Stride Rite Q3 Earnings Down on Higher Tax Rate

The Stride Rite Corporation reported net sales for the third quarter of fiscal 2003 were $139.7 million, an increase of 2% from the net sales of $137.0 million in the comparable period of fiscal 2002. Operating income for the fiscal 2003 third quarter was $10.0 million, a 10% increase from the comparable 2002 third quarter amount.

Net income for the third quarter of fiscal 2003 totaled $6.4 million, a 9% decrease from the $7.0 million reported in the third quarter of fiscal 2002, reflecting a higher effective tax rate in the current year. Diluted earnings per share were $.16 in the third quarter of fiscal 2003, as compared to the earnings per share of $.17 during the third quarter of 2002.

For the first nine months of fiscal 2003, net sales were $446.4 million, an increase of 3% from the net sales of $434.2 million reported for the same period in fiscal 2002. Operating income for the first three quarters of 2003 was $40.7 million, a 6% increase from the amount in the comparable 2002 period. Net income for the first nine months of fiscal 2003 totaled $26.5 million, an increase of 1% from the $26.2 million earned in the comparable period of 2002, reflecting the higher tax rate. Diluted earnings per share were $.66 for the first nine months of fiscal 2003, compared to $.62 for the same period of 2002.

For the 2003 fiscal third quarter, Stride Rite Children's Group sales increased 1% from the prior year, driven by 17% growth in the Children's Group retail sales. Comparable sales at Children's Group retail stores were up 7.9% for the third quarter. The Children's Group wholesale business for the third quarter declined 14% versus last year as sales were adversely impacted by lower shipments to licensed and trade accounts. The Stride Rite Children's Group operated 230 stores at the end of the third quarter of 2003, up 2% from the store count at the end of the third quarter of fiscal 2002. Tommy Hilfiger Footwear sales for the third quarter increased 6% from the prior year, primarily due to the expansion of sales to independent and shoe chain accounts. Sperry Top-Sider sales increased 10% above last year's third quarter. Sales of the Keds division decreased 4% during the third quarter of 2003, primarily due to shortfalls in the women's basic product line versus the same period a year ago. Third quarter International sales were flat versus the comparable period of 2002.

During the third quarter of fiscal 2003, the Company's gross profit percentage of 37.7% improved 60 basis points as compared to the same period last year. Selling and administrative expenses increased 2%, due principally to the full effect of costs related to last year's retail store expansion. Adversely impacting net income was a higher tax rate, which was partially offset by a lower average share count in earnings per share. At the end of the third quarter of fiscal 2003, the balance sheet remained strong with both accounts receivable and inventory levels below last year by 1% and 12%, respectively. DSO decreased 7% versus last year to 42 days. The Company's net cash position of $96 million at the end of the 2003 third quarter represents a 30% increase from the prior year and the Company has no outstanding debt.

David M. Chamberlain, Stride Rite's Chairman and Chief Executive Officer, commented, “In a difficult retail environment, our third quarter performance reflects continued progress in several key areas across the Company. We achieved an overall sales increase, and coupled with operational efficiencies, our financial results were solid.”

Mr. Chamberlain continued, “The strong 7.9% comparable store sales increase in our company-owned Stride Rite Children's Group retail stores demonstrates the strength of that brand to our consumer. The decline in the wholesale sales component of our Stride Rite Children's Group, however, does reflect the challenges faced by a certain number of our retail customers. The Keds product line, although slightly below last year in sales, appears to be making progress. Sperry Top-Sider sales growth of 10% in the quarter reflects its continued positive momentum with the seventh consecutive quarter of year on year sales growth. Our Tommy Hilfiger product lines continue to be well received by consumers as sales increased 6% versus the prior year.”

Mr. Chamberlain concluded, “The Company's full year financial results will be affected by the success of our fall product which is currently at retail. Based upon our current financial results, our annual earnings guidance is now in the $.62- $.64 per share range.”

A summary of net sales and net income for the third quarter and the first nine months of fiscal 2003 is provided below. A more detailed balance sheet and income statement follows this release.

                     The Stride Rite Corporation
                   Summarized Financial Information
      for the periods ended August 29, 2003 and August 30, 2002
                            (in thousands)

                         Statements of Income

                                  Third Quarter        Nine Months
                                 2003      2002      2003      2002

Net sales                     $139,747  $136,989  $446,355  $434,203
Cost of sales                   87,111    86,203   274,700   273,212
Gross profit                    52,636    50,786   171,655   160,991
Selling and administrative
  expenses                      42,592    41,667   130,970   122,757
Operating income                10,044     9,119    40,685    38,234
Other income, net                   83       161     1,353        98
Income before income taxes      10,127     9,280    42,038    38,332
Provision for income taxes       3,714     2,239    15,585    12,179
Net income                      $6,413    $7,041   $26,453   $26,153
Net income per common share:
     Diluted                    .16        .17        .66        .62
     Basic                      .16        .17        .67        .63