Saucony Incb (NASDAQ:SCNYB)
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Saucony, Inc. (NASDAQ: SCNYA and SCNYB) today announced
financial results for the quarter ended April 1, 2005.
Net income decreased to $3.2 million in the first quarter of 2005,
compared to $4.2 million in the first quarter of 2004. Diluted
earnings per share decreased to $0.41 per Class A share and $0.46 per
Class B share in the first quarter of 2005, compared to diluted
earnings per share of $0.58 per Class A share and $0.64 per Class B
share for the comparable period in 2004. Net sales for the first
quarter decreased 11%, to $41.9 million, compared to $47.0 million in
the first quarter of 2004.
John H. Fisher, President and Chief Executive Officer, commented,
"As anticipated, our first quarter results were primarily impacted by
challenges with our crossover and Originals business in the mall-based
retail channel. That said, our domestic technical footwear business,
which is at the heart of who we are, remains very strong and we are
encouraged about our prospects to further expand our position in the
core running market. We continue to focus on product creation and we
are excited about our new offerings which will debut over the upcoming
months of this year."
John H. Fisher, President and Chief Executive Officer, commented,
"We were pleased with our ability to generate better than expected
bottom-line results during the quarter predominantly driven by gross
margin expansion. Our gross margin improvement reflects the favorable
impact of foreign currency on our international margins and our
ongoing efforts to manage our inventory and reduce our product costs."
Order Backlog
Our backlog of open orders at April 1, 2005 scheduled for delivery
within the next five months (April 2, 2005 - August 26, 2005)
decreased 5% to $50.2 million, compared to $53.0 million at April 2,
2004.
At April 1, 2005, the open order backlog for delivery in the next
12 months decreased 4% to $60.2 million, from $62.8 million at April
2, 2004.
Mr. Fisher continued, "Our quarter ending open order comparisons
included double digit gains on our domestic technical running footwear
category. Offsetting these increases in open orders were decreases in
our domestic mid-priced crossover and Originals categories at April 1,
2005, compared to at April 2, 2004."
Cash, Inventory and Working Capital
Our cash and cash equivalents and short-term investments decreased
approximately $4.0 million in the quarter ended April 1, 2005 from our
fiscal 2004 year end balances, due to the use of cash to finance our
seasonal working capital needs. Our days' sales in accounts
receivable, defined as the number of average daily net sales in our
accounts receivable as of the period end date and calculated by
dividing the end of period accounts receivable by the average daily
net sales for the period, decreased to 60 days at April 1, 2005,
compared to 62 days at April 2, 2004. The number of days' sales in
inventory, defined as the number of average daily cost of sales in our
inventory as of the period end date and calculated by dividing the end
of period inventory by the average daily cost of sales for the period,
increased to 85 days at April 1, 2005, compared to 73 days at April 2,
2004."
Mr. Fisher remarked, "While our first quarter efforts were
successful in decreasing our days' sales in inventory from 95 days at
our fiscal 2004 year end, we continue to pursue further reductions."
Net Sales
Net sales for the first quarter of 2005 decreased 11% to $41.9
million, compared to $47.0 million in the first quarter of 2004.
Domestic net sales decreased 14% to $31.1 million in the first quarter
of 2005, compared to $36.0 million in the first quarter of 2004. Our
domestic sales decrease in the first quarter of 2005 was due primarily
to a 17% decrease in footwear unit volumes, partially offset by a 21%
increase in Hind apparel sales. Sales at our factory outlet stores
deceased 2% in the first quarter of 2005 compared to the first quarter
of 2004. International net sales decreased 2%, to $10.8 million in the
first quarter of 2005, compared to $11.0 million in the first quarter
of 2004. Our international sales decrease in the first quarter of 2005
was due primarily to lower average wholesale per pair footwear selling
prices and, to a lesser extent, lower sales of Saucony and Hind brand
apparel, partially offset by favorable changes in foreign exchange
rates as compared to the first quarter of 2004 and a 5% increase in
footwear unit volumes. Saucony brand footwear and apparel accounted
for approximately 85% of first quarter 2005 net sales, compared to 88%
of the first quarter 2004 net sales, with a combination of Hind
apparel and factory outlet stores net sales accounting for the balance
in each period.
Gross Margin
The Company's gross margin in the first quarter of fiscal 2005
increased 140 basis points to 42.0% compared to 40.6% in the first
quarter of 2004, due primarily to favorable currency exchange due to
the impact of a weaker U.S. dollar against European and Canadian
currencies and, to a lesser extent, improved margin in our Saucony
domestic footwear and Hind brand apparel businesses due to product
costs reductions and improved margin at our factory outlet division.
Our Saucony domestic footwear margin increase was mitigated by a
change in sales mix to increased footwear unit volume of special
makeup and closeout footwear in the first quarter of fiscal 2005. Both
of these products carry lower margins than our first quality technical
footwear.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of
net sales increased to 30.2% in the first quarter of 2005 compared to
25.8% in the first quarter of 2004. In absolute dollars, selling,
general and administrative expenses increased 4%, due primarily to
increased professional fees, depreciation and increased operating
expenses associated with the factory outlet division expansion,
partially offset by decreased print media advertising, account
specific advertising and promotion, variable selling expenses, and
administrative and selling payroll. The decrease in administrative and
selling payroll in the first quarter of fiscal 2005 is due to lower
incentive compensation. Selling expenses as a percentage of net sales
in the first quarter of 2005 were 13.7% compared to 12.9% in the
comparable 2004 period, while general and administrative expenses were
16.5% of net sales compared to 12.9% in the first quarter of 2004.
Non-Operating Income (Expense)
Non-operating income increased in the first quarter of 2005 to
$278,000, compared to an expense of $72,000 in the first quarter of
2004. The increase was primarily due to an $88,000 increase in
interest income and a $244,000 increase in foreign currency income in
the first quarter of 2005, compared to the first quarter of 2004.
Interest income increased to $157,000 in the first quarter of 2005,
compared to $69,000 in the first quarter of 2004, due to higher
interest rates on invested cash balances and short-term investments.
Foreign currency income increased to $100,000 in the first quarter of
2005, compared to foreign currency losses of $144,000 in the first
quarter of 2004, due primarily to the impact of currency fluctuations
on forward foreign currency contracts.
Net Income
Net income for the first quarter of 2005 was $3.2 million, or
$0.41 per Class A share and $0.46 per Class B share on a diluted
basis, compared to $4.2 million, or $0.58 per Class A share and $0.64
per Class B share on a diluted basis, in the first quarter of 2004. We
used weighted average common shares and common stock equivalents of
7,219,000 and 6,844,000 to calculate diluted earnings per share for
the first quarter of 2005 and 2004, respectively.
Net income available to the Company's common stockholders is
allocated among our two classes of common stock, Class A Common Stock
and Class B Common Stock. The allocation among each class is based
upon the two-class method. Under the two-class method, earnings per
share for each class of common stock is presented. The two-class
presentation method is required as a result of the Company having two
classes of common stock with different participation rights in
undistributed earnings.
Mr. Fisher concluded, "Our strategically important domestic
technical running footwear continues to build momentum, reflecting our
ongoing commitment to innovation and performance and our status as one
of the authentic brands in the marketplace. At the same time, we
recognize the importance of returning our mid-priced crossover and
Originals categories to desired growth levels and we are working
diligently to achieve these objectives. We remain dedicated to further
improving our platform for long-term growth and increased
profitability."
Business Outlook
The Company is providing certain forward-looking information in
this press release. These statements are based on the Company's
current information and expectations, and actual results may differ
materially. The Company undertakes no obligation to update this
information. Please see the further disclaimer in the last paragraph
of this release. The following information replaces our previous
guidance.
Second Quarter and Fiscal Year 2005
The Company expects fully diluted earnings per share to range from
$0.24 to $0.26 for Class A shares and to range from $0.26 to $0.28 for
Class B shares for the second quarter of 2005 and to range from $1.25
to $1.31 for Class A shares and to range from $1.38 to $1.44 for Class
B shares for the year.
The Company expects second quarter net sales to range from $41
million to $42 million. The Company expects net sales for the year to
range from $163 million to $165 million.
The Company expects gross margins of approximately 41% for the
second quarter and the year.
The Company expects selling, general and administration expenses
of approximately 33% of sales for the second quarter and of
approximately 31% of sales for the year.
Investor Conference Call
The Company will provide a web simulcast and rebroadcast of its
first quarter earnings release conference call. The live broadcast of
the Company's quarterly conference call is scheduled for May 6, 2005,
beginning at 8:30 a.m. Eastern Time and will be accessible online at
www.companyboardroom.com and under the "Investor Relations" section at
www.sauconyinc.com. The online replay will be available shortly after
the conference call and will continue to be available through May 6,
2006.
Saucony, Inc. designs, develops, and markets (i) a broad line of
performance-oriented athletic shoes for adults under the Saucony(R)
brand name, (ii) athletic apparel under the Hind(R) brand name and
(iii) athletic and workplace shoes under the Spot-bilt(R) name.
This press release contains forward-looking statements that
involve a number of risks and uncertainties. For this purpose, any
statements that are not statements of historical fact may be deemed to
be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "intends,"
"estimates," and similar expressions are intended to identify
forward-looking statements, and all of our statements under "Business
Outlook" above are forward-looking statements. Important factors that
could cause actual results to differ materially from those indicated
by such forward-looking statements are set forth in the Company's
Annual Report on Form 10-K under "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain
Other Factors that May Affect Future Results" ("Certain Factors")
filed by Saucony, Inc. with the Securities and Exchange Commission on
March 16, 2005, which Certain Factors discussion is incorporated
herein by this reference. In particular, there can be no assurance as
to the level of earnings per share, net sales, gross margins, selling,
general and administrative expenses, weighted average fully diluted
common shares and other operating results, including without
limitation, environmental charges, that will be achieved by the
Company in any period because such items are materially dependent upon
the condition of the domestic and world economies, the impact of
foreign regulation and the performance of foreign suppliers,
competition from third parties, consumer preferences, the inherent
uncertainties in estimating conditions in the environment and the
costs of addressing such conditions and the Company's assessment and
the implementation of its strategic alternatives. All forward-looking
statements are made only as of the date of this press release. The
Company makes no undertaking to update any of these statements.
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SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
(in thousands, except per share amounts)
ASSETS
April 1, December 31,
2005 2004
Current assets:
Cash and cash equivalents $ 28,437 $ 12,042
Short-term investments 300 20,694
Accounts receivable 27,517 22,485
Inventories 22,600 25,645
Deferred taxes 2,554 2,455
Prepaid expenses and other current assets 1,466 1,316
Total current assets 82,874 84,637
Property, plant and equipment, net 9,341 9,570
Other assets:
Goodwill 912 912
Deferred charges, net 80 91
Other 1,029 1,047
Total other assets 2,021 2,050
Total assets $ 94,236 $ 96,257
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized lease
obligations $ 64 $ 63
Accounts payable 7,246 10,484
Accrued expenses and other current
liabilities 9,164 11,249
Environmental accrual 2,220 2,275
Total current liabilities 18,694 24,071
Long-term obligations:
Capitalized lease obligations, net of
current portion 123 138
Other long-term obligations 963 932
Deferred income taxes 1,931 1,964
Total long-term obligations 3,017 3,034
Minority interest in consolidated subsidiary 505 461
Stockholders' equity:
Common stock, $.33 1/3 par value 2,232 2,205
Additional paid in capital 18,829 18,049
Retained earnings 49,528 46,693
Accumulated other comprehensive income 1,431 1,744
Total 72,020 68,691
Total liabilities and stockholders' equity $ 94,236 $ 96,257
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the quarter ended April 1, 2005 and April 2, 2004
(Unaudited)
(in thousands, except per share amounts)
Quarter Quarter
Ended Ended
April 1, April 2,
2005 2004
Net sales $ 41,851 $ 46,969
Other revenue 96 179
Total revenue 41,947 47,148
Costs and expenses
Cost of sales 24,257 27,912
Selling expenses 5,751 6,058
General and administrative expenses 6,894 6,078
Total costs and expenses 36,902 40,048
Operating income 5,045 7,101
Non-operating income (expense)
Interest income 157 69
Interest expense (3) --
Foreign currency losses 100 (144)
Other 24 3
Income before income taxes and minority
interest 5,323 7,028
Provision for income taxes 2,083 2,759
Minority interest in income of consolidated
subsidiaries 50 38
Net income $ 3,190 $ 4,231
Per share amounts:
Earnings per share:
Basic:
Class A common stock $ 0.45 $ 0.63
Class B common stock $ 0.50 $ 0.69
Diluted:
Class A common stock $ 0.41 $ 0.58
Class B common stock $ 0.46 $ 0.64
Weighted average common shares and
equivalents outstanding:
Basic:
Class A common stock 2,521 2,521
Class B common stock 4,137 3,801
Total 6,658 6,322
Diluted:
Class A common stock 2,521 2,521
Class B common stock 4,698 4,323
Total 7,219 6,844
Cash dividends per share of common stock:
Class A common stock $ 0.050 $ 4.050
Class B common stock $ 0.055 $ 4.055
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