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