Stride Rite Fiscal Q2 Net Income Dips on Sales Slip

The Stride Rite Corporation reported net sales for the second quarter of fiscal 2003 were $154.3 million, a 1% decrease from the $156.5 million in the comparable period of fiscal 2002. Earnings per share on a diluted basis were $.28 in the second quarter of fiscal 2003, $.01 per share higher than the $.27 per share reported in the second quarter of 2002. Net income for the second quarter of fiscal 2003 totaled $11.2 million, 3% lower than the $11.6 million amount earned in the second quarter of 2002.

For the first six months of fiscal 2003, net sales were $306.6 million, an increase of 3% from the net sales of $297.2 million for the same period in fiscal 2002. On a diluted basis, earnings per share increased 11% to $.50 in the first half of fiscal 2003 compared to $.45 in the first half of fiscal 2002. Net income for the first half of fiscal 2003 totaled $20.0 million, an increase of 5% from the $19.1 million earned in the first half of 2002.

Sales of the Stride Rite Children’s Group increased 4% for the second quarter of fiscal 2003 versus the same period last year. Compared to the second quarter of 2002, retail sales at Stride Rite Children’s company-owned stores increased 14% while sales to independent retailers decreased 12%. The Stride Rite Children’s Group operated 230 stores at the end of the second quarter of 2003, up 11% from the store count at the end of the second quarter of fiscal 2002. Sales at comparable company-owned stores in the second quarter of 2003 increased 9.0% versus the same period last year. Sales of the Keds brand in the second quarter of 2003 decreased 10% as compared to the same period last year. Sales of Tommy Hilfiger footwear in the second quarter of 2003 decreased 6% compared to the second quarter of the prior year. Sales of Sperry Top-Sider products increased 8% during the second quarter of fiscal 2003 versus 2002. Second quarter 2003 International sales declined 4% compared to the same period last year.

During the second quarter of fiscal 2003, the Company’s gross profit percentage of 39.5% improved 220 basis points as compared to the same period last year. Selling and administrative expenses were increased 7%, due primarily to the cost of expanded retail locations and increased advertising spending. Also impacting net income was a higher tax rate, which was offset by a lower average share count in earnings per share. At the end of the second quarter of fiscal 2003, the balance sheet remained strong with both accounts receivable and inventory levels below last year by 13% and 1%, respectively. DSO decreased 22% versus last year to 40 days. The Company’s net cash position of $81 million at the end of the 2003 second quarter represents a 21% increase from the prior year and the Company has no outstanding debt.

David M. Chamberlain, Stride Rite’s Chairman and Chief Executive Officer, commented, “We are pleased with our solid earnings given the cold spring, war in Iraq and soft retail environment. As we stated previously, our second quarter wholesale sales are heavily dependent on consumer sell through and retail customer reorders.”

Mr. Chamberlain continued, “The strong 9.0% comparable store sales increase in our company-owned Stride Rite Children’s Group retail stores reflects the focus on product styling, merchandise flow and pricing. The wholesale sales component of our Stride Rite Children’s Group, however, was down, impacted by the challenges faced by our retailers. The Keds product line was well received in the first quarter, however, the very poor canvas trend clearly contributed to their second quarter 10% sales decline. Sperry Top-Sider sales growth of 8% in the quarter reflected their continued positive momentum, particularly in performance boat shoes. Tommy Hilfiger second quarter sales results, although below last year, followed a very strong first quarter resulting in an 11% first half sales increase. Our Tommy Hilfiger product lines continue to be well received by consumers.”

Mr. Chamberlain concluded, “Our second half financial results will be driven by the success of our fall product which is just now beginning to arrive at retail. Our earnings guidance remains unchanged for the year with annual earnings anticipated to be in the $.60 – $.64 per share range.”

                     The Stride Rite Corporation
             Summarized Financial Information (Unaudited)
         for the periods ended May 30, 2003 and May 31, 2002
                            (in thousands)

                          Statements of Income

                                 Second Quarter        Six Months
                                 2003      2002      2003      2002
 
Net sales                     $154,286  $156,480  $306,608  $297,213
Cost of sales                   93,308    98,041   187,589   187,008
Gross profit                    60,978    58,439   119,019   110,205
Selling and administrative
 expenses                       44,002    41,006    88,378    81,090
Operating income                16,976    17,433    30,641    29,115
Other income (expense), net        820        83     1,270       (63)
Income before income taxes      17,796    17,516    31,911    29,052
Provision for income taxes       6,577     5,944    11,871     9,941
Net income                     $11,219   $11,572   $20,040   $19,111