STRIDE RITE REPORTS INCREASED THIRD QUARTER SALES AND PROFITS

Share Name	Share Symbol	Market	Type
Stride Rite Corp	NYSE:SRR	NYSE	Ordinary Share

Stride Rite (NYSE:SRR)
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The Stride Rite Corporation (NYSE: SRR) today reported third quarter fiscal 2006 sales of $177.5 million, an increase of 21% compared to the same period in the prior year. Net income for the third quarter totaled $8.5 million or $.23 per diluted share, compared to net income of $7.7 million or $.21 per diluted share in the third quarter of 2005. Beginning in the first quarter of fiscal 2006, the Company adopted SFAS No. 123(R), �Share-Based Payment�, the impact of which increased pre-tax expenses by approximately $0.6 million for the third quarter of fiscal 2006. In addition, the current quarter results include pre-tax acquisition-related integration expenses of $0.7 million. Excluding acquisition-related integration costs, net income would have been $8.9 million for the third quarter, while diluted earnings per share would have been $.24. See the section entitled �Non-GAAP Pro Forma Financial Measures� and the �Reconciliation of Non-GAAP Measures� provided in this release for additional information regarding these Non-GAAP Measures. For the first nine months of fiscal 2006, net sales were $554.9 million, an increase of 22% from the net sales of $456.5 million for the same period in fiscal 2005. On a diluted basis, earnings per share were $.90 in the first nine months of fiscal 2006 compared to $.74 in fiscal 2005. Net income for the first nine months of fiscal 2006 totaled $33.7 million, an increase of 22% from the $27.6 million reported in the comparable period in 2005. The first nine months financial results include 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 first nine months results include pre-tax acquisition-related integration expenses of $2.8 million. The adoption of SFAS No. 123(R), �Share-Based Payment�, increased pre-tax expenses by approximately $2.2 million for the first nine months of fiscal 2006. Excluding acquisition-related integration costs and the flow through of the inventory write-up, net income would have been $36.9 million for the first nine months, while diluted earnings per share would have been $.99. See the section entitled �Non-GAAP Pro Forma Financial Measures� and the �Reconciliation of Non-GAAP Measures� provided in this release for additional information regarding these Non-GAAP Measures. David Chamberlain, Chairman and CEO of Stride Rite, commented �We made solid progress in executing our brand strategies. The Stride Rite Children�s Group�s sales were up 8%, with retail store comps up 4.1%. Our strategy of adding stores and growing store comps combined with strong brands and developing great product is working. Keds made meaningful progress on its turnaround strategy. Despite being down 12% overall in sales for the quarter, the younger profile product enjoyed significant sell-through success in all retail channels. We are successfully opening desirable accounts not previously available to the brand. We anticipate the fourth quarter sales will be relatively flat. Sperry Top-Sider was up 15% and continued its strong performance in both men�s and women�s products. We expect this momentum to continue in the fourth quarter. Saucony continues to enjoy success in the specialty run business. New strong technical product, an updated originals line and a separate children�s line have been developed for Spring, 2007. Tommy Hilfiger footwear sales declined significantly in the third quarter reflecting lower sales across all retail channels. The fourth quarter should see a less significant decline than in the first nine months. We have renewed the license for another year through March, 2008. International sales which reflect the inclusion of Saucony were solid and are expected to continue in the fourth quarter. We believe the International market offers a significant opportunity for growth and are investing in our infrastructure in Europe. We completed the acquisition of Robeez on September 5, 2006. Robeez enjoys a leadership position in the Age 0 - 3 market with their high-quality, soft-sole brand. We believe it has upside growth opportunities both domestically and internationally. Based on our earnings performance to date, we are reconfirming our full-year earnings guidance of $.82 to $.88, excluding the lower tax rate impact discussed last quarter. This assumes reasonable economic and retail conditions continue.� Included in the fiscal 2006 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 previously reported 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 of $3.2 million or $.05 per diluted share for the year are also included in the earnings projections. NET SALES HIGHLIGHTS PER SEGMENT: Net sales for the quarters ended September 1, 2006 and September 2, 2005 are summarized in the table as follows: The Stride Rite Corporation Net Sales (in thousands) � Third Quarter Percent 2006� 2005� Change (Unaudited) � Stride Rite Children's Group - Wholesale $27,310� $29,169� (6)% Stride Rite Children's Group - Retail 56,545� 48,193� 17% Stride Rite Children's Group - Combined 83,855� 77,362� 8% � Keds 22,127� 25,244� (12)% Sperry Top-Sider 20,858� 18,067� 15% International (includes Saucony) 22,339� 10,198� 119% Saucony Domestic (includes Hind) 21,142� -� n/a� Other Wholesale - Combined 86,466� 53,509� 62% � Tommy Hilfiger Adult 11,565� 18,187� (36)% � Intercompany Eliminations (4,365) (2,821) n/a� Total $177,521� $146,237� 21% Net sales for the nine months ended September 1, 2006 and September 2, 2005 are summarized in the table as follows: The Stride Rite Corporation Net Sales (in thousands) � Nine Months Percent 2006� 2005� Change (Unaudited) � Stride Rite Children's Group - Wholesale $66,758� $74,247� (10)% Stride Rite Children's Group - Retail 150,258� 129,615� 16% Stride Rite Children's Group - Combined 217,016� 203,862� 6% � Keds 99,043� 112,762� (12)% Sperry Top-Sider 72,965� 60,595� 20% International (includes Saucony) 64,329� 26,886� 139% Saucony Domestic (includes Hind) 71,328� -� n/a� Other Wholesale - Combined 307,665� 200,243� 54% � Tommy Hilfiger Adult 41,081� 60,867� (33)% � Intercompany Eliminations (10,818) (8,503) n/a� Total $554,944� $456,469� 22% Total Stride Rite Children�s Group net sales increased 8% in the third quarter and 6% for the first nine months compared to last year. Stride Rite Children�s Group-Wholesale net sales decreased 6% for the quarter and 10% for the first nine months as compared to the prior year. This sales decrease was principally Tommy Hilfiger product in the department store channel. Net sales of the Stride Rite Children�s Group-Retail division increased 17% in the third quarter and 16% for the first nine months versus the prior year. Sales at comparable Children�s Group retail stores (open 52 weeks in each fiscal year) increased 4.1% for the third quarter and 3.7% for the first nine months of fiscal 2006. At quarter-end, the Stride Rite Children�s Group-Retail operated 296 Stride Rite children�s shoe stores and outlets as well as 15 Saucony outlet stores. Net sales in the Keds division decreased 12% for the third quarter and the first nine months compared to the comparable periods in the prior year. The increased sales to premier specialty retail accounts did not offset the sales declines of basic products in the mid-tier and value retailers. Sperry Top-Sider net sales increased 15% for the third quarter and 20% for the first nine months on strong sales of men�s and women�s products, particularly in the marine and family shoe retail channels. Saucony net sales were $21.1 million for the third quarter and $71.3 million for the first nine months of 2006. The third quarter sales results reflect a refocused emphasis on technical in-line product and less promotional business. International net sales increased 119% for the third quarter and 139% for the first nine months compared to fiscal 2005, due primarily to the addition of Saucony international sales. Net sales of Tommy Hilfiger men�s and women�s products decreased 36% for the third quarter and 33% for the first nine months compared to last year, with sales declines due to a reduction in the customer base and uncertainty over the sale of the brand. OTHER FINANCIAL HIGHLIGHTS: The third quarter gross profit percentage of 41.6% increased 1.8 percentage points compared to the same period in the prior year. For the quarter, the primary improvement related to lower closeout sales and increased company-owned retail store sales. Operating expenses increased 25% for the third quarter and 26% for the first nine months versus the comparable periods in the prior year. 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. 123(R), �Share-Based Payment�. For the third quarter, operating income increased 35% and was up 42% excluding the acquisition-related integration costs ($0.7 million). For the first nine months, operating income increased 21% and was up 34% for the first nine months excluding the acquisition-related integration costs ($2.8 million) and the flow through of the inventory write up ($2.6 million). Accounts receivable increased 31% versus the comparable period last year due primarily to the addition of Saucony and higher sales in the last month of the quarter. DSO of 43 days was 3 days higher compared to the same period last year. Inventories of $118 million were up 37% versus the comparable period of 2005. The increase was due primarily to the addition of Saucony. The Company repurchased approximately 366 thousand shares of company stock during the third quarter at a cost of $4.5 million. For the first nine months, approximately 814 thousand shares have been repurchased at a cost of $10.8 million. We do not expect the September 5, 2006 acquisition of Robeez to have a material impact on earnings in 2006 or 2007, before any non-cash purchase accounting inventory impact. 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 and Spot-bilt. 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 third 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 September 26, 2006. An on-line replay will follow shortly after the call and will continue through October 3, 2006. Information about the Company�s brands and product lines is available at www.striderite.com, www.keds.com, www.sperrytopsider.com, www.grasshoppers.com, www.saucony.com and www.hind.com. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements, including, but not limited to, statements regarding upcoming product lines, division sales expectations, growth expectations, and sales growth for the Company, 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. Investors are cautioned that forward-looking 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, and should not place undue reliance on these statements. 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 or contribute to such differences include, among others: international, national and local general economic, political and market conditions; our reliance on independent manufacturers in China and potential disruptions in such manufacturing caused by difficulties associated with political instability in China, the occurrence of a natural disaster or outbreak of a pandemic disease in China, labor shortages or work stoppages, and changes in duty structures; the impact of changes in the value of foreign currencies, including the Chinese Yuan; the possible failure to retain the Tommy Hilfiger footwear license or other current license agreements; increased leverage from the financing of our recent acquisition; intense competition among sellers of footwear; delay in opening new stores; a decline in the volume of anticipated sales; revenues from new product lines may fall below expectations; a delay in the launch of new product lines; an inability to achieve expected results for new retail concepts; general retail sales trends may be below expectations; consumer fashion trends may shift to footwear styles 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 (the �SEC�), all of which are available at the SEC�s website at www.sec.gov. We expressly disclaim any responsibility to update forward-looking statements. NON-GAAP PRO FORMA FINANCIAL MEASURES: This release contains certain non-GAAP financial measures, specifically non-GAAP historic and anticipated net income and diluted earnings per share, each of which excludes certain cash and non-cash charges. These non-GAAP financial measures are used by management to evaluate the Company�s historical and prospective financial performance and to indicate underlying trends in the Company�s business. Although the non-GAAP measures provided by the Company may be different from the non-GAAP measures provided by other companies, management believes that these non-GAAP financial measures provide useful information to investors because, by excluding non-cash items related to the write-up to fair value of inventory and one-time cash items related to integration costs of the Company�s recent acquisition, it provides investors with a better understanding of the performance of the Company and allows investors to evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making. These non-GAAP financial 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 GAAP measures most directly comparable to the non-GAAP measures are net income and diluted earnings per share. The Stride Rite Corporation Summarized Financial Information for the periods ended September 1, 2006 and September 2, 2005 � Statements of Income � (in thousands) Third Quarter Nine Months � 2006� 2005� 2006� 2005� (Unaudited) (Unaudited) Net sales $177,521� $146,237� $554,944� $456,469� Cost of sales 103,656� 88,047� 325,568� 272,536� Gross profit 73,865� 58,190� 229,376� 183,933� Selling and administrative expenses 58,901� 47,136� 178,102� 141,615� Operating income 14,964� 11,054� 51,274� 42,318� Other income (expense), net (683) 695� (2,570) 1,065� Income before income taxes 14,281� 11,749� 48,704� 43,383� Provision for income taxes 5,797� 4,034� 15,042� 15,755� Net income $8,484� $7,715� $33,662� $27,628� � Earnings per share: Diluted $0.23� $0.21� $0.90� $0.74� Basic $0.23� $0.21� $0.92� $0.76� � Weighted average shares outstanding: Diluted 37,138� 37,396� 37,458� 37,188� Basic 36,261� 36,292� 36,504� 36,158� � � Balance Sheets � Third Quarter 2006� 2005� Assets: (Unaudited) Cash and cash equivalents $24,346� $92,281� Accounts receivable 91,967� 70,440� Inventories 118,463� 86,171� Deferred income taxes 13,748� 16,363� Other current assets 7,462� 7,066� Total current assets 255,986� 272,321� Property and equipment, net 52,253� 50,964� Goodwill 56,893� 908� Trademarks 58,590� 1,690� Other assets 17,354� 11,441� Total assets $441,076� $337,324� Liabilities and Stockholders' Equity: Current liabilities 53,889� 55,531� Long-term debt 55,000� -� Deferred income taxes and other liabilities 39,968� 13,169� Stockholders' equity 292,219� 268,624� Total liabilities and stockholders' equity $441,076� $337,324� Reconciliation of Non-GAAP Measures (in thousands, except share data) � For the Quarter Ended September 1, 2006 � Reported Third Quarter Adjusted Results Third Quarter 2006� Adjustments 2006� � Net sales $177,521� $177,521� � Operating income 14,964� $685� (b) 15,649� � Provision for income taxes 5,797� 275� (c) 6,072� � Net income $8,484� $410� (b)(c) $8,894� Earnings per share: Diluted $0.23� $0.24� Basic $0.23� $0.25� Weighted average shares outstanding: Diluted 37,138� 37,138� Basic 36,261� 36,261� � For the Nine Months Ended September 1, 2006 � Reported Nine Months Adjusted Results Nine Months 2006� Adjustments 2006� � Net sales $554,944� $554,944� � Operating income 51,274� $5,460� (a)(b) 56,734� � Provision for income taxes 15,042� 2,189� (c) 17,231� � Net income $33,662� $3,271� (a)(b)(c) $36,933� Earnings per share: Diluted $0.90� $0.99� Basic $0.92� $1.01� Weighted average shares outstanding: Diluted 37,458� 37,458� Basic 36,504� 36,504� � 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 the incremental rate The Stride Rite Corporation (NYSE: SRR) today reported third quarter fiscal 2006 sales of $177.5 million, an increase of 21% compared to the same period in the prior year. Net income for the third quarter totaled $8.5 million or $.23 per diluted share, compared to net income of $7.7 million or $.21 per diluted share in the third quarter of 2005. Beginning in the first quarter of fiscal 2006, the Company adopted SFAS No. 123(R), "Share-Based Payment", the impact of which increased pre-tax expenses by approximately $0.6 million for the third quarter of fiscal 2006. In addition, the current quarter results include pre-tax acquisition-related integration expenses of $0.7 million. Excluding acquisition-related integration costs, net income would have been $8.9 million for the third quarter, while diluted earnings per share would have been $.24. See the section entitled "Non-GAAP Pro Forma Financial Measures" and the "Reconciliation of Non-GAAP Measures" provided in this release for additional information regarding these Non-GAAP Measures. For the first nine months of fiscal 2006, net sales were $554.9 million, an increase of 22% from the net sales of $456.5 million for the same period in fiscal 2005. On a diluted basis, earnings per share were $.90 in the first nine months of fiscal 2006 compared to $.74 in fiscal 2005. Net income for the first nine months of fiscal 2006 totaled $33.7 million, an increase of 22% from the $27.6 million reported in the comparable period in 2005. The first nine months financial results include 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 first nine months results include pre-tax acquisition-related integration expenses of $2.8 million. The adoption of SFAS No. 123(R), "Share-Based Payment", increased pre-tax expenses by approximately $2.2 million for the first nine months of fiscal 2006. Excluding acquisition-related integration costs and the flow through of the inventory write-up, net income would have been $36.9 million for the first nine months, while diluted earnings per share would have been $.99. See the section entitled "Non-GAAP Pro Forma Financial Measures" and the "Reconciliation of Non-GAAP Measures" provided in this release for additional information regarding these Non-GAAP Measures. David Chamberlain, Chairman and CEO of Stride Rite, commented "We made solid progress in executing our brand strategies. The Stride Rite Children's Group's sales were up 8%, with retail store comps up 4.1%. Our strategy of adding stores and growing store comps combined with strong brands and developing great product is working. Keds made meaningful progress on its turnaround strategy. Despite being down 12% overall in sales for the quarter, the younger profile product enjoyed significant sell-through success in all retail channels. We are successfully opening desirable accounts not previously available to the brand. We anticipate the fourth quarter sales will be relatively flat. Sperry Top-Sider was up 15% and continued its strong performance in both men's and women's products. We expect this momentum to continue in the fourth quarter. Saucony continues to enjoy success in the specialty run business. New strong technical product, an updated originals line and a separate children's line have been developed for Spring, 2007. Tommy Hilfiger footwear sales declined significantly in the third quarter reflecting lower sales across all retail channels. The fourth quarter should see a less significant decline than in the first nine months. We have renewed the license for another year through March, 2008. International sales which reflect the inclusion of Saucony were solid and are expected to continue in the fourth quarter. We believe the International market offers a significant opportunity for growth and are investing in our infrastructure in Europe. We completed the acquisition of Robeez on September 5, 2006. Robeez enjoys a leadership position in the Age 0 - 3 market with their high-quality, soft-sole brand. We believe it has upside growth opportunities both domestically and internationally. Based on our earnings performance to date, we are reconfirming our full-year earnings guidance of $.82 to $.88, excluding the lower tax rate impact discussed last quarter. This assumes reasonable economic and retail conditions continue." Included in the fiscal 2006 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 previously reported 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 of $3.2 million or $.05 per diluted share for the year are also included in the earnings projections. NET SALES HIGHLIGHTS PER SEGMENT: -- Net sales for the quarters ended September 1, 2006 and September 2, 2005 are summarized in the table as follows: -0- *T The Stride Rite Corporation Net Sales (in thousands) Third Quarter ------------------- Percent 2006 2005 Change --------- --------- ------- (Unaudited) Stride Rite Children's Group - Wholesale $27,310 $29,169 (6)% Stride Rite Children's Group - Retail 56,545 48,193 17% --------- --------- ------- Stride Rite Children's Group - Combined 83,855 77,362 8% Keds 22,127 25,244 (12)% Sperry Top-Sider 20,858 18,067 15% International (includes Saucony) 22,339 10,198 119% Saucony Domestic (includes Hind) 21,142 - n/a --------- --------- ------- Other Wholesale - Combined 86,466 53,509 62% Tommy Hilfiger Adult 11,565 18,187 (36)% Intercompany Eliminations (4,365) (2,821) n/a --------- --------- ------- Total $177,521 $146,237 21% ========= ========= ======= *T -- Net sales for the nine months ended September 1, 2006 and September 2, 2005 are summarized in the table as follows: -0- *T The Stride Rite Corporation Net Sales (in thousands) Nine Months -------------------- Percent 2006 2005 Change ---------- --------- -------- (Unaudited) Stride Rite Children's Group - Wholesale $66,758 $74,247 (10)% Stride Rite Children's Group - Retail 150,258 129,615 16% ---------- --------- -------- Stride Rite Children's Group - Combined 217,016 203,862 6% Keds 99,043 112,762 (12)% Sperry Top-Sider 72,965 60,595 20% International (includes Saucony) 64,329 26,886 139% Saucony Domestic (includes Hind) 71,328 - n/a ---------- --------- -------- Other Wholesale - Combined 307,665 200,243 54% Tommy Hilfiger Adult 41,081 60,867 (33)% Intercompany Eliminations (10,818) (8,503) n/a ---------- --------- -------- Total $554,944 $456,469 22% ========== ========= ======== *T -- Total Stride Rite Children's Group net sales increased 8% in the third quarter and 6% for the first nine months compared to last year. -- Stride Rite Children's Group-Wholesale net sales decreased 6% for the quarter and 10% for the first nine months as compared to the prior year. This sales decrease was principally Tommy Hilfiger product in the department store channel. -- Net sales of the Stride Rite Children's Group-Retail division increased 17% in the third quarter and 16% for the first nine months versus the prior year. Sales at comparable Children's Group retail stores (open 52 weeks in each fiscal year) increased 4.1% for the third quarter and 3.7% for the first nine months of fiscal 2006. At quarter-end, the Stride Rite Children's Group-Retail operated 296 Stride Rite children's shoe stores and outlets as well as 15 Saucony outlet stores. -- Net sales in the Keds division decreased 12% for the third quarter and the first nine months compared to the comparable periods in the prior year. The increased sales to premier specialty retail accounts did not offset the sales declines of basic products in the mid-tier and value retailers. -- Sperry Top-Sider net sales increased 15% for the third quarter and 20% for the first nine months on strong sales of men's and women's products, particularly in the marine and family shoe retail channels. -- Saucony net sales were $21.1 million for the third quarter and $71.3 million for the first nine months of 2006. The third quarter sales results reflect a refocused emphasis on technical in-line product and less promotional business. -- International net sales increased 119% for the third quarter and 139% for the first nine months compared to fiscal 2005, due primarily to the addition of Saucony international sales. -- Net sales of Tommy Hilfiger men's and women's products decreased 36% for the third quarter and 33% for the first nine months compared to last year, with sales declines due to a reduction in the customer base and uncertainty over the sale of the brand. OTHER FINANCIAL HIGHLIGHTS: -- The third quarter gross profit percentage of 41.6% increased 1.8 percentage points compared to the same period in the prior year. For the quarter, the primary improvement related to lower closeout sales and increased company-owned retail store sales. -- Operating expenses increased 25% for the third quarter and 26% for the first nine months versus the comparable periods in the prior year. 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. 123(R), "Share-Based Payment". -- For the third quarter, operating income increased 35% and was up 42% excluding the acquisition-related integration costs ($0.7 million). For the first nine months, operating income increased 21% and was up 34% for the first nine months excluding the acquisition-related integration costs ($2.8 million) and the flow through of the inventory write up ($2.6 million). -- Accounts receivable increased 31% versus the comparable period last year due primarily to the addition of Saucony and higher sales in the last month of the quarter. DSO of 43 days was 3 days higher compared to the same period last year. -- Inventories of $118 million were up 37% versus the comparable period of 2005. The increase was due primarily to the addition of Saucony. -- The Company repurchased approximately 366 thousand shares of company stock during the third quarter at a cost of $4.5 million. For the first nine months, approximately 814 thousand shares have been repurchased at a cost of $10.8 million. -- We do not expect the September 5, 2006 acquisition of Robeez to have a material impact on earnings in 2006 or 2007, before any non-cash purchase accounting inventory impact. 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 and Spot-bilt. 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 third 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 September 26, 2006. An on-line replay will follow shortly after the call and will continue through October 3, 2006. Information about the Company's brands and product lines is available at www.striderite.com, www.keds.com, www.sperrytopsider.com, www.grasshoppers.com, www.saucony.com and www.hind.com. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements, including, but not limited to, statements regarding upcoming product lines, division sales expectations, growth expectations, and sales growth for the Company, 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. Investors are cautioned that forward-looking 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, and should not place undue reliance on these statements. 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 or contribute to such differences include, among others: international, national and local general economic, political and market conditions; our reliance on independent manufacturers in China and potential disruptions in such manufacturing caused by difficulties associated with political instability in China, the occurrence of a natural disaster or outbreak of a pandemic disease in China, labor shortages or work stoppages, and changes in duty structures; the impact of changes in the value of foreign currencies, including the Chinese Yuan; the possible failure to retain the Tommy Hilfiger footwear license or other current license agreements; increased leverage from the financing of our recent acquisition; intense competition among sellers of footwear; delay in opening new stores; a decline in the volume of anticipated sales; revenues from new product lines may fall below expectations; a delay in the launch of new product lines; an inability to achieve expected results for new retail concepts; general retail sales trends may be below expectations; consumer fashion trends may shift to footwear styles 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 (the "SEC"), all of which are available at the SEC's website at www.sec.gov. We expressly disclaim any responsibility to update forward-looking statements. NON-GAAP PRO FORMA FINANCIAL MEASURES: This release contains certain non-GAAP financial measures, specifically non-GAAP historic and anticipated net income and diluted earnings per share, each of which excludes certain cash and non-cash charges. These non-GAAP financial measures are used by management to evaluate the Company's historical and prospective financial performance and to indicate underlying trends in the Company's business. Although the non-GAAP measures provided by the Company may be different from the non-GAAP measures provided by other companies, management believes that these non-GAAP financial measures provide useful information to investors because, by excluding non-cash items related to the write-up to fair value of inventory and one-time cash items related to integration costs of the Company's recent acquisition, it provides investors with a better understanding of the performance of the Company and allows investors to evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making. These non-GAAP financial 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 GAAP measures most directly comparable to the non-GAAP measures are net income and diluted earnings per share. -0- *T The Stride Rite Corporation Summarized Financial Information for the periods ended September 1, 2006 and September 2, 2005 Statements of Income (in thousands) Third Quarter Nine Months ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- (Unaudited) (Unaudited) Net sales $177,521 $146,237 $554,944 $456,469 Cost of sales 103,656 88,047 325,568 272,536 --------- --------- --------- --------- Gross profit 73,865 58,190 229,376 183,933 Selling and administrative expenses 58,901 47,136 178,102 141,615 --------- --------- --------- --------- Operating income 14,964 11,054 51,274 42,318 Other income (expense), net (683) 695 (2,570) 1,065 --------- --------- --------- --------- Income before income taxes 14,281 11,749 48,704 43,383 Provision for income taxes 5,797 4,034 15,042 15,755 --------- --------- --------- --------- Net income $8,484 $7,715 $33,662 $27,628 ========= ========= ========= ========= Earnings per share: Diluted $0.23 $0.21 $0.90 $0.74 Basic $0.23 $0.21 $0.92 $0.76 Weighted average shares outstanding: Diluted 37,138 37,396 37,458 37,188 Basic 36,261 36,292 36,504 36,158 Balance Sheets Third Quarter ------------------- 2006 2005 --------- --------- Assets: (Unaudited) Cash and cash equivalents $24,346 $92,281 Accounts receivable 91,967 70,440 Inventories 118,463 86,171 Deferred income taxes 13,748 16,363 Other current assets 7,462 7,066 --------- --------- Total current assets 255,986 272,321 Property and equipment, net 52,253 50,964 Goodwill 56,893 908 Trademarks 58,590 1,690 Other assets 17,354 11,441 --------- --------- Total assets $441,076 $337,324 ========= ========= Liabilities and Stockholders' Equity: Current liabilities 53,889 55,531 Long-term debt 55,000 - Deferred income taxes and other liabilities 39,968 13,169 Stockholders' equity 292,219 268,624 --------- --------- Total liabilities and stockholders' equity $441,076 $337,324 ========= ========= *T -0- *T Reconciliation of Non-GAAP Measures (in thousands, except share data) For the Quarter Ended September 1, 2006 Adjusted Reported Results Third Third Quarter Quarter 2006 Adjustments 2006 ---------- ----------- ----------- Net sales $177,521 $177,521 Operating income 14,964 $685 (b) 15,649 Provision for income taxes 5,797 275 (c) 6,072 Net income $8,484 $410 (b)(c) $8,894 Earnings per share: Diluted $0.23 $0.24 Basic $0.23 $0.25 Weighted average shares outstanding: Diluted 37,138 37,138 Basic 36,261 36,261 For the Nine Months Ended September 1, 2006 Reported Adjusted Nine Results Months Nine Months 2006 Adjustments 2006 ---------- ----------- ----------- Net sales $554,944 $554,944 Operating income 51,274 $5,460 (a)(b) 56,734 Provision for income taxes 15,042 2,189 (c) 17,231 Net income $33,662 $3,271 (a)(b)(c) $36,933 Earnings per share: Diluted $0.90 $0.99 Basic $0.92 $1.01 Weighted average shares outstanding: Diluted 37,458 37,458 Basic 36,504 36,504 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 the incremental rate *T

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SRR Stride Rite Corp