The Stride Rite Corporation second quarter fiscal 2006 sales were $194.0 million, an increase of 22% compared to the same period in the prior year. Net income for the second quarter totaled $16.9 million or 45 cents per diluted share, compared to net income of $11.8 million or 32 cents per diluted share in the second quarter of 2005. The second quarter financial results include the reversal of certain prior period reserves for income tax exposures that are no longer required.
The second quarter tax rate decreased to 19.3% from 36.1% in the comparable period of the prior year. The decrease was primarily attributable to the favorable outcome of a tax audit which resulted in the reversal of certain prior period reserves. The diluted per share impact of the lower tax rate was $.09 compared to last year. The annual 2006 tax rate is currently forecasted at approximately 32.0%.
Beginning in 2006, the Company adopted SFAS No. 123R, “Share-Based Payment”, the impact of which increased pre-tax expenses by approximately $900 thousand for the second quarter of fiscal 2006. In addition, the current quarter results include pre-tax acquisition related integration expenses of $1.0 million.
Excluding acquisition related integration costs, net income would have been $17.5 million for the second quarter, while diluted earnings per share would have been $.46.
For the first six months of fiscal 2006, net sales were $377.4 million, an increase of 22% from the net sales of $310.2 million for the same period in fiscal 2005. On a diluted basis, earnings per share was $.67 in the first half of fiscal 2006 compared to $.54 in fiscal 2005. Net income for the first half of fiscal 2006 totaled $25.2 million, an increase of 26% from the $19.9 million reported in the comparable period in 2005.
The first half financial results include a pre-tax expense of $2.6 million related to the flow through of the write-up of inventory purchased in the Saucony acquisition as required by GAAP accounting rules. In addition, the first half results include pre-tax acquisition related integration expenses of $2.2 million. The SFAS No. 123R, “Share-Based Payment”, increased pre-tax expenses by approximately $1.6 million for the first six months of fiscal 2006.
Excluding acquisition related integration costs and the flow through of the inventory write-up, net income would have been $28.0 million for the first six months, while diluted earnings per share would have been $.74. See the section entitled “Non-GAAP Pro Forma Financial Measures” and the “Reconciliation of Non-GAAP Measures” provided in this release for additional information regarding these Non-GAAP Measures.
David Chamberlain, Chairman and CEO of Stride Rite, commented “While the earnings for the quarter were solid, the sales results by the divisions were mixed.”
“We are pleased with Saucony which continues to enjoy solid growth in the specialty run business. The technical product continues to perform well. An updated originals line and a separate children’s line have been developed for spring 2007. The integration of Saucony into Stride Rite has now been successfully completed.”
“Stride Rite Children’s Group performed as expected in the quarter with total sales up 13%. Comparable sales at Stride Rite Children’s Group company-owned retail stores were up 8.7% for the second quarter and 3.4% for the first six months of fiscal 2006. We expect Stride Rite Children’s Group sales to be up in the second half led by the retail area. Second half wholesale sales should be flat to down slightly, which will be an improvement over the first half.”
“The Tommy Hilfiger Division declined significantly in the second quarter reflecting lower sales across all retail channels. The second half will see a continued sales decline, similar to the first half. Tommy Hilfiger sales in our retail stores, children’s product line and international business continue to be reported as part of those operating units and are important businesses for us.”
“Keds sales performed below expectations, declining 16%. Lower than expected reorders, particularly in the Champion and Microstretch products, affected second quarter results. Sales to certain mid tier and specialty accounts were up for the first six months of the year. We are working with each account to complete the brand repositioning. This month we will begin shipping Keds into all Journey’s stores. We expect the second half to be a continuation of the performance seen in the first six months, particularly in the core products.”
“Sperry Top-Sider continued its strong performance in both men’s and women’s products. We expect them to continue to show a solid second half.”
“International sales, which reflect the inclusion of Saucony were very strong. That should continue in the second half. We have hired a senior executive to oversee operations and to build all of our brands in Europe. We expect this to pay significant dividends in future years.”
Mr. Chamberlain continued, “Although the Keds turnaround has been slower than anticipated and the Tommy decline larger than expected, we are reconfirming our full year earnings range forecast of $.82 – $.88. However, we are now forecasting the range for sales growth this year to be 20% – 22%.”
This earnings forecast excludes the impact of the lower tax rate described previously. Included in the projected earnings is the annual impact related to the expensing of stock options, which is projected at approximately $.05 per diluted share. In addition, these projections include the previously reported cost of sales impact related to the flow through of the write-up of inventory purchased in the Saucony acquisition, which reduced earnings per diluted share by $.04 in the first quarter. Acquisition related integration costs of $3.0 million or $.05 per diluted share for the year are also included in the earnings projections.
The Stride Rite Corporation
Net Sales (in thousands)
Second Quarter
--------------
Percent
2006 2005 Change
---------- --------- --------
(Unaudited)
Stride Rite Children's Group - Wholesale $18,292 $19,491 (6)%
Stride Rite Children's Group - Retail 55,789 45,977 21%
---------- --------- --------
Stride Rite Children's Group - Combined 74,081 65,468 13%
Keds 34,925 41,720 (16)%
Sperry Top-Sider 28,519 23,084 24%
International (includes Saucony) 19,172 7,877 143%
Saucony Domestic (includes Hind) 25,623 - n/a
---------- --------- --------
Other Wholesale - Combined 108,239 72,681 49%
Tommy Hilfiger Adult 14,583 24,559 (41)%
Intercompany Eliminations (2,896) (3,067) n/a
---------- --------- --------
Total $194,007 $159,641 22%
========== ========= ========
-- Net sales for the six months ended June 2, 2006 and June 3,
2005 are summarized in the table as follows:
The Stride Rite Corporation
Net Sales (in thousands)
Six Months
----------
Percent
2006 2005 Change
--------- --------- --------
(Unaudited)
Stride Rite Children's Group - Wholesale $39,448 $45,078 (12)%
Stride Rite Children's Group - Retail 93,713 81,422 15%
--------- --------- --------
Stride Rite Children's Group - Combined 133,161 126,500 5%
Keds 76,916 87,517 (12)%
Sperry Top-Sider 52,107 42,528 23%
International (includes Saucony) 41,990 16,688 152%
Saucony Domestic (includes Hind) 50,186 - n/a
--------- --------- --------
Other Wholesale - Combined 221,199 146,733 51%
Tommy Hilfiger Adult 29,516 42,680 (31)%
Intercompany Eliminations (6,453) (5,681) n/a
--------- --------- --------
Total $377,423 $310,232 22%
========= ========= ========
- Total Stride Rite Children’s Group net sales increased 13% in
the second quarter and 5% for the first half compared to last
year. - Stride Rite Children’s Group-Wholesale net sales decreased
6% for the quarter and 12% for the first six months as
compared to the prior year. This decrease was attributable
to several factors including: the changed product flow of
certain department stores, a shift in value channel buying
patterns and a decline in smaller accounts. - Net sales of the Stride Rite Children’s Group-Retail
division increased 21% in the second quarter and 15% for
the first six months versus the prior year. Sales at
comparable Children’s Group retail stores (open 52 weeks
in each fiscal year) increased 8.7% for the second quarter
and 3.4% for the first six months of fiscal 2006. At
quarter-end, the Stride Rite Children’s Group-Retail
operated 288 Stride Rite children’s shoe stores and
outlets as well as 16 Saucony outlet stores. - Net sales in the Keds division decreased 16% for the second
quarter and 12% for the first six months compared to the
comparable periods in the prior year. The increased sales to
specialty and independent retail accounts did not offset the
sales declines in the department store, mid tier, and value
channels. - Sperry Top-Sider net sales increased 24% for the second
quarter and 23% for the first half on strong sales of men’s
and women’s products, particularly in the marine and family
shoe retail channels. - Saucony net sales were $25.6 million for the second quarter
and $50.2 million for the first half of 2006. Saucony
technical running product continued to perform well. - International net sales increased 143% for the second quarter
and 152% for the first six months compared to fiscal 2005,
primarily due to the addition of Saucony international sales.
Contributing to the first half increase in international sales
versus last year were higher sales of Tommy Hilfiger in Canada
and Latin America, Keds footwear in Canada, and Sperry
Top-Sider in Europe. - Net sales of Tommy Hilfiger men’s and women’s products
decreased 41% for the second quarter and 31% for the first six
months compared to last year, with sales declines in all
retail channels.
OTHER FINANCIAL HIGHLIGHTS:
- The second quarter gross profit percentage of 42.4% increased
1.6 percentage points compared to the same period in the prior
year. For the first six months and excluding the flow through
of the inventory write-up related to the Saucony purchase, the
gross profit percentage increased 1.4 percentage points to
41.9%. Keds, Sperry Top-Sider and International all had strong
gross profit percentage improvements in the first half
compared to the prior year. - Operating expenses increased 28% for the second quarter and
26% for the first six months compared to the comparable
periods in the prior year. As planned, the major operating
cost increases were related to Saucony expenses, higher
advertising costs and the Stride Rite Children’s Group-Retail
store expansion. Also contributing to the increase in
operating expenses were integration costs and the impact of
adopting SFAS No. 123R, “Share-Based Payment”. - For the second quarter, operating income increased 21% and was
up 26% excluding the acquisition related integration costs
($1.0 million). For the first six months, operating income
increased 16% and was up 31% for the first six months
excluding the acquisition related integration costs ($2.2
million) and the flow through of the inventory write up ($2.6
million). - Accounts receivable increased 32% versus the comparable period
last year due to the addition of Saucony and higher sales in
the last month of the quarter. DSO of 42 days was flat
compared to the same period last year. - Inventories of $123 million were up 25% versus the comparable
period of 2005. The increase was due primarily to the addition
of Saucony. - The Company repurchased approximately 340 thousand shares of
company stock during the second quarter at a cost of $4.8
million. For the first six months, approximately 448 thousand
shares have been repurchased at a cost of $6.3 million.
The Stride Rite Corporation
Summarized Financial Information
for the periods ended June 2, 2006 and June 3, 2005
Statements of Income
(in thousands) Second Quarter Six Months
--------------------- -------------------
2006 2005 2006 2005
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
Net sales $194,007 $159,641 $377,423 $310,232
Cost of sales 111,728 94,430 221,912 184,489
---------- ---------- --------- ---------
Gross profit 82,279 65,211 155,511 125,743
Selling and administrative
expenses 60,291 47,028 119,201 94,479
---------- ---------- --------- ---------
Operating income 21,988 18,183 36,310 31,264
Other income (expense), net (1,064) 208 (1,887) 370
---------- ---------- --------- ---------
Income before income taxes 20,924 18,391 34,423 31,634
Provision for income taxes 4,031 6,639 9,245 11,721
---------- ---------- --------- ---------
Net income $16,893 $11,752 $25,178 $19,913
========== ========== ========= =========
Earnings per share:
Diluted $0.45 $0.32 $0.67 $0.54
Basic $0.46 $0.32 $0.69 $0.55
Weighted average shares
outstanding:
Diluted 37,623 37,185 37,619 37,075
Basic 36,650 36,175 36,625 36,091
