Stride Rite Works Through a Changing Market…

The Stride Rite Corporation posted a solid increase in revenues for the fiscal first quarter ended March 3, but most of the gain came from the acquisition of Saucony Inc. that was completed in September 2005. Aside from that non-organic gain, only Sperry Top-Sider and the children’s retail group showed positive results for the period as the company works on integrating the Keds and Saucony business under single leadership, repositioning the Keds brand into better distribution, and deals with the loss of the Stride-Rite children’s business at May Company after its merger with Federated.

The later Easter holiday this year didn’t help much either as children’s store promo events shifted into the fiscal second quarter. The May Company issue — Federated only has a few stores with kid’s departments – was a major reason for the 17.3% decrease in the wholesale business, but SRR is also working to expand owned- and licensed-retail locations to boost revenues here. They expect to open 33 new stores this year, or a 12% increase in doors. Comp store sales were down 3.4% for the period compared to a strong 7.8% comp gain last year that benefited from an Easter shift in the other direction.

Company Chairman and CEO David Chamberlain said that March comps had “started strongly” and they expect comps to be in positive territory for the first half.

The consolidation of May Company and Federated also impacted the Keds business and the company sees this continuing throughout the year. Mr. Chamberlain said the value channel continued to decline as planned and he said they are working through issues with a other individual accounts. He said the current trend is expected to continue through the first half and improve somewhat in the back half, but still sees the business down in mid-single-digits for the year.

The company offered little insight into the Saucony business other than to highlight the recent management changes (SEW_0611) and office move. During March, SRR completed the move of all Saucony personnel to the Lexington HQ and started shipping Saucony goods from the current SRR DC in Louisville, Ky. The company has put the former Saucony building in Peabody on the block and hopes to raise approximately $8 million to $9 million in the sale. The Saucony owned-retail business was moved under the Stride Rite retail group.

Sperry Top-Sider continues to capitalize on the strength in boat shoes, with both men’s and women’s styles showing strength, while Tommy Hilfiger Footwear sales took a dive on a major reduction in the sale of closeout merchandise. Management said that THFW was also impacted by the move by some department stores to reduce the H Hilfiger line, but that was offset by lower returns and allowances. Still, they are in negotiations to renew the license that expires in March 2007. International sales saw much of its 159% increase come from the inclusion of the Saucony business, which now makes up about half the total International business.

While the net income line saw a slight uptick and EPS was flat, the results do include a pre-tax expenses of $2.6 million related to the write-up of inventory purchased in the Saucony acquisition, $1.2 million Saucony integration-related expenses, and about $700,000 in increased pre-tax expenses related to the expensing of stock options. Excluding the integration and inventory expenses, net income would have increased approximately 29% to $10.2 million, or 28 cents per diluted share. Excluding the Saucony impact, gross margins would have improved by roughly 120 basis points.