The Stride Rite Corporation (NYSE: SRR) today reported record first
quarter fiscal 2006 sales of $183.4 million, an increase of 22%
compared to the same period in the prior year. Net income for the
first quarter totaled $8.3 million or $.22 per diluted share,
compared to the net income of $8.2 million or $.22 per diluted
share in the first quarter of 2005. The first quarter financial
results includes a pre-tax expense of $2.6 million related to the
flow through of the write-up of inventory purchased in the Saucony
acquisition as required by GAAP accounting rules. In addition, the
current quarter includes pre-tax acquisition related integration
expenses of $1.2 million. Also, during the first quarter, the
Company adopted SFAS No. 123R, "Share-Based Payment", the impact of
which increased pre-tax expenses by approximately $700 thousand.
Excluding acquisition related integration costs and the flow
through of the inventory write-up, net income would have been $10.6
million for the first quarter, while diluted earnings per share
would have been $.28. See the section entitled "Non-GAAP Pro Forma
Financial Measures" and the "Reconciliation of Non-GAAP Measures"
provided in this release for additional description of these
Non-GAAP Measures. David Chamberlain, Chairman and CEO of Stride
Rite, commented that the first quarter of 2006 was a solid start to
the year. "The positive impact of Saucony sales and profits was
evident in the quarter. We are on schedule with our integration of
the Saucony business. On March 20th we moved the Saucony associates
into our Lexington, Massachusetts headquarters and Saucony began
shipping from our existing warehouse facility in Louisville,
Kentucky." "The Children's Group net sales were impacted by the
later Easter holiday this year and shifting of the preseason retail
store event into the second quarter. Our company-owned retail
stores same store growth percentages were down year-over-year as
planned. March is off to a good start, and we expect strong second
quarter retail store comparative sales to result in positive single
digit comparative retail store sales for the half. Our 2006 retail
strategy includes the addition of 33 new Stride Rite Children's
stores for a total of 302 stores. In addition to the shift in the
Easter holiday, our Stride Rite Children's wholesale sales have
been impacted by several factors including: the changed strategy
and buying patterns of certain department stores, the consolidation
of May Company by Federated Department Stores, a shift in value
channel strategy and a decline in the number of smaller accounts.
Although the later Easter this year should result in improvement in
the second quarter, we expect to continue to be impacted by those
same factors and anticipate Stride Rite Children's wholesale sales
to be down for the first half. Overall, we remain on strategy to
continue growth in our Stride Rite children's business through new
stores and positive same store comparative sales. We are projecting
to end the half with a combined Stride Rite Children's Group sales
increase." "Keds had a challenging first quarter. The moderate
retail channel stabilized while the premium department store
channel fell below last year, due to strong prior year sell-in. The
value channel sales were also below last year. We are encouraged
that a number of retailers are starting to enjoy solid Keds product
movement and good profitability. Our operating profit margins
continued to improve nicely in the brand." "Sperry Top-Sider
enjoyed another strong quarter of sales and profits. Our products
are strong, and we expect growth across all retail channels with
particular success in the women's area. This brand has a great deal
of positive momentum that should continue throughout the year."
"Saucony domestic sales were in line with expectations as we
continue to see strength in technical running and international. We
feel positive about Saucony growth opportunities in 2007, including
originals and children's product expansion." "International had
strong sales and profits, helped in part by sales of Tommy Hilfiger
products in Latin America and strong Saucony sales in Europe and
Canada." "Our Tommy Hilfiger footwear sales were impacted by the
soft business trends in the broader Tommy Hilfiger brand. We are
focused on maximizing that business as we look for opportunities to
improve profitability." "We had a solid start to 2006, building off
the acquisition of Saucony. The addition of Saucony sales to our
other brands has provided increased operating leverage. With sound
strategies in place and strong management teams, we anticipate a
year of meaningful progress and growth." Mr. Chamberlain continued,
"Assuming reasonable retail and economic conditions in 2006, we are
reaffirming our projected sales growth of 23% to 27% and earnings
per share of $.82 - $.88, including a full year of Saucony
financial results. Included in the projected earnings is the annual
impact related to the expensing of stock options, which is
projected at approximately $.05 per diluted share. In addition,
these projections include the cost of sales impact related to the
flow through of the write-up of inventory purchased in the Saucony
acquisition, which reduced earnings per diluted share by $.04 in
the first quarter. Acquisition related integration costs are
estimated at approximately $2.5 million or $.04 per diluted share
for the year and are also included in the earnings projections."
NET SALES HIGHLIGHTS: -- Net sales for the quarters ended March 3,
2006 and March 4, 2005 are summarized in the table as follows: -0-
*T The Stride Rite Corporation Net Sales (in thousands) First
Quarter ------------- Percent 2006 2005 Change ---------- ---------
-------- (Unaudited) Stride Rite Children's Group - Wholesale
$21,156 $25,586 (17)% Stride Rite Children's Group - Retail 37,924
35,445 7% ---------- --------- -------- Stride Rite Children's
Group - Combined 59,080 61,031 (3)% Keds 41,991 45,799 (8)% Sperry
Top-Sider 23,588 19,444 21% International (includes Saucony) 22,818
8,810 159% Saucony Domestic (includes Hind) 24,563 - n/a ----------
--------- -------- Other Wholesale - Combined 112,960 74,053 53%
Tommy Hilfiger Adult 14,933 18,121 (18)% Intercompany Eliminations
(3,557) (2,614) n/a ---------- --------- -------- Total $183,416
$150,591 22% ========== ========= ======== *T -- Stride Rite
Children's Group-Wholesale net sales decreased 17% for the quarter
as compared to the prior year. This decrease was primarily
attributable to the shift in the Easter holiday to second quarter,
particularly in department stores and smaller independent
retailers. In addition, fewer promotional product sales impacted
the sales results. -- Net sales of the Stride Rite Children's
Group-Retail division increased 7% in the first quarter versus the
prior year. Sales at comparable Children's Group retail stores
(open 52 weeks in each fiscal year) decreased 3.4% for the first
quarter of 2006. In the prior year, benefiting from the earlier
Easter holiday and spring promotion, same store comparative sales
increased 7.8% versus 2004. At quarter-end, the Stride Rite
Children's Group-Retail operated 280 Stride Rite outlets and
children's shoe stores. This is a net increase of 26 stores, or 10%
from the comparable period last year. In addition, Stride Rite
Children's Group-Retail also operated 16 Saucony outlet stores. --
Net sales in the Keds division decreased 8%. The strong prior year
product sell-in to the premium channels and fewer sales this
quarter in the value channel resulted in lower sales comparisons.
Sperry Top-Sider net sales increased 21% for the first quarter on
strong sales of men's and women's products, particularly in the
marine and family shoe retail channels. Saucony net sales were
$24.6 million for the first quarter of 2006. Saucony technical
running product sales were strong in the quarter. -- International
net sales increased 159%, mostly due to the addition of Saucony
international sales. Also contributing to the increase in
international sales were higher sales of Tommy Hilfiger in Canada
and Latin America, Keds footwear in Canada, and Sperry Top-Sider in
Europe and South Africa. -- Net sales of Tommy Hilfiger men's and
women's products for the first quarter decreased 18%, primarily due
to a reductions in department store product sales, promotional
product sales and an overall decline in the men's business. Last
year's first quarter also had the sales of the Tommy H product
line, which has since been discontinued. OTHER FINANCIAL
HIGHLIGHTS: -- Excluding the flow through of the inventory write-up
related to the Saucony purchase, the gross profit percentage
increased 1.2 percentage points to 41.4% for the quarter. Keds,
Tommy Hilfiger, Sperry Top-Sider and International all had strong
gross profit percentage improvements versus last year. -- Operating
expenses increased 24% for the first quarter. As planned, the major
operating cost increases were related to Saucony expenses, higher
advertising costs and the Stride Rite Children's Group-Retail store
expansion. Also contributing to the increase in operating expenses
were integration costs and the impact of adopting SFAS No. 123R,
"Share-Based Payment". -- Operating income increased 9% on a GAAP
basis and was up 38% excluding the acquisition related integration
costs ($1.2 million) and the flow through of the inventory write up
($2.6 million). -- Accounts receivable increased 34% compared to
last year due to the addition of Saucony and higher sales in the
last month of the quarter. DSO was 56 days, an increase of 4 days
versus the same period last year. The DSO increase was due to the
addition of Saucony which generally has offered somewhat longer
credit terms to retailers. -- Inventories of $116 million were up
22% versus to the comparable period of 2005. The increase was due
primarily to the addition of Saucony. -- Cash and cash equivalents
were $23 million at the end of the fiscal quarter with $95 million
in outstanding debt. The outstanding debt increase versus year end
is related to building inventory for spring sales. The Company
initially borrowed $85 million in mid-September 2005 to fund the
acquisition of Saucony. COMPANY OVERVIEW & CONFERENCE CALL
INFORMATION: The Stride Rite Corporation markets the leading brand
of high quality children's shoes in the United States. Other
footwear products for children and adults are marketed by the
Company under well-known brand names, including Keds, Sperry
Top-Sider, Tommy Hilfiger, Saucony, Grasshoppers, Munchkin,
Spot-bilt and Hind. Apparel products are marketed by the Company
under the Saucony and Hind brand names. Information about the
Company is available on our website - www.strideritecorp.com. The
Company will provide a live webcast of its first quarter conference
call. The live broadcast of Stride Rite's quarterly conference call
will be available on the Company's website and at
www.streetevents.com, beginning at 10:00AM ET on March 30, 2006. An
on-line replay will follow shortly after the call and will continue
through April 5, 2006. Information about the Company's brands and
product lines is available at www.striderite.com, www.keds.com,
www.sperrytopsider.com and www.saucony.com. SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This
announcement includes forward-looking statements which reflect our
current views with respect to the future events or financial
performance discussed in the release, based on management's beliefs
and assumptions and information currently available. When used, the
words "believe", "anticipate", "estimate", "project", "should",
"expect", "appear" and similar expressions, which do not relate
solely to historical matters identify forward-looking statements.
Such statements are subject to risks, uncertainties and assumptions
and are not guarantees of future events or performance, which may
be affected by known and unknown risks, trends and uncertainties.
Should one or more of these risks or uncertainties materialize, or
should our assumptions prove incorrect, actual results may vary
materially from those anticipated, projected or implied. Factors
that may cause such a variance include, among others: the inability
to fully realize the anticipated benefits from the acquisition of
Saucony; the challenges of achieving the expected synergies with
Saucony; the possibility of incurring costs or difficulties related
to the integration of the businesses of Stride Rite and Saucony;
the possible failure to retain the Tommy Hilfiger footwear license;
the opening of new stores may be delayed; the volume of anticipated
sales may decline; revenues from new product lines may fall below
expectations; the launch of new product lines may be delayed; new
retail concepts may not achieve expected results; general retail
sales trends may be below expectations; current license agreements
may be terminated; consumer fashion trends may shift to footwear
styling not currently included in our product lines; our retail
customers, including large department stores, may continue to
consolidate or restructure operations resulting in unexpected store
closings; and additional factors discussed from time to time in our
filings with the Securities and Exchange Commission. We expressly
disclaim any responsibility to update forward-looking statements.
NON-GAAP PRO FORMA FINANCIAL MEASURES: This release contains
certain non-GAAP financial measures. In particular, Stride Rite
provides historic and future anticipated net income and diluted
earnings per share excluding certain cash and non-cash charges,
which are non-GAAP financial measures. These results are included
as a complement to results provided in accordance with GAAP because
management believes these non-GAAP financial measures help indicate
underlying trends in Stride Rite's business and provide useful
information to both management and investors by excluding certain
items that are not indicative of Stride Rite's core operating
results. These measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a
substitute for or superior to GAAP results. The non-GAAP
information provided by Stride Rite may be different from the
non-GAAP information provided by other companies. -0- *T The Stride
Rite Corporation Summarized Financial Information for the periods
ended March 3, 2006 and March 4, 2005 Statements of Income (in
thousands) First Quarter ---------------------------- 2006 2005
------------- ------------ (Unaudited) Net sales $183,416 $150,591
Cost of sales 110,184 90,059 ------------- ------------ Gross
profit 73,232 60,532 Selling and administrative expenses 58,910
47,451 ------------- ------------ Operating income 14,322 13,081
Other income (expense), net (823) 162 ------------- ------------
Income before income taxes 13,499 13,243 Provision for income taxes
5,214 5,082 ------------- ------------ Net income $8,285 $8,161
============= ============ Earnings per share: Diluted $0.22 $0.22
Basic $0.23 $0.23 Weighted average shares outstanding: Diluted
37,703 36,963 Basic 36,588 36,007 Balance Sheets 2006 2005
------------- ------------ Assets: (Unaudited) Cash and cash
equivalents $23,219 $24,222 Marketable securities - 20,400 Accounts
receivable 121,098 90,257 Inventories 115,594 94,785 Deferred
income taxes 14,262 12,816 Other current assets 18,074 13,368
------------- ------------ Total current assets 292,247 255,848
Property and equipment, net 51,625 52,708 Goodwill 56,732 908
Trademarks 58,590 1,690 Other assets 19,301 11,197 -------------
------------ Total assets $478,495 $322,351 =============
============ Liabilities and Stockholders' Equity: Current
liabilities 67,765 57,930 Long-term debt 95,000 - Deferred income
taxes and other liabilities 38,933 11,647 Stockholders' equity
276,797 252,774 ------------- ------------ Total liabilities and
stockholders' equity $478,495 $322,351 ============= ============
The Stride Rite Corporation Reconciliation of Non-GAAP Measures
Unaudited Non-GAAP Pro Forma Statements of Income (in thousands)
For the Quarter Ended March 3, 2006 Reported Pro forma First First
Quarter Pro forma Quarter 2006 Adjustments 2006 ----------
------------ ---------- Net sales $183,416 $183,416 Cost of sales
110,184 ($2,622)(a) 107,562 ---------- ------------ ----------
Gross profit 73,232 2,622 75,854 Selling and administrative
expenses 58,910 (1,163)(b) 57,747 ---------- ------------
---------- Operating income 14,322 3,785 18,107 Other income
(expense), net (823) (823) ---------- ------------ ----------
Income before income taxes 13,499 3,785 17,284 Provision for income
taxes 5,214 1,461 (c) 6,675 ---------- ------------ ---------- Net
income $8,285 $2,324 $10,609 ========== ============ ==========
Non-GAAP earnings per share: Diluted $0.22 $0.28 Basic $0.23 $0.29
Weighted average shares outstanding: Diluted 37,703 37,703 Basic
36,588 36,588 Pro forma adjustments: (a) Flow through of the
inventory write up to fair value (pre-tax) (b) Saucony integration
costs (pre-tax) (c) Income tax effect at GAAP rate *T
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