The recent takeover of Saucony led Stride Rite Corp. into a loss in the latest quarter, but it will have numerous positive effects in the long run. Among other things it will give it additional leverage in sourcing, and it will double the group’s sales outside of the USA.
Until the end of 2004, the European import quotas on Chinese leather shoes had discouraged Stride Rite from making any major investments in this part of the world. With Saucony holding the distribution in Belgium and the UK, Stride Rite is now considering using it as a vehicle to market its other brands in these countries. On the other hand, Stride Rite has its own sales organization in Australia, which may benefit Saucony.
Before Saucony’s acquisition, the group’s business outside of the USA was broken down as follows: 54 percent Tommy Hilfiger, 10 percent Sperry, 10 percent Stride Rite, 19 percent Keds and 7 percent Pro Keds, based on 2004 financial results. The post-Saucony company now has its non-U.S. business made up at 59 percent by Saucony, 22 percent by Tommy Hilfiger, 8 percent by Keds, 4 percent by Stride Rite, 4 percent by Sperry and 3 percent by Pro Keds.
In the USA, on the other hand, Stride Rite’s strong position in the department stores and other retail channels will create new growth opportunities for the Saucony brand. On the athletic side, Stride Rite is also looking positively at Saucony’s strength in the running footwear market. Stride Rite estimates the global market for running shoes outside of the USA to be worth more than $20 billion, with Saucony accounting for a small $40 million chunk of this. But Stride Rite will not just be targeting the running segment, and looks to gain footing in the cross-over, children’s, originals and technical footwear segments.
Overall, the American group is optimistic about its future profitability. Now that the acquisition of Saucony is over, Stride Ride is targeting annual sales growth of 5-8 percent and annual increases in net profit of 8-12 percent. The company is shooting for earnings before taxes and interest (EBIT) to be 10 percent of total sales with a positive cash flow of at least $30-40 million each year.
Stride Rite posted a $3,061,000 net loss for the 4th quarter of its financial year, which ended on Dec.2, as compared to a net gain of $51,000 in the previous year’s quarter. This was due to several factors, including a pre-tax inventory write-up of $5.4 million, $800,000 in integration charges from the acquisition of Saucony and the fact that the quarter had one week less than the corresponding period of the previous year. Total net sales for the quarter were up by 13 percent to $131.7 million.
The company’s sales outside of the USA were up by 23.8 percent to $7.0 million in the 4th quarter ended Dec. 2 and by 25 percent for the full 2005 year, which was also a year of strong sales and record profit outside of the USA. The growth catalysts were high sales of Tommy Hilfiger footwear in Latin America, strong sales of the Keds brand in Europe and Asia and increases for the Sperry Top-Sider brand in South Africa and Europe.
For the full 2005 year, Stride Rite’s net sales grew by 5 percent to $588 million. The gross profit rose by 8 percent to represent 38.9 percent of sales. The operating income dropped by 7 percent to $38 million and the company ended up with a net profit of $25 million, compared with $26 million in the full 2004 year. These numbers include Saucony’s $23.2 million in sales from Sept. 16 to Dec. 2, 2005. Without the acquisition, the company’s sales would have risen by a mere 1.2 percent.
Stride Rite is expanding its company-owned retail operations in the USA aggressively, reportedly frustrating some independent retailers. The target is to increase the door count by 5-10 percent annually, with 33 new Stride Rite children’s stores planned for 2006. At the end of the last financial year the company had a total of 272 total doors, including factory outlets and the e-commerce business, counted as one location. In addition the group had about 180 licensed partner stores and 21 Saucony outlets.
At retail, the Stride Rite children’s group had a vigorous 12 percent sales increase to $175.3 million last year, but these sales were partly offset by a 6 percent drop in wholesale revenues. In the 4th quarter, the revenues of the children’s group fell by 4 percent to $62.4 million because of a 17 percent drop in the wholesale business.
By division, Stride Rite footwear made up 45 percent of total sales, Keds were 21 percent, Tommy Hilfiger represented 13 percent, Sperry was 12 percent, Saucony made up 4 percent and sales outside of the USA were 6 percent. Sales of the Stride Rite brand went up by 5 percent to $266.3 million, Keds was down by 8 percent to $126.0 million, Sperry rose by 25 percent to $73.8 million, Tommy sales fell by 18 percent to $75.6 million and sales outside of the USA grew by 25 percent to $33.9 million.
For the global lifestyle market, Stride Rite views its Keds brand as a competitor that can appeal to a variety of ages. The target customer for generic Keds shoes are women 19 years old and above, for which the company has Misha Barton, a popular American actress, as its marketing ammunition. Both men and women of 19 years and older are the ideal consumer for the Pro Keds collection. Women aged 40 years and above are targeted by the Grasshoppers line, while Ked Kids shoes are aimed at girls and teenagers aged 0 to 18 years old. For the PRO Keds line, which has traditionally been geared as a walking shoe for senior citizens, the division has acquired the license for the urban label Rocawear, and indicates that it will be repositioning this line to appeal to the urban consumer.
Stride Rite will market the Sperry brand to men and women aged 25 and older. The brand will continue to be placed in the boat shoe, performance and casual segments. The company will also be introducing apparel and accessories for the Sperry brand this year.
The licensed Tommy Hilfiger footwear line has been struggling in the USA, contributing to a 22.3 percent sales drop in the 4th quarter, but the brand continues to be a major driver of Stride Rite’s business outside of the USA, especially in Latin America.
The company plans to renew its license with Tommy Hilfiger in 2007 and in the meantime is rebuilding the men’s footwear, while growing the Tommy women’s and Tommy Girl business. The German-based Hamm group continues to hold the Tommy Hilfiger license in Europe. It has introduced a children’s line and it is recording some successes in Russia and other Eastern European markets.