The Stride Rite Corporation got a nice boost on the margin line in the fiscal third quarter ended September 2 from a robust owned-retail business, a repositioning of Keds, and strong sales growth at Sperry Top-Sider that more than offset rising SG&A expenses attributed to an expansion of the owned-retail business, increased advertising expenses at Keds and Sperry, hurricane damage costs, and the Saucony acquisition, which closed on September 16, 2005.

Sales of the Stride Rite Children's Group increased 9% in Q3 versus last year, due entirely to a 20% increase in sales at the Children's Group owned-retail stores. Comparable retail store sales increased 7.4% in the quarter on top of a 1.3% increase in the year-ago period. The company also saw 9% growth in the number of owned-retail doors versus last year’s Q3, ending the period with 264 stores.

Stride Rite had three stores knocked out by Hurricane Katrina, which will stay closed “indefinitely.” They had about seven stores in Houston impacted by Rita, but those are pretty much back on line.

Children's Group Wholesale sales declined 6% due to lower Tommy Hilfiger Footwear and Munchkin sales.

Sales of Keds footwear decreased 9%, due to the continued repositioning of the Keds brand. Sales at department stores and specialty store sales were said to be up in the period with “solid sell-through at higher prices.”

Nordstrom sell-through was said to be “decent,” which they think “bodes well for the future.” Keds is also back in at Federated where they were “pretty much out of business.” Sales to the mid-tier were down, which SRR said was due to its decision to add fewer fall casual styles in the channel after weaker results in past years. The channel will still make up the majority of overall sales. Sales in the value and closeout channels were down for the quarter. Grasshoppers sales were also down for the quarter.

One change the brand is making is where they sell the product on the retail floor. Management, led by former Reebok sales honchos Shawn Neville and Mike Metcalfe, has been working to move the brand in the athletic department and away from the moderate department. They see a positioning between athletic and juniors.

The new positioning has led to “significantly better” margins for the brand, which is expected to lead to continued advertising this fall.

Sperry Top-Sider footwear sales increased 53% in the period, with growth in the men’s, women’s, outdoor, and marine channels.

Stride Rite said the outdoor and marine channels continue to show growth. Higher price-points and better product have led to improved margins here as well. Management said fiscal fourth quarter sales will be up as well, but growth is expected to slow a bit.

Tommy Hilfiger decreased 27%, but was down 20% when excluding the effect of moving the PRO-Keds brand to a licensed business and the discontinuation of the H Hilfiger women’s line. Management said the main challenges here are a “significant reduction” in the men’s business across all channels and a downward trend in the women’s business in department stores. Company chairman and CEO David Chamberlain said they still intend to renew the license when it expires in March 2007, regardless of the result of Hilfiger’s recent decision to seek a buyer for the apparel business.

The PRO-Keds brand is reportedly seeing high-single- to double-digit sell-through on new product introductions, with a number of young men’s and athletic specialty retailers increasing OTB for the brand for Spring ’06 after successful tests.

International sales for the third quarter increased 33% on the back of stronger TH Footwear sales in Latin America, Keds in Europe and Asia, and Sperry Top-Sider in Europe and South America.

The SG&A expense line was impacted by a $1.4 million bill for Stride Rite Children’s retail store expansion and $2.7 million in higher advertising spend for Keds and Sperry Top-Sider. The company also saw about $450,000 in costs related to Katrina, including the store shutdown. They also saw $200,000 in Saucony integration costs. Excluding those expenses, SG&A expenses rose just 1% for the period.
Saucony integration efforts are expected to continue through mid-year 2006. Management still expects the deal to be accretive in 2006 with full year earnings impacted in 2007.

Chamberlain said that SRR can help Saucony through “some pretty good marketing” and a good eye for some of the more cosmetic types of product at the middle and fashion part of the business at Journeys and “place like that.” He said they want to grow the brand in a “whole variety of channels.”