The Stride Rite Corporation reported financial net sales for the second quarter of fiscal 2005 decreased 3% to $159.6 million from $165.0 million in the comparable quarter in fiscal 2004. Operating income in the second quarter of 2005 was $18.2 million, a 4% decrease from the prior year's quarter. Net income for the second quarter was $11.8 million, or 32 cents per diluted share, as compared to net income of $11.9 million, or 30 cents per diluted share, last year.

For the first six months of fiscal 2005, net sales were $310.2 million, an increase of 3% from net sales of $301.1 million for the same period in fiscal 2004. Net income for the first half of fiscal 2005 was $19.9 million, an increase of 3% from $19.4 million in the comparable period in 2004. Diluted earnings per share were $0.54 in the first half of fiscal 2005 compared to $0.49 in the first half of fiscal 2004.

Second quarter sales of the Stride Rite Children's Group were up 3% compared to the second quarter of fiscal 2004. The Children's Group company-owned retail stores had a sales increase of 7% for the second quarter over the same period of fiscal 2004. Sales at comparable Children's Group retail stores increased 1.9% in the second quarter reflecting, in part, the timing of the earlier Easter holiday. For the first six months, our net store count was 259, up 8 stores. Children's Group wholesale sales decreased 5% during the same period. Sales of the Sperry Top-Sider and International increased 17% and 12%, respectively, in the second quarter of fiscal 2005 from the comparable period of fiscal 2004. Sales of the Keds and Tommy Hilfiger Footwear brands decreased 15% and 14%, respectively, in the second quarter from the comparable period in fiscal 2004.

Gross profit was 40.8% of sales in the second quarter of fiscal 2005, an improvement of 2.3 percentage points over the same period last year, due principally to fewer Keds closeout sales and lower markdown allowances. Operating expenses in the second quarter of 2005 increased 5% compared to the prior year. As planned, the major operating cost increases for the quarter related to the Stride Rite Children's Group retail store expansion and higher advertising costs.

The quarter-end balance sheet was solid. Accounts receivable was down 8% from last year and days sales outstanding (DSO) was 42 days. Inventories increased 22% compared to last year, with the growth related predominantly to higher levels of in-line styles. Quarter-end net cash and marketable securities were $70 million and the Company has no outstanding debt.

David M. Chamberlain, Chairman and Chief Executive Officer, commented, “The quarterly sales were heavily impacted by the Keds transition to an upscale active lifestyle brand. Keds sales were down 15% for the quarter and 4% for the six-month spring season, resulting primarily from our strategic decision to significantly reduce value channel and closeout business as we reposition the brand as higher-priced and aspirational, with improved styling. We enjoyed solid success in the premium department and specialty stores, while the mid-tier channels had slower sales than anticipated as a result of higher pricing. We will continue the advertising campaign featuring Mischa Barton of 'The O.C.' into the fall season as part of our brand building strategy to attract younger customers.

The Stride Rite's Children's Group had a strong six month spring season with sales up 7%, retail sales up 13% and comparable store sales up 4.4%. Sperry Top-Sider sales were up 23% for the six-month period with an increase in men's and women's product sales. Tommy sales, excluding PRO-Keds which is now licensed, were down 8% for the six months primarily due to a decline in men's product sales. International was up 21% for the six month spring season.”

Mr. Chamberlain concluded, “We believe our strategies are sound and our products are right. We remain particularly enthusiastic about our pending acquisition of Saucony, which will provide a new platform for growth in the performance athletic segment. As we move into the second half, we are reaffirming our 2005 full-year guidance of 3-5% growth in sales and 5-10% growth in earnings.”


                      The Stride Rite Corporation
                   Summarized Financial Information
          for the periods ended June 3, 2005 and May 28, 2004

                         Statements of Income

(in thousands)                  Second Quarter         Six Months
                             -------------------- --------------------
                                2005      2004       2005      2004
                             ---------- --------- ---------- ---------
                                 (Unaudited)          (Unaudited)
 Net sales                    $159,641  $165,009   $310,232  $301,143
 Cost of sales                  94,430   101,507    184,489   184,628
                             ---------- --------- ---------- ---------
 Gross profit                   65,211    63,502    125,743   116,515
 Selling and administrative
  expenses                      47,028    44,589     94,479    85,929
                             ---------- --------- ---------- ---------
 Operating income               18,183    18,913     31,264    30,586
 Other income, net                 208       321        370       740
                             ---------- --------- ---------- ---------
 Income before income taxes     18,391    19,234     31,634    31,326
 Provision for income taxes      6,639     7,334     11,721    11,942
                             ---------- --------- ---------- ---------
 Net income                    $11,752   $11,900    $19,913   $19,384
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