Any thoughts that new Keds president Shawn Neville will have much of a honeymoon when he joins Stride Rite Corporation on July 7 were quickly dashed last week as the company pointed to the troubled division as a key culprit in the company’s anemic results. While SRR posted fiscal Q2 numbers that were stronger than last year, and were clearly a reversal of the negative trend in the first quarter, it may not be enough to erase the poor start to the year.

SRR shares were up 5.1% for the week to close at $11.05 on Friday after an initial dip when the company missed analysts’ Q2 earnings estimates. SRR lowered full year EPS guidance to 65 cents to 68 cents per share from its previous forecast of 68 cents per share. Stride Rite had forecast 8% to 12% EPS growth for the year, which would have put them in the 69 cents to 72 cents per share range versus the 64 cents earned last year.

The Children’s Group again posted positive sales trends in the quarter, rising 9.0% versus Q2 last year. The company-owned retail stores under the Children’s Group umbrella saw comparable stores sales increase 7.8% for the period, while a net increase of ten stores from the same period last year helped grow total retail sales 10.0% for the quarter. The Group now operates 240 retail stores, which includes 177 Stride Rite stores, one Show Buzz store, and 62 outlet stores.

Children’s Group wholesale revenues increased 7.0% for the period. SRR said department stores and chain stores were “good”, but were “down slightly” with licensees.

As predicted by management at the end of Q1, the Tommy Hilfiger Footwear division reversed the ugly start to the year, posting a 19% increase in sales in Q2 after a dismal 18% decline in first quarter. Lower average selling prices and a sluggish Men’s business continue to impact results here as trends continue to move toward Tommy Girl, beach styles, and sandals and away from the Men’s Athletic business, which they see continuing into the fall. The company did say the Tommy “H” collection was “favorably received” during its Q2 launch. Sales in the Pro-Keds line were said to be up off of a low base.

Sperry Top-Sider revenues increased 6.0% in the second quarter as the division starts to see average selling prices move higher as the Gold Cup product, which is priced around $150, gets “off to a nice start”. David Chamberlain, chairman and CEO, said they are going to do a limited run of the shoes in crocodile that will sell for $1,000 a pair.

Chamberlain pointed to the success of the Mako, which retails at around $70 as another key performer. He said the will continue to build on the business with more outdoor product as interest builds there. The Bass Pro business was said to be “very strong” for Sperry.

The Keds brand was the lone decliner, off 3.0% in the quarter on top of a 10% in Q2 last year. Lower ASP’s were also said to be an issue here, but “not as dramatically as Tommy”. The company said they will sell about 1.4 million pairs of Microstretch product in the spring season, but “other key parts of the line did not meet expectations.” Chamberlain said the fall business will “fall below previous expectations.

There were a number of questions from analysts about what Mr. Neville would bring to the table to help turn the business around for the division. Chamberlain pointed to Neville’s experience as both a marketer and a retailer as an advantage, but appreciated his strategic vision for the brand and touted his sales background as key upsides.
International sales increased 26% in Q2 compared to the same period in 2003, due primarily to gains in Asia and Latin America.

Despite a higher percentage of close-out sales and increased freight costs that pushed gross margins lower for the period, a decline in SG&A as a percentage of sales helped push net income higher for the period.
The jump in accounts receivable was attributed to “timing of shipments in the quarter” versus last year.


>>> No pressure Shawn… Just take your time…