The Stride Rite Corporation (NYSE: SRR) today reported record
fourth quarter and fiscal year 2006 net sales. Net sales for the
fourth quarter of fiscal 2006 were $151.8 million, an increase of
15% compared to the same period in the prior year. Net income for
the fourth quarter totaled $0.6 million or $.02 per diluted share,
compared to the net loss of $3.1 million or $.08 per diluted share
in the fourth quarter of 2005. The fourth quarter of 2006 included
$9.7 million of Robeez net sales for the thirteen weeks subsequent
to the September 5, 2006 acquisition date. For the full year of
fiscal 2006, net sales were $706.8 million, an increase of 20% from
the net sales of $588.2 million in fiscal 2005. Net income for the
full year of fiscal 2006 totaled $34.3 million, an increase of 40%
from the $24.6 million reported in fiscal 2005. On a diluted basis,
earnings per share were $.92 compared to $.66 in fiscal 2005. The
prior year includes eleven weeks of Saucony results from the date
of acquisition, September 16, 2005. The fourth quarter of 2006
includes a pre-tax expense of $0.9 million related to the write-up
of inventory purchased in the Robeez acquisition. In addition, the
current year quarter includes pre-tax acquisition related
integration expenses of $0.5 million related to Saucony and Robeez.
The fiscal 2006 full year financial results include pre-tax
expenses of $3.5 million related to the flow through of the
write-up of inventory purchased in the Saucony and Robeez
acquisitions as required by GAAP. In addition, the fiscal 2006
results include pre-tax acquisition-related integration expenses of
$3.4 million for Saucony and Robeez. Excluding acquisition-related
integration costs and the Robeez inventory write-up, net income
would have been $1.5 million for the fourth quarter of fiscal 2006,
while diluted earnings per share would have been $.04. Excluding
acquisition-related integration costs and the Saucony inventory
write-up, net income would have been $ 0.5 million for the fourth
quarter of fiscal 2005, while diluted earnings per share would have
been $.01. 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. Excluding acquisition-related integration costs and the
flow through of the inventory write-ups, net income would have been
$38.4 million for fiscal 2006, while diluted earnings per share
would have been $1.03. This compares to net income of $28.6 million
and $.77 diluted earnings per share in the prior year, excluding
acquisition-related integration costs and the flow through of the
inventory write-up. 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. Beginning with fiscal 2006, the Company adopted
SFAS No. 123(R), �Share-Based Payment�, the impact of which
increased pre-tax expenses by approximately $0.9 million for the
fourth quarter and $3.2 million for the 2006 full year. David
Chamberlain, Chairman and CEO of Stride Rite, commented �We made
significant progress in a number of key areas in 2006. The Stride
Rite Children�s Group�s full year sales increased 7%, with retail
store comps up 3.4%. Our strategy of developing excellent product
for our wholesale partners and company-owned retail stores is
working well. This year we added a net 29 new stores, for a total
of 318 stores, including 15 Saucony doors. We plan to open 5% - 10%
new stores to our base in 2007. We expect continued progress in our
total children�s business. We made solid progress on Keds in 2006.
While the year was down 11%, the fourth quarter was up 1%. We
significantly expanded our retail distribution in desirable
accounts not previously available to the brand. The younger product
line is enjoying strong sell-through in a number of accounts. The
classic white and more mature product continues to be the area of
challenge. We expect spring 2007 will reflect this continued
transition, with sales for spring being relatively flat and fall
above last year. Sperry Top-Sider was up 20% for the year and has
been a consistently strong performer with expanded product
offerings and broadened retail distribution. We expect this
momentum to continue into fiscal 2007. Saucony continues to enjoy
success and market share growth in the specialty run business. The
initial reactions to our technical product for 2007 have been very
positive. We anticipate growth in this market. We are updating and
broadening our product offerings of the less technical and athletic
lifestyle products. This should contribute to growth in the second
half in the sporting goods and national chain channels. The Tommy
Hilfiger Division footwear sales declined 9% in the fourth quarter,
significantly less than the 28% decline for the year. We are
hopeful that this business, which we license, is beginning to
stabilize under the new ownership. We expect the improved fourth
quarter trend to continue into 2007. International sales were
strong in fiscal 2006, helped significantly by the addition of
Saucony. Saucony has a solid technical running business in Canada
and Europe. We believe the international markets offer a
significant opportunity for growth for The Stride Rite Corporation.
In 2007 we will begin to make investments in Europe behind Saucony,
Keds, and Sperry Top-Sider. International should have a solid 2007.
We completed the acquisition of Robeez on September 5, 2006. Robeez
enjoys a leadership position in the Age 0 - 3 soft soled shoe
market. We believe it has upside growth opportunities both
domestically and internationally. For fiscal year 2007, we are
projecting sales growth of 5% to 8% and earnings per share of $1.10
- $1.15, excluding any additional costs related to the Robeez
acquisition. This assumes reasonable economic and retail conditions
continue.� NET SALES HIGHLIGHTS PER SEGMENT: Net sales for the
quarters ended December 1, 2006 and December 2, 2005: The Stride
Rite CorporationNet Sales (in thousands) � Fourth Quarter Percent
2006� 2005� Change (Unaudited) � Stride Rite Children's Group -
Wholesale $18,082� $16,678� 8% Stride Rite Children's Group -
Retail 52,304� 47,594� 10% Stride Rite Children's Group - Combined
70,386� 64,272� 10% � Keds 13,893� 13,812� 1% Sperry Top-Sider
15,281� 13,221� 16% International (includes Saucony) 15,200�
15,780� (4)% Saucony Domestic (includes Hind) 17,949� 16,655� 8%
Other Wholesale - Combined 62,323� 59,468� 5% � Tommy Hilfiger
Adult 12,868� 14,148� (9)% � Robeez 9,748� -� n/a� � Intercompany
Eliminations (3,514) (6,193) n/a� Total $151,811� $131,695� 15% Net
sales for the fiscal years ended December 1, 2006 and December 2,
2005: The Stride Rite CorporationNet Sales (in thousands) � Fiscal
Year Percent 2006� 2005� Change (Unaudited) � Stride Rite
Children's Group - Wholesale $84,840� $90,926� (7)% Stride Rite
Children's Group - Retail 202,562� 177,209� 14% Stride Rite
Children's Group - Combined 287,402� 268,135� 7% � Keds 112,936�
126,574� (11)% Sperry Top-Sider 88,246� 73,817� 20% International
(includes Saucony) 79,529� 42,665� 86% Saucony Domestic (includes
Hind) 89,277� 16,655� 436% Other Wholesale - Combined 369,988�
259,711� 42% � Tommy Hilfiger Adult 53,949� 75,015� (28)% � Robeez
9,748� -� n/a� � Intercompany Eliminations (14,332) (14,697) n/a�
Total $706,755� $588,164� 20% Total Stride Rite Children�s Group
net sales increased 10% in the fourth quarter and 7% for the full
year compared to the comparable periods in fiscal 2005. -- Stride
Rite Children's Group-Wholesale net sales increased 8% for the
quarter although down 7% for the full year compared to fiscal 2005.
The sales decrease for the year was principally in the department
store channel and certain licensed partner accounts. -- Net sales
of the Stride Rite Children's Group-Retail division increased 10%
in the fourth quarter and 14% for the full year versus the 2005
results. Sales at comparable Children's Group retail stores (open
52 weeks in each fiscal year) increased 2.5% for the fourth quarter
and 3.4% for the full year of fiscal 2006. Net sales in the Keds
division increased 1% for the fourth quarter compared to the same
period in the prior year. For the year, Keds sales declined 11% as
the increased sales to premier specialty retail accounts did not
offset the sales declines of core products in the mid-tier and
value retailers. Sperry Top-Sider net sales increased 16% for the
fourth quarter and 20% for the full year on strong sales of men�s
and women�s products, across most retail channels. Saucony domestic
wholesale net sales were $17.9 million for the fourth quarter and
$89.3 million for the full year. The sales results reflect the
continued emphasis on technical run product and success in the
specialty run retail channel. International net sales increased 86%
for the full year compared to fiscal 2005, due primarily to the
addition of Saucony. Saucony sales were particularly strong in
Canada and Europe. Sales for the fourth quarter declined 4%, due
primarily to lower sales of Tommy Hilfiger in Latin America. Net
sales of Tommy Hilfiger men�s and women�s products decreased 9% for
the fourth quarter and 28% for the full year, with sales declines
due to a reduction in the department store customer base combined
with fewer closeout sales. Robeez net sales for the fourth quarter
of 2006 were $9.7 million for the 13 weeks subsequent to the
September 5, 2006 acquisition date. OTHER FINANCIAL HIGHLIGHTS:
Excluding the non-cash impacts of the Robeez inventory write-up in
2006 and the Saucony inventory write-up in 2005, the fourth quarter
gross profit percentage of 39.6%, increased 1.3 percentage points
compared to the same period in the prior year. For the quarter, the
improvement primarily related to fewer closeout sales and increased
company-owned retail store sales. The full year gross profit rate
of 41.3%, excluding the Robeez and Saucony inventory write-ups, was
1.4 percentage points higher than fiscal 2005. For the year, the
primary improvement related to increased gross profit margins in
Sperry Top-Sider and our International business. Operating expenses
increased 15% for the fourth quarter and 23% for the full year
versus the comparable periods in the prior year. As planned, the
major operating cost increases were related to Saucony and Robeez
expenses, the Stride Rite Children�s Group-Retail store expansion
and higher advertising costs in Sperry Top-Sider. 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 fourth quarter, operating income of $2.1 million increased $7.0
million compared to last year�s fourth quarter operating loss. For
the full year, operating income of $53.4 million increased 42%.
Accounts receivable increased 19% versus the comparable period last
year due primarily to the addition of Robeez and higher sales in
the last month of the quarter. DSO of 41 days was 2 days higher
compared to the same period last year. Inventories of $120 million
were up 3% versus the comparable period of 2005. The increase
includes the addition of Robeez. The Company repurchased
approximately 94 thousand shares of company stock during the fourth
quarter at a cost of $1.4 million. For the full year, approximately
908 thousand shares have been repurchased at a cost of $12.2
million. 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 fourth 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 January 11, 2007. An on-line replay will follow shortly after
the call and will continue through January 17, 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 December 1, 2006 and December 2, 2005 Statements of Income �
(in thousands) Fourth Quarter Fiscal Year � 2006� 2005� 2006� 2005�
(Unaudited) (Unaudited) Net sales $151,811� $131,695� $706,755�
$588,164� Cost of sales 92,508� 86,643� 418,076� 359,179� Gross
profit 59,303� 45,052� 288,679� 228,985� Selling and administrative
expenses 57,179� 49,881� 235,281� 191,496� Operating income 2,124�
(4,829) 53,398� 37,489� Other income (expense), net (1,213) (541)
(3,783) 524� Income (loss) before income taxes 911� (5,370) 49,615�
38,013� Provision for (benefit from) income taxes 283� (2,309)
15,325� 13,446� Net income (loss) $628� $(3,061) $34,290� $24,567�
� Earnings (loss) per share: Diluted $0.02� $(0.08) $0.92� $0.66�
Basic $0.02� $(0.08) $0.94� $0.68� � Weighted average shares
outstanding: Diluted 37,263� 37,325� 37,310� 37,223� Basic 36,327�
36,316� 36,460� 36,197� � Balance Sheets � 2006� 2005� Assets:
(Unaudited) Cash and cash equivalents $17,502� $33,094� Accounts
receivable 75,263� 63,368� Inventories 119,917� 116,095� Deferred
income taxes 14,293� 14,211� Other current assets 16,676� 23,413�
Total current assets 243,651� 250,181� Property and equipment, net
53,472� 51,367� Goodwill 70,575� 56,729� Trademarks 71,890� 58,590�
Other assets 18,299� 19,482� Total assets $457,887� $436,349�
Liabilities and Stockholders' Equity: Current liabilities 66,878�
73,022� Long-term debt 54,200� 60,000� Deferred income taxes and
other liabilities 40,080� 36,649� Stockholders' equity 296,729�
266,678� Total liabilities and stockholders' equity $457,887�
$436,349� The Stride Rite CorporationReconciliation of Non-GAAP
Measures(in thousands, except per share data) � For the Quarter
Ended December 1, 2006 � ReportedFourth Quarter2006 Adjustments
AdjustedResultsFourth Quarter 2006 � � Net sales $151,811�
$151,811� � Operating income 2,124� $1,403� (a) 3,527� � Provision
for income taxes 283� 562� (c) 845� � Net income $628� $841� (a)(c)
$1,469� Earnings per share: Diluted $0.02� $0.04� Basic $0.02�
$0.04� Weighted average shares outstanding: Diluted 37,263� 37,263�
Basic 36,327� 36,327� � For the Fiscal Year Ended December 1, 2006
� ReportedFiscal Year2006 Adjustments AdjustedResultsFiscal Year
2006 � Net sales $706,755� $706,755� � Operating income 53,398�
$6,863� (b) 60,261� � Provision for income taxes 15,325� 2,751� (c)
18,076� � Net income $34,290� $4,112� (b)(c) $38,402� Earnings per
share: Diluted $0.92� $1.03� Basic $0.94� $1.05� Weighted average
shares outstanding: Diluted 37,310� 37,310� Basic 36,460� 36,460� �
Pro forma adjustments: � (a) Flow through of the Robeez inventory
write-up to fair value (pre-tax) $0.9 million and Saucony and
Robeez integration expenses $0.5 million. (b) Flow through of the
Saucony and Robeez inventory write-up to fair value (pre-tax) $3.5
million and integration expenses $3.4 million. (c) Income tax
effect at the incremental rate The Stride Rite
CorporationReconciliation of Non-GAAP Measures(in thousands, except
per share data) � For the Quarter Ended December 2, 2005 �
ReportedFourth Quarter2005 Adjustments AdjustedResultsFourth
Quarter 2005 � Net sales $131,695� $131,695� � Operating income
(loss) (4,829) $6,164� (a) 1,335� � Provision for (benefit from)
income taxes (2,309) 2,648� (c) 339� � Net income (loss) $(3,061)
$3,516� (a)(c) $455� Earnings (loss) per share: Diluted $(0.08)
$0.01� Basic $(0.08) $0.01� Weighted average shares outstanding:
Diluted 37,325� 37,325� Basic 36,316� 36,316� � For the Fiscal Year
Ended December 2, 2005 � ReportedFiscal Year2005 Adjustments
AdjustedResultsFiscal Year 2005 � Net sales $588,164� $588,164� �
Operating income 37,489� $6,281� (b) 43,770� � Provision for income
taxes 13,446� 2,222� (c) 15,668� � Net income $24,567� $4,059�
(b)(c) $28,626� Earnings per share: Diluted $0.66� $0.77� Basic
$0.68� $0.79� Weighted average shares outstanding: Diluted 37,223�
37,223� Basic 36,197� 36,197� � Pro forma adjustments: � (a) Flow
through of the Saucony inventory write-up to fair value (pre-tax)
$5.4 million and integration expenses $.8 million. (b) Flow through
of the Saucony inventory write-up to fair value (pre-tax) $5.4
million and integration expenses $.9 million. (c) Income tax effect
at the effective rate
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