Saucony, Inc. reported that net income increased 63% to $4.2 million in the first quarter of 2004, compared to $2.6 million in the year-ago period. Diluted earnings per share increased to 58 cents per Class A share and 64 cents per Class B share in the first quarter of 2004, compared to diluted earnings per share of 39 cents per Class A share and 43 cents per Class B share for the comparable period in 2003. Net sales for the quarter increased 20% to $47.0 million, compared to $39.1 million in the first quarter of 2003.
Net sales for the first quarter of 2004 increased 20% to $47.0 million, compared to $39.1 million in the first quarter of 2003. Domestic net sales increased 22% to $36.0 million in the first quarter of 2004, compared to $29.6 million in the first quarter of 2003.
International net sales increased 16%, to $11.0 million in the first quarter of 2004, compared to $9.5 million in the first quarter of 2003. The international net sales increase in the first quarter of 2004 is due primarily to favorable changes in foreign exchange rates as compared to the first quarter of 2003.
Saucony brand footwear accounted for approximately 88% of total first quarter 2004 net sales, while a combination of Hind apparel and factory outlet stores net sales accounted for the balance.
The Company's gross margin in the first quarter of fiscal 2004 increased 170 basis points to 40.6%, compared to 38.9% in the first quarter of 2003, due primarily to favorable currency exchange due to the impact of a weaker U.S. dollar against European and Canadian currencies, improved margins on Hind brand apparel, due to increased sales of first quality product at higher margin, and improved margins at our factory outlet division. Partially offsetting these factors in the first quarter of 2004 were increased footwear unit volume of our mid-priced cross-over footwear sold into the athletic mall, sporting goods and value channel at lower gross margins that include rebates provided to certain Saucony domestic customers.
John H. Fisher, President and Chief Executive Officer, commented, “Strong demand and solid execution across all of our divisions fueled our record results for the first quarter. A robust at-once business in our core technical running and cross-over footwear categories and substantial international growth helped us to achieve our 10th consecutive quarter of meeting or exceeding expectations. Additionally, we continued to improve our gross margins and ratio of sales growth rates to operating expense growth rates and we recently paid a special dividend in the amount of $26.0 million and increased our regular quarterly cash dividends by 25% in an effort to further return value to our shareholders. We are extremely pleased to begin 2004 with a standout performance and we are excited about our prospects for the remainder of the year.”
Order Backlog
The backlog of open orders at April 2, 2004 scheduled for delivery within the next five months (April 3, 2004 – August 27, 2004) increased 28% to $53.0 million, compared to $41.2 million at April 4, 2003.
At April 2, 2004, the open order backlog for delivery in the next 12 months increased 25% to $62.9 million, from $50.3 million at April 4, 2003.
Mr. Fisher continued, “We continue to gain momentum in our domestic technical footwear business, which significantly contributed to our double-digit increase in open orders scheduled for delivery over the next five months. We are experiencing continued strength and significant year-on-year growth in the mid-priced footwear category, which we refer to as cross-over footwear. We expect that our focus in technical footwear and the expansion of our brand reach in cross-over footwear will continue to be keys in our effort to meet our future growth objectives.”
Inventory
Mr. Fisher remarked, “The number of days sales in inventory increased slightly to 85 days at April 2, 2004, compared to 84 days at April 4, 2003. Our inventory management has continued to be exceptional during these challenging times. We believe our quarter ending inventories are high in quality and position us well to take advantage of potential increases in the demand for our core products in the next few months of 2004.”
Selling, general and administrative expenses as a percentage of net sales decreased to 25.8% in the first quarter of 2004, compared to 28.0% in the first quarter of 2003. In absolute dollars, selling, general and administrative expenses increased 11%, due primarily to increased administrative and selling payroll, operating expenses associated with the factory outlet division expansion, account specific advertising and promotion, print media advertising, variable selling expenses, and professional fees. Selling expenses as a percentage of net sales in the first quarter of 2004 were 12.9%, compared to 12.6% in the comparable 2003 period, while general and administrative expenses were 12.9% of net sales, compared to 15.4% in the first quarter of 2003.
Mr. Fisher concluded, “Our record results for the first quarter indicate the heightened demand for our products in all of our key domestic channels of distribution and underscore the overall strength of our business. We are committed to further building brand awareness for both Saucony and Hind through our increased marketing and advertising efforts, and the initial feedback from this program to date has been very positive. We believe our strategy for top-line expansion is on track and we are well-positioned to deliver strong financials and improved shareholder value.”
Business Outlook
The Company expects fully diluted earnings per share to range from $0.34 to $0.36 for Class A shares and to range from $0.38 to $0.40 for Class B shares for the second quarter of 2004 and to range from $1.34 to $1.38 for Class A shares and to range from $1.48 to $1.52 for Class B shares for the year.
The Company expects second quarter net sales to range from $42 million to $43 million. The Company expects net sales for the year to range from $159 million to $161 million.
The Company expects gross margins to range from 39% to 40% for the second quarter and be approximately 40% for the year.
The Company expects selling, general and administration expenses to range from 29% to 30% of sales for the second quarter and be approximately 30% of sales for the year.
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the quarters ended April 2, 2004 and April 4, 2003
(Unaudited)
(in thousands, except per share amounts)
Quarter Quarter
Ended Ended
April 2, April 4,
2004 2003
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Net sales $ 46,969 $ 39,068
Other revenue 179 95
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Total revenue 47,148 39,163
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Costs and expenses
Cost of sales 27,912 23,872
Selling expenses 6,058 4,932
General and administrative expenses 6,078 5,988
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Total costs and expenses 40,048 34,792
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Operating income 7,100 4,371
Non-operating income (expense)
Interest income 69 74
Interest expense -- (2)
Foreign currency losses (144) (15)
Other 3 (11)
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Income before income taxes and
minority interest 7,028 4,417
Provision for income taxes 2,759 1,750
Minority interest in income of
consolidated subsidiaries 38 64
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Net income $ 4,231 $ 2,603
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Per share amounts:
Earnings per share:
Basic:
Class A common stock $ 0.63 $ 0.41
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Class B common stock $ 0.69 $ 0.45
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Diluted:
Class A common stock $ 0.58 $ 0.39
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Class B common stock $ 0.64 $ 0.43
