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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