Stride Rite Fiscal Q1 Earnings Down 14.8% as Sales Decline 11% for Quarter

The Stride Rite Corporation reported sales for the first quarter of fiscal 2004 decreased 11% to $136.1 million from $152.3 million in the comparable period of fiscal 2003. Net income for the first quarter totaled $7.5 million or $.19 per diluted share, as compared to net income of $8.8 million or $.22 per diluted share in last year's first quarter.

First quarter sales of the Stride Rite Children's Group were unchanged from the first quarter of fiscal 2003. The Children's Group company-owned retail stores had a sales increase of 14% for the first quarter, over the same period of fiscal 2003. Sales at comparable Children's Group retail stores increased 11.8% in the first quarter. Children's Group wholesale sales decreased 13% during the same period. Sales of the Keds and Tommy Hilfiger Footwear brands in the first quarter of fiscal 2004 decreased 24% and 18%, respectively, from the comparable period of fiscal 2003. Sales of the Sperry Top-Sider brand increased 3% in the first quarter from the comparable period in fiscal 2003. International sales for the first quarter increased 8% compared to the same period in 2003.

The Company's gross profit percentage of 38.9% in the first quarter of fiscal 2004 improved 0.8 percentage points as compared to the same period last year, due primarily to better in-line gross profit margins and fewer inventory markdowns. Operating expenses in the first quarter of 2004 decreased 7% as compared to the prior year. The major operating cost decreases for the quarter were related to lower advertising and other administrative spending.

The quarter-end balance sheet remained strong with inventories 5% below last year. Accounts receivable decreased 10%, consistent with the first quarter sales decline. DSO at 57 days was level with the prior year's DSO. The Company's end of quarter net cash position of $68 million represented a $36 million increase over fiscal 2003 and the Company has no outstanding debt. The Company repurchased 101,800 shares of company stock in the first quarter of fiscal 2004.

David M. Chamberlain, Stride Rite's Chairman and Chief Executive Officer, commented, “Given the disappointing first quarter results, a few comments on our prospects, as we currently see them, are in order.

The Children's Group retail store comparable sales were very strong and we anticipate a year of solid, same-store growth. The first quarter wholesale business was impacted by the bankruptcy of Footstar, reduced Munchkin product line sales and a decline in Tommy Hilfiger children's product sales. We believe our Children's Group wholesale business will show improvement in subsequent quarters.

As we previously discussed, Keds was up against very strong first quarter sales from a year ago. Keds product performance in the second quarter of 2003 did not produce satisfactory results for most retailers. Consequently, this year retailers proved to be even more cautious than we anticipated in their purchases of the current Spring 2004 product line. That said, retail sales of the Keds Microstretch(TM) product line have been strong. In addition, our canvas products, in general, are enjoying better retail results than a year ago. A significant amount of Keds' projected sales volume in the second quarter is typically based on product re-orders.

Sperry Top-Sider and International turned in solid first quarters. We expect both to have good years. Tommy Hilfiger had a disappointing first quarter in the men's business. This, combined with a lower average selling price, due principally to a shift to beachwear from canvas and lower closeout product sales, created much of the shortfall. The Tommy Girl (teen) line is now rolled out at Journey's and Underground Station. The Tommy “H” line will begin shipping at the end of March. We expect the Tommy performance to improve for the second quarter and the year.

In spite of this slow start to the year, we are currently reaffirming our guidance of 3% – 5% sales growth and 8% – 12% growth in earnings for the full fiscal year.”

                     The Stride Rite Corporation
                   Summarized Financial Information
    for the periods ended February 27, 2004 and February 28, 2003

                         Statements of Income

(in thousands)                                     First Quarter

                                               2004            2003
                                                     (Unaudited)
 Net sales                                   $136,134        $152,322
 Cost of sales                                 83,121          94,281
 Gross profit                                  53,013          58,041
 Selling and administrative expenses           41,340          44,376
 Operating income                              11,673          13,665
 Other income, net                                419             450
 Income before income taxes                    12,092          14,115
 Provision for income taxes                     4,608           5,294

 Net income                                    $7,484          $8,821
Net income per common share:

 Diluted                                          .19             .22
 Basic                                            .19             .22