Saucony, Inc. Reports First Quarter Fiscal 2005 Results.PEABODY Peabody (pē`bədē, –bädē), city (1990 pop. 47,039), Essex co., NE Mass., a suburb of Boston, on the Danvers River; settled c.1633, inc. as South Danvers 1855, name changed 1868. , Mass. -- Saucony, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : SCNYA and SCNYB) today announced financial results for the quarter ended April 1, 2005. Net income decreased to $3.2 million in the first quarter of 2005, compared to $4.2 million in the first quarter of 2004. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of decreased to $0.41 per Class A share and $0.46 per Class B share in the first quarter of 2005, compared to diluted earnings per share of $0.58 per Class A share and $0.64 per Class B share for the comparable period in 2004. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the first quarter decreased 11%, to $41.9 million, compared to $47.0 million in the first quarter of 2004. John H. Fisher, President and Chief Executive Officer, commented, "As anticipated, our first quarter results were primarily impacted by challenges with our crossover Crossover The point on a stock chart when a security and an indicator intersect. Crossovers are used by technical analysts to aid in forecasting the future movements in the price of a stock. In most technical analysis models, a crossover is a signal to either buy or sell. and Originals business in the mall-based retail channel. That said, our domestic technical footwear Footwear consists of garments worn on the feet. It is worn for a variety of reasons, including protection against the environment, hygiene and adornment. Usually, socks and other hosiery are worn between the feet and the footwear, except for sandals and flip flops (thongs). business, which is at the heart of who we are, remains very strong and we are encouraged about our prospects to further expand our position in the core running market. We continue to focus on product creation and we are excited about our new offerings which will debut over the upcoming months of this year." John H. Fisher, President and Chief Executive Officer, commented, "We were pleased with our ability to generate better than expected bottom-line bot·tom-line adj. 1. Concerned exclusively with costs and profits: bottom-line issues. 2. Ruthlessly realistic; pragmatic: a bottom-line political strategy. results during the quarter predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. driven by gross margin expansion. Our gross margin improvement reflects the favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impact of foreign currency on our international margins and our ongoing efforts to manage our inventory and reduce our product costs." Order Backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. Our backlog of open orders at April 1, 2005 scheduled for delivery within the next five months (April 2, 2005 - August 26, 2005) decreased 5% to $50.2 million, compared to $53.0 million at April 2, 2004. At April 1, 2005, the open order backlog for delivery in the next 12 months decreased 4% to $60.2 million, from $62.8 million at April 2, 2004. Mr. Fisher continued, "Our quarter ending open order comparisons included double digit Noun 1. double digit - a two-digit integer; from 10 to 99 integer, whole number - any of the natural numbers (positive or negative) or zero; "an integer is a number that is not a fraction" gains on our domestic technical running footwear category. Offsetting these increases in open orders were decreases in our domestic mid-priced crossover and Originals categories at April 1, 2005, compared to at April 2, 2004." Cash, Inventory and Working Capital Our cash and cash equivalents and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments decreased approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $4.0 million in the quarter ended April 1, 2005 from our fiscal 2004 year end balances, due to the use of cash to finance our seasonal working capital needs. Our days' sales in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , defined as the number of average daily net sales in our accounts receivable as of the period end date and calculated by dividing the end of period accounts receivable by the average daily net sales for the period, decreased to 60 days at April 1, 2005, compared to 62 days at April 2, 2004. The number of days' sales in inventory, defined as the number of average daily cost of sales in our inventory as of the period end date and calculated by dividing the end of period inventory by the average daily cost of sales for the period, increased to 85 days at April 1, 2005, compared to 73 days at April 2, 2004." Mr. Fisher remarked, "While our first quarter efforts were successful in decreasing our days' sales in inventory from 95 days at our fiscal 2004 year end, we continue to pursue further reductions." Net Sales Net sales for the first quarter of 2005 decreased 11% to $41.9 million, compared to $47.0 million in the first quarter of 2004. Domestic net sales decreased 14% to $31.1 million in the first quarter of 2005, compared to $36.0 million in the first quarter of 2004. Our domestic sales decrease in the first quarter of 2005 was due primarily to a 17% decrease in footwear unit volumes, partially offset by a 21% increase in Hind hind 1. emanating from or pertaining to hindlimb. 2. adult female deer, especially red and other large species. blue hind a hind which has not borne young. apparel sales. Sales at our factory outlet stores An outlet store or factory outlet is a retail store in which manufacturers sell their stock directly to the public through their own branded stores. The stores can be can be brick and mortar or online. deceased deceased 1) adj. dead. 2) n. the person who has died, as used in the handling of his/her estate, probate of will and other proceedings after death, or in reference to the victim of a homicide (as: "The deceased had been shot three times. 2% in the first quarter of 2005 compared to the first quarter of 2004. International net sales decreased 2%, to $10.8 million in the first quarter of 2005, compared to $11.0 million in the first quarter of 2004. Our international sales decrease in the first quarter of 2005 was due primarily to lower average wholesale per pair footwear selling prices and, to a lesser extent, lower sales of Saucony and Hind brand apparel, partially offset by favorable changes in foreign exchange rates as compared to the first quarter of 2004 and a 5% increase in footwear unit volumes. Saucony brand footwear and apparel accounted for approximately 85% of first quarter 2005 net sales, compared to 88% of the first quarter 2004 net sales, with a combination of Hind apparel and factory outlet stores net sales accounting for the balance in each period. Gross Margin The Company's gross margin in the first quarter of fiscal 2005 increased 140 basis points to 42.0% compared to 40.6% in the first quarter of 2004, due primarily to favorable currency exchange due to the impact of a weaker U.S. dollar against European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. and Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. currencies and, to a lesser extent, improved margin in our Saucony domestic footwear and Hind brand apparel businesses due to product costs reductions and improved margin at our factory outlet outlet /out·let/ (-let) a means or route of exit or egress. pelvic outlet the inferior opening of the pelvis. division. Our Saucony domestic footwear margin increase was mitigated mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. by a change in sales mix sales mix See product mix. to increased footwear unit volume of special makeup makeup In the performing arts, material used by actors for cosmetic purposes and to help create the characters they play. Not needed in Greek and Roman theatre because of the use of masks, makeup was used in the religious plays of medieval Europe, in which the angels' faces and closeout closeout, closure the finalization of a feeding program in a feedlot. The cattle are sold and a balance sheet is struck which includes the costs of feeding and housing or confining them. footwear in the first quarter of fiscal 2005. Both of these products carry lower margins than our first quality technical footwear. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of net sales increased to 30.2% in the first quarter of 2005 compared to 25.8% in the first quarter of 2004. In absolute dollars, selling, general and administrative expenses increased 4%, due primarily to increased professional fees, depreciation and increased operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. associated with the factory outlet division expansion, partially offset by decreased print media advertising, account specific advertising and promotion, variable selling expenses, and administrative and selling payroll. The decrease in administrative and selling payroll in the first quarter of fiscal 2005 is due to lower incentive compensation. Selling expenses as a percentage of net sales in the first quarter of 2005 were 13.7% compared to 12.9% in the comparable 2004 period, while general and administrative expenses were 16.5% of net sales compared to 12.9% in the first quarter of 2004. Non-Operating Income (Expense) Non-operating income increased in the first quarter of 2005 to $278,000, compared to an expense of $72,000 in the first quarter of 2004. The increase was primarily due to an $88,000 increase in interest income and a $244,000 increase in foreign currency income in the first quarter of 2005, compared to the first quarter of 2004. Interest income increased to $157,000 in the first quarter of 2005, compared to $69,000 in the first quarter of 2004, due to higher interest rates on invested cash balances and short-term investments. Foreign currency income increased to $100,000 in the first quarter of 2005, compared to foreign currency losses of $144,000 in the first quarter of 2004, due primarily to the impact of currency fluctuations on forward foreign currency contracts. Net Income Net income for the first quarter of 2005 was $3.2 million, or $0.41 per Class A share and $0.46 per Class B share on a diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, compared to $4.2 million, or $0.58 per Class A share and $0.64 per Class B share on a diluted basis, in the first quarter of 2004. We used weighted average common shares and common stock equivalents of 7,219,000 and 6,844,000 to calculate diluted earnings per share for the first quarter of 2005 and 2004, respectively. Net income available to the Company's common stockholders is allocated among our two classes of common stock, Class A Common Stock and Class B Common Stock. The allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as among each class is based upon the two-class method. Under the two-class method, earnings per share for each class of common stock is presented. The two-class presentation method is required as a result of the Company having two classes of common stock with different participation rights in undistributed Adj. 1. undistributed - (of investments) not distributed among a variety of securities undiversified - not diversified earnings. Mr. Fisher concluded, "Our strategically important domestic technical running footwear continues to build momentum, reflecting our ongoing commitment to innovation and performance and our status as one of the authentic AUTHENTIC. This term signifies an original of which there is no doubt. brands in the marketplace. At the same time, we recognize the importance of returning our mid-priced crossover and Originals categories to desired growth levels and we are working diligently dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d to achieve these objectives. We remain dedicated to further improving our platform for long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. growth and increased profitability." Business Outlook The Company is providing certain forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information in this press release. These statements are based on the Company's current information and expectations, and actual results may differ materially. The Company undertakes no obligation to update this information. Please see the further disclaimer (networking) disclaimer - Statement ritually appended to many Usenet postings (sometimes automatically, by the posting software) reiterating the fact (which should be obvious, but is easily forgotten) that the article reflects its author's opinions and not necessarily those of the in the last paragraph of this release. The following information replaces our previous guidance. Second Quarter and Fiscal Year 2005 The Company expects fully diluted earnings per share to range from $0.24 to $0.26 for Class A shares and to range from $0.26 to $0.28 for Class B shares for the second quarter of 2005 and to range from $1.25 to $1.31 for Class A shares and to range from $1.38 to $1.44 for Class B shares for the year. The Company expects second quarter net sales to range from $41 million to $42 million. The Company expects net sales for the year to range from $163 million to $165 million. The Company expects gross margins of approximately 41% for the second quarter and the year. The Company expects selling, general and administration expenses of approximately 33% of sales for the second quarter and of approximately 31% of sales for the year. Investor Conference Call The Company will provide a web simulcast Simulcast is a portmanteau of "simultaneous broadcast", and refers to programs or events broadcast across more than one medium, or more than one service on the same medium, at the same time. and rebroadcast of its first quarter earnings release conference call. The live broadcast of the Company's quarterly conference call is scheduled for May 6, 2005, beginning at 8:30 a.m. Eastern Time and will be accessible online at www.companyboardroom.com and under the "Investor Relations Investor relations The process by which the corporation communicates with its investors. " section at www.sauconyinc.com. The online replay will be available shortly after the conference call and will continue to be available through May 6, 2006. Saucony, Inc. designs, develops, and markets (i) a broad line of performance-oriented athletic shoes An athletic shoe is a generic name for a shoe designed for sporting and physical activities, and is different in style and build than a dress shoe. Originally known as sporting apparel, today they are known as casual footwear. for adults under the Saucony(R) brand name, (ii) athletic apparel under the Hind(R) brand name and (iii) athletic and workplace shoes shoe n. 1. A durable covering for the human foot, made of leather or similar material with a rigid sole and heel, usually extending no higher than the ankle. 2. A horseshoe. 3. under the Spot-bilt(R) name. This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that involve a number of risks and uncertainties. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "intends," "estimates," and similar expressions are intended to identify forward-looking statements, and all of our statements under "Business Outlook" above are forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are set forth in the Company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. under "Item 7 - Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial of Financial Condition and Results of Operations - Certain Other Factors that May Affect Future Results" ("Certain Factors") filed by Saucony, Inc. with the Securities and Exchange Commission on March 16, 2005, which Certain Factors discussion is incorporated herein by this reference. In particular, there can be no assurance as to the level of earnings per share, net sales, gross margins, selling, general and administrative expenses, weighted average fully diluted common shares and other operating results, including without limitation, environmental charges, that will be achieved by the Company in any period because such items are materially dependent upon the condition of the domestic and world economies, the impact of foreign regulation and the performance of foreign suppliers, competition from third parties, consumer preferences, the inherent uncertainties in estimating conditions in the environment and the costs of addressing such conditions and the Company's assessment and the implementation of its strategic alternatives. All forward-looking statements are made only as of the date of this press release. The Company makes no undertaking to update any of these statements.
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
(in thousands, except per share amounts)
ASSETS
April 1, December 31,
2005 2004
Current assets:
Cash and cash equivalents $ 28,437 $ 12,042
Short-term investments 300 20,694
Accounts receivable 27,517 22,485
Inventories 22,600 25,645
Deferred taxes 2,554 2,455
Prepaid expenses and other current assets 1,466 1,316
Total current assets 82,874 84,637
Property, plant and equipment, net 9,341 9,570
Other assets:
Goodwill 912 912
Deferred charges, net 80 91
Other 1,029 1,047
Total other assets 2,021 2,050
Total assets $ 94,236 $ 96,257
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized lease
obligations $ 64 $ 63
Accounts payable 7,246 10,484
Accrued expenses and other current
liabilities 9,164 11,249
Environmental accrual 2,220 2,275
Total current liabilities 18,694 24,071
Long-term obligations:
Capitalized lease obligations, net of
current portion 123 138
Other long-term obligations 963 932
Deferred income taxes 1,931 1,964
Total long-term obligations 3,017 3,034
Minority interest in consolidated subsidiary 505 461
Stockholders' equity:
Common stock, $.33 1/3 par value 2,232 2,205
Additional paid in capital 18,829 18,049
Retained earnings 49,528 46,693
Accumulated other comprehensive income 1,431 1,744
Total 72,020 68,691
Total liabilities and stockholders' equity $ 94,236 $ 96,257
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the quarter ended April 1, 2005 and April 2, 2004
(Unaudited)
(in thousands, except per share amounts)
Quarter Quarter
Ended Ended
April 1, April 2,
2005 2004
Net sales $ 41,851 $ 46,969
Other revenue 96 179
Total revenue 41,947 47,148
Costs and expenses
Cost of sales 24,257 27,912
Selling expenses 5,751 6,058
General and administrative expenses 6,894 6,078
Total costs and expenses 36,902 40,048
Operating income 5,045 7,101
Non-operating income (expense)
Interest income 157 69
Interest expense (3) --
Foreign currency losses 100 (144)
Other 24 3
Income before income taxes and minority
interest 5,323 7,028
Provision for income taxes 2,083 2,759
Minority interest in income of consolidated
subsidiaries 50 38
Net income $ 3,190 $ 4,231
Per share amounts:
Earnings per share:
Basic:
Class A common stock $ 0.45 $ 0.63
Class B common stock $ 0.50 $ 0.69
Diluted:
Class A common stock $ 0.41 $ 0.58
Class B common stock $ 0.46 $ 0.64
Weighted average common shares and
equivalents outstanding:
Basic:
Class A common stock 2,521 2,521
Class B common stock 4,137 3,801
Total 6,658 6,322
Diluted:
Class A common stock 2,521 2,521
Class B common stock 4,698 4,323
Total 7,219 6,844
Cash dividends per share of common stock:
Class A common stock $ 0.050 $ 4.050
Class B common stock $ 0.055 $ 4.055
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