Stride Rite (NYSE:SRR)
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The Stride Rite Corporation (NYSE: SRR) today reported record second
quarter fiscal 2007 sales of $209.2 million, an increase of 8% compared
to the same period in the prior year. Net income for the second quarter
totaled $14.2 million or $.38 per diluted share, compared to the net
income of $16.9 million or $.45 per diluted share in the second quarter
of 2006. The second quarter financial results in 2006 included the
reversal of certain prior period reserves for income tax exposures that
were no longer required and resulted in a lower quarterly tax rate for
that period.
The 2007 second quarter tax rate increased to 34.7% from 19.3% in the
comparable period of the prior year. The lower tax rate in the prior
year was primarily attributable to the favorable outcome of a tax audit
which resulted in the reversal of certain prior period reserves. The
diluted per share impact of the higher tax rate was $.09 compared to
last year.
The second quarter fiscal 2007 financial results include pre-tax
expenses of $0.8 million related to Robeez integration costs and the
pending merger with Payless ShoeSource, Inc. The prior year second
quarter financial results included pre-tax Saucony acquisition related
integration expenses of $1.0 million.
Excluding acquisition-related merger and integration costs, net income
would have been $14.6 million, while diluted earnings per share would
have been $.39 for the second quarter of fiscal 2007. Excluding
acquisition-related integration costs, net income would have been $17.5
million for the second quarter of fiscal 2006, while diluted earnings
per share would have been $.46. See the section entitled “Non-GAAP
Pro Forma Financial Measures” and the “Reconciliation
of Non-GAAP Measures” provided in this release
for an additional description of these Non-GAAP Measures.
For the first six months of fiscal 2007, net sales were $403.9 million,
an increase of 7% from the net sales of $377.4 million for the same
period in fiscal 2006. On a diluted basis, earnings per share were $.67
in the first half of fiscal 2007 compared to $.67 in fiscal 2006. Net
income for the first half of fiscal 2007 totaled $25.3 million, versus
the $25.2 million reported in the comparable period in 2006. The first
half financial results in 2006 included the reversal of certain prior
period reserves for income tax exposures that were no longer required.
The 2007 six-month financial results include pre-tax expenses of $1.1
million related to Robeez integration and costs related to the pending
merger with Payless ShoeSource, Inc. The prior year first half financial
results included pre-tax Saucony acquisition related integration
expenses of $2.2 million. The 2006 first half financial results also
included a pre-tax expense of $2.6 million related to the flow through
of the write-up of inventory purchased in the Saucony acquisition to
fair value as required by GAAP accounting rules.
Excluding acquisition-related merger and integration costs, net income
would have been $25.9 million for the first six months of fiscal 2007,
while diluted earnings per share would have been $.69 for the first half
of fiscal 2007. Excluding acquisition-related integration costs, the
Saucony inventory write-up, net income would have been $28.0 million for
the first half of fiscal 2006, while diluted earnings per share would
have been $.74. See the section entitled “Non-GAAP
Pro Forma Financial Measures” and the “Reconciliation
of Non-GAAP Measures” provided in this release
for an additional description of these Non-GAAP Measures.
David Chamberlain, Chairman and CEO of Stride Rite commented, “Overall,
we continued to make progress in the second quarter.”
“The combined Children’s
Group second quarter sales decreased 1% compared to last year. The
Children’s Retail Group sales were up 4% in
the quarter and same store comps were down 2.5%. Children’s
Group wholesale sales were down 16% compared to last year. Second
quarter sales comparisons were impacted by the earlier start to our
annual pre-Easter promotion which positively affected our first quarter
results. We expect second half sales growth in our combined Stride Rite
children’s business.
“Keds had an improved second quarter, with
sales down just 1%. The new, younger product offerings met expectations,
which helped to offset the decline in women’s
core product and lower children’s sales. We
anticipate a positive sales trend for the remainder of the year.
“Sperry Top-Sider, up 23%, enjoyed another
strong quarter of sales. Most of the products are performing well. We
expect another year of strong growth.
“Saucony domestic sales were up 2% over a
year ago. We are seeing excellent response to our updated technical
running lines, particularly in the Triumph, Omni and Hurricane models,
which all feature our new ProGrid technology. Saucony should enjoy a
solid year.
“International sales were up 18%. Keds
continues to enjoy strong sales growth in Europe and Canada. The
marketing campaign and younger products are driving the Keds momentum.
Saucony delivered solid growth in Europe.
“Our Tommy Hilfiger footwear sales were 4%
above last year. We are pleased with the progress of the Tommy Hilfiger
brand. The second half sales are anticipated to be weaker due in part to
relocating our product line in a key department store.
“Robeez results continued to meet financial
expectations for the quarter.”
Mr. Chamberlain continued, “Assuming
reasonable retail and economic conditions in 2007, we are reaffirming
our projected sales growth of 5% to 8% and earnings per share of $1.10 -
$1.15, including a full year of Robeez financial results and excluding
any integration and merger related costs.”
NET SALES HIGHLIGHTS:
Net sales for the quarters ended June 1, 2007 and June 2, 2006 are
summarized in the table as follows:
The Stride Rite Corporation
Net Sales (in thousands)
Second Quarter
Percentage
2007
2006
Change
(Unaudited)
Stride Rite Children's Group - Wholesale
$15,408
$18,292
(16)%
Stride Rite Children's Group - Retail
57,987
55,789
4%
Stride Rite Children's Group - Combined
73,395
74,081
(1)%
Keds
34,406
34,924
(1)%
Sperry Top-Sider
35,025
28,519
23%
International
22,551
19,171
18%
Saucony
22,691
22,208
2%
Hind
2,525
3,418
(26)%
Other Wholesale - Combined
117,198
108,240
8%
Tommy Hilfiger Adult
15,170
14,583
4%
Robeez
5,941
-
n/a
Intercompany Eliminations
(2,503)
(2,897)
n/a
Total
$209,201
$194,007
8%
Net sales for the six months ended June 1, 2007 and June 2, 2006 are
summarized in the table as follows:
The Stride Rite Corporation
Net Sales (in thousands)
Fiscal Year to Date
Percentage
2007
2006
Change
(Unaudited)
Stride Rite Children's Group - Wholesale
$36,388
$39,448
(8)%
Stride Rite Children's Group - Retail
101,117
93,713
8%
Stride Rite Children's Group - Combined
137,505
133,161
3%
Keds
72,503
76,916
(6)%
Sperry Top-Sider
61,040
52,107
17%
International
45,846
41,990
9%
Saucony
45,103
43,282
4%
Hind
4,940
6,906
(28)%
Other Wholesale - Combined
229,432
221,201
4%
Tommy Hilfiger Adult
30,642
29,516
4%
Robeez
13,025
-
n/a
Intercompany Eliminations
(6,732)
(6,455)
n/a
Total
$403,872
$377,423
7%
Stride Rite Children’s Group-Wholesale net
sales were down 16% for the quarter and 8% for the first half as
compared to the prior year. This decrease was primarily attributable
to decreased sales of first quality products, mainly in the Stride
Rite and Tommy Hilfiger product lines, as well as a decrease in
closeout products sales. Offsetting these declines were positive sales
of Sperry Top-Sider and Saucony children’s
products.
Net sales of the Stride Rite Children’s
Group-Retail division increased 4% in the second quarter and 8% for
the first six months versus the prior year. Sales at comparable
Children’s Group retail stores (open 52
weeks in each fiscal year) decreased 2.5% for the second quarter and
were up 1.2% for the first six months of 2007. At quarter-end, the
Stride Rite Children’s Group-Retail
operated 326 stores, including 11 Saucony stores. This is a net
increase of 22 stores, or 7% from the comparable period last year.
Net sales in the Keds division decreased 1% for the second quarter and
were down 6% for the first half of fiscal 2007. The Keds sales decline
was primarily attributable to a decrease in women’s
core product sales in the mid-tier and value sales channels, as well
as lower children’s sales. The younger
themed product offerings have performed well.
Sperry Top-Sider net sales increased 23% for the second quarter and
17% for the first half of 2007 on higher sales of men’s
and women’s products.
Saucony domestic net sales were up 2% for the second quarter and 4%
for the first six months of 2007. Saucony technical running and
athletic products performed well in the quarter.
The Stride Rite International division’s
net sales were up 18% in the second quarter and 9% for the first half
of fiscal 2007. The sales increase in the quarter was primarily the
result of strong sales of Saucony and Keds products in Europe, Keds
sales increases in Canada and Tommy Hilfiger sales increases Latin
America.
Net sales of Tommy Hilfiger products increased 4% for the second
quarter and were up 4% for the first six months of 2007 with positive
trends in both women’s and men’s
product lines.
OTHER FINANCIAL HIGHLIGHTS:
The second quarter gross profit percentage of 43.3% increased 0.9
percentage points compared to the same period in the prior year. For
the first six months and excluding the prior year flow through of the
inventory write-up related to the Saucony purchase, the gross profit
percentage increased 0.2 percentage points to 42.1%. The Stride Rite
Children’s Group, Sperry Top-Sider and
International all had strong gross profit percentage improvements in
the second quarter compared to the prior year.
Operating expenses increased 13% for the second quarter and 8% for the
first six months compared to the comparable periods in the prior year.
As planned, the major operating cost increases were related Robeez
expenses, investments in European operations and Stride Rite Children’s
Group-Retail store expansion.
For the second quarter, operating income increased 3% and was up 2%
excluding the acquisition related merger and integration costs in each
period. For the first six months, operating income increased 14% and
was up 3% for the first six months excluding the merger and
acquisition related integration costs in each period and the flow
through of the inventory write up ($2.6 million) recorded in the first
quarter of fiscal 2006.
Accounts receivable increased 14% compared to last year due to the
sales increase and the timing of product shipments in the quarter. DSO
was 44 days, an increase of two days versus the comparable period last
year.
Inventories of $125.5 million were up 2% versus the comparable period
of 2006. The increase was due in part to the addition of Robeez.
Cash and cash equivalents were $21.3 million at the end of the second
quarter with $54.2 million in outstanding debt. The outstanding debt
balance was reduced by $44.3 million compared to the balance at the
end of the prior quarter.
The Company did not repurchase any common shares under the share
repurchase program during the second quarter. As of June 1, 2007 we
had approximately 3.0 million shares remaining on our share repurchase
authorization. The Company does not anticipate making any further
share repurchases due to the pending merger with Payless ShoeSource,
Inc.
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, PRO-Keds, Sperry
Top-Sider, Robeez, 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 second 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 June 26, 2007. An on-line replay will follow
two hours after the call and will continue through July, 5 2007.
Information about the Company’s brands and
product lines is available at: www.striderite.com,
www.keds.com, www.sperrytopsider.com,
www.robeez.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; the possible failure to
successfully integrate the Robeez brand into the Company operations;
increased leverage from the financing of our recent acquisitions;
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 acquisitions, 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 June 1, 2007 and June 2, 2006
Statements of Income
(in thousands)
Second Quarter
Six Months
2007
2006
2007
2006
(Unaudited)
(Unaudited)
Net sales
$209,201
$194,007
$403,872
$377,423
Cost of sales
118,517
111,728
233,698
221,912
Gross profit
90,684
82,279
170,174
155,511
Selling and administrative expenses
68,022
60,291
128,821
119,201
Operating income
22,662
21,988
41,353
36,310
Other income (expense), net
(964)
(1,064)
(2,014)
(1,887)
Income before income taxes
21,698
20,924
39,339
34,423
Provision for income taxes
7,533
4,031
14,079
9,245
Net income
$14,165
$16,893
$25,260
$25,178
Earnings per share:
Diluted
$0.38
$0.45
$0.67
$0.67
Basic
$0.39
$0.46
$0.69
$0.69
Weighted average shares outstanding:
Diluted
37,602
37,623
37,567
37,619
Basic
36,684
36,650
36,620
36,625
Balance Sheets
Second Quarter
2007
2006
Assets:
(Unaudited)
Cash and cash equivalents
$21,340
$23,349
Accounts receivable
109,953
96,102
Inventories
125,496
123,108
Deferred income taxes
14,290
13,620
Other current assets
8,421
15,741
Total current assets
279,500
271,920
Property and equipment, net
53,621
52,373
Goodwill
70,277
56,794
Trademarks
71,890
58,590
Other assets
18,115
18,736
Total assets
$493,403
$458,413
Liabilities and Stockholders' Equity:
Current liabilities
77,012
61,236
Long-term debt
54,200
68,000
Deferred income taxes and other liabilities
40,176
39,674
Stockholders' equity
322,015
289,503
Total liabilities and stockholders' equity
$493,403
$458,413
The Stride Rite Corporation
Reconciliation of Non-GAAP Measures
(in thousands, except share data)
For the Quarter Ended June 1, 2007
Reported
Adjusted Results
Second Quarter
Second Quarter
2007
Adjustments
2007
Net sales
$209,201
$209,201
Operating income
22,662
$795
(a)
23,457
Provision for income taxes
7,533
332
(b)
7,865
Net income
$14,165
$463
(a),(b)
$14,628
Earnings per share:
Diluted
$0.38
$0.39
Basic
$0.39
$0.40
Weighted average shares outstanding:
Diluted
37,602
37,602
Basic
36,684
36,684
Pro forma adjustments:
(a) Robeez integration expenses $.3 million (pre-tax), Payless
merger expenses $.5 million (pre-tax).
(b) Income tax effect at the incremental rate.
For the Six Months Ended June 1, 2007
Reported
Adjusted Results
Six Months
Six Months
2007
Adjustments
2007
Net sales
$403,872
$403,872
Operating income
41,353
$1,114
(a)
42,467
Provision for income taxes
14,079
465
(b)
14,544
Net income
$25,260
$649
(a),(b)
$25,909
Earnings per share:
Diluted
$0.67
$0.69
Basic
$0.69
$0.71
Weighted average shares outstanding:
Diluted
37,567
37,567
Basic
36,620
36,620
Pro forma adjustments:
(a) Robeez integration expenses $.6 million (pre-tax), Payless
merger expenses $.5 million (pre-tax).
(b) Income tax effect at the incremental rate.
The Stride Rite Corporation
Reconciliation of Non-GAAP Measures
(in thousands, except share data)
For the Quarter Ended June 2, 2006
Reported
Adjusted Results
Second Quarter
Second Quarter
2006
Adjustments
2006
Net sales
$194,007
$194,007
Operating income
21,988
$990
(a)
22,978
Provision for income taxes
4,031
404
(b)
4,435
Net income
$16,893
$586
(a),(b)
$17,479
Earnings per share:
Diluted
$0.45
$0.46
Basic
$0.46
$0.48
Weighted average shares outstanding:
Diluted
37,623
37,623
Basic
36,650
36,650
Pro forma adjustments:
(a) Saucony integration expenses $1.0 million (pre-tax)
(b) Income tax effect at the incremental rate.
For the Six Months Ended June 2, 2006
Reported
Adjusted Results
Six Months
Six Months
2006
Adjustments
2006
Net sales
$377,423
$377,423
Operating income
36,310
$4,775
(a)
41,085
Provision for income taxes
9,245
1,950
(b)
11,195
Net income
$25,178
$2,825
(a),(b)
$28,003
Earnings per share:
Diluted
$0.67
$0.74
Basic
$0.69
$0.76
Weighted average shares outstanding:
Diluted
37,619
37,619
Basic
36,625
36,625
Pro forma adjustments:
(a) Saucony inventory write-up to fair value $2.6 million and
Saucony integration expenses $2.2 million (pre-tax).
(b) Income tax effect at the incremental rate.