professional fees, partially offset by lower provisions for bad debt expense, due to the litigation settlement and, to a lesser extent, lower depreciation expense, reduced variable selling expenses and decreased account specific advertising and promotion. Selling expenses as a percentage of net sales in the first six months of 2003 were 13.4% compared to 14.1% in the comparable period of 2002, while general and administrative expenses were 14.9% of net sales compared to 13.2% in the first six months of 2002.
Net income for the second quarter of 2003 was $2.2 million, or $0.35 per share on a diluted basis, compared to $1.5 million, or $0.25 per share on a diluted basis, in the second quarter of 2002.
For the six months ended July 4, 2003, net income was $4.8 million, or $0.77 per share on a diluted basis, compared to $2.9 million, or $0.46 per share on a diluted basis for the first six months of 2002.
Mr. Fisher concluded, “Our achievements over the past two years are directly related to the hard work of our people and demonstrate the considerable progress we have made strategically, financially and operationally. We head into the second half of fiscal 2003 with brand momentum, a strong balance sheet, a stronger management team and a compelling strategy that we believe will result in long-term growth and profitability.
On July 24, 2003, the Company entered into a Share Purchase Agreement with the minority shareholder of Saucony Canada, Inc. whereby the Company increased its ownership percentage of Saucony Canada, Inc to 95% from 85%. The purchase price is estimated at $539,000 and is valued at the net book value as of July 4, 2003.
The Company is providing certain forward-looking information in this press release. These statements are 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. The following information replaces our previous guidance.
The Company expects fully diluted earnings per share to range from $0.25 to $0.27 for the third quarter of 2003 and to range from $1.09 to $1.14 for the year.
The Company expects third quarter net sales to range from $32 million to $33 million. The Company expects net sales for the year to range from $131 million to $133 million.
The Company expects gross margins of approximately 38% for both the third quarter and for the year.
The Company expects selling, general and administration expenses in the range of 29% to 30% of sales for the third quarter and to be approximately 30% for the year.
SAUCONY, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the quarter and six-months ended July 4, 2003 and July 5, 2002
(Unaudited)
(Amounts in thousands, except per share data)
Quarter Quarter Six-Months Six-Months
Ended Ended Ended Ended
July 4, July 5, July 4, July 5,
2003 2002 2003 2002
------- ------- ------- -------
Net sales $34,472 $36,453 $73,540 $71,240
Other revenue 68 33 163 97
------- ------- ------- -------
Total revenue 34,540 36,486 73,703 71,337
------- ------- ------- -------
Costs and expenses
Cost of sales 21,044 24,046 44,916 46,934
Selling expenses 4,938 5,106 9,870 10,067
General and administrative
expenses 4,967 4,661 10,955 9,393
Plant closing and other
credits -- (59) -- (59)
------- ------- ------- -------
Total costs and expenses 30,949 33,754 65,741 66,335
------- ------- ------- -------
Operating income 3,591 2,732 7,962 5,002
Non-operating income (expense)
Interest income 53 67 127 155
Interest expense (3) (1) (5) (3)
Foreign currency gains
(losses) 73 (19) 58 (44)
Other 28 43 17 44
------- ------- ------- -------
Income before income taxes and
minority interest 3,742 2,822 8,159 5,154
Provision for income taxes 1,468 1,216 3,218 2,183
Minority interest in income of
consolidated subsidiaries 42 57 106 121
------- ------- ------- -------
Net income $ 2,232 $ 1,549 $ 4,835 $ 2,850
======= ======= ======= =======
Earnings per common share:
Basic $ 0.37 $ 0.25 $ 0.80 $ 0.47
======= ======= ======= =======
Diluted $ 0.35 $ 0.25 $ 0.77 $ 0.46
======= ======= ======= =======
Weighted average common shares
and equivalents outstanding:
Basic 6,085 6,099 6,075 6,092
======= ======= ======= =======
Diluted 6,299 6,214 6,278 6,168
======= ======= ======= =======
Cash dividends per share of
common stock:
Class A common stock $ 0.040 $ -- $ 0.040 $ --
Class B common stock $ 0.044 $ -- $ 0.044 $ --
