Stride Rite Stays on Strategy Despite Challenges…

The Stride Rite Corporation pointed to a Keds turnaround that has been slower than expected and a decline in Tommy Hilfiger Footwear sales that has been larger than expected as two key reasons for a decline in organic sales for the fiscal second quarter ended June 2. While the company posted another solid increase in revenues for the period, SRR would have actually seen a decline of approximately 2.2% when backing out the second quarter numbers for Saucony, which was acquired in September 2005. Despite the challenges in the business, management is still expecting to deliver on its previous earnings guidance for the year, which calls for EPS in the 82 cents to 88 cents per share range — when excluding a lower tax impact -– on a sales increase in the 20% to22% range.

The company did see its Stride Rite retail business get back on track after taking a hit in the fiscal first quarter on the shift in Easter, but the wholesale business continues to be hurt by the loss of the May Company business that went away after it was acquired by Federated. Comps for the retail business were up 8.7% for the second quarter and up 3.4% for the first half, erasing the 3.4% decline in the first quarter. Management expects the retail group to show positive comps on an increased store base. That base now includes 16 Saucony stores which had a positive impact on total retail sales, but were not included in the comp sales results for the period. SRR has shuttered eight Saucony stores since the acquisition. SRR has also developed the Saucony children’s line that will hit the market in Spring ’07.

The strategy to revise the Keds brand continues, but SRR is still not seeing the revenue turnaround it was expecting. The mid-teens decline for the period was roughly double the decline for the first quarter. David Chamberlain, chairman and CEO of Stride Rite Corp., said that the Keds brand continues to see declines in the basic white products in the Champion and the Microstretch due to lower reorders and fill-ins, but the “more colorful and fashionable” basics like the distressed Champion have been successful, but not enough to offset the decline in the base product. The brand is getting broader distribution in new accounts such as dELIA’s, Finish Line, and Urban Outfitters, and is now shipping into 700 Journeys stores for back-to-school.

The company provided a little more insight into the Saucony business than in quarters past, indicating that total revenues for the business were approximately $38 million for the most recent quarter, compared to about $40 million in Saucony Inc.’s second quarter last year, which ran through June. The company has started shipping from its combined Stride Rite office and warehouse facility and closed on the sales of the former Saucony HQ in Peabody, Mass. on June 16, which should net the company about $7.5 million for the fiscal third quarter. Management said that the specialty running business was “up significantly” in the second quarter and that better product in the $65 to $75 range will start helping at sporting goods and the mall.

Sperry Top-Sider continues to capitalize on the strength in boat shoes, with both men’s and women’s styles showing strength, particularly in the marine and family footwear channels. Tommy Hilfiger Footwear sales continued to be challenged by the degradation of the apparel brand at retail. Management appears to remain committed to renewing the license for next year despite the continued challenges here, due in large part to the International business, particularly in Latin America and Canada.

The International business saw most of its increase from the inclusion of Saucony in the numbers this year.