Elite Weekly News...6/3/05 JUNE 04, 2005 -- Stride Rite Buying Saucony For $170 Million Stride Rite Corp. entered into a definitive agreement to acquire Saucony for $23 a share. Stride Rite said Saucony had about $167 million in global sales in 2004 and will significantly extend the range of its brands that include Stride Rite, Keds and Sperry Top-Sider. Combining Stride Rite's $558 million in 2004 sales, the merger will create a company with pro forma combined revenues of approximately $725 million in 2004. Saucony President and Chief Executive Officer John Fisher said in a statement that the merger agreement is the culmination of the strategic alternative review process announced last August. "We believe that this transaction maximizes value for Saucony shareholders," Fisher said. "In addition, we are convinced that Saucony has found the correct acquirer to expand our market presence and accelerate the growth of our businesses. We believe that Stride Rite's and Saucony's complementary strengths will provide a stronger platform for growth and profitability. We thank our shareholders for their patience during our review process and look forward with enthusiasm to becoming part of the Stride Rite family." "We are delighted to add Saucony to our portfolio of nationally recognized brands in a transaction we expect to be accretive in 2006 and beyond," said David M. Chamberlain, Stride Rite's chairman and chief executive officer. "Saucony is a well-known technical brand with loyal customers and solid growth prospects. This transaction combines two leading footwear companies with strong balance sheets and cash flows, similar corporate cultures, and shared roots in the greater Boston area dating back to the early 1900s." On a conference call, Chamberlain saw a list of values to the deal: 1) It adds a performance footwear brand to the company's portfolio; 2) There's an opportunity for takedowns of Saucony footwear to children's shoes. Stride Rite owns its own children's chain and had children's revenues of $152 million, as compared to $303 million at Kid's Foot Locker and $231 million at Foot Locker. The Stride Rite brand had children's sales of $232 million, just behind Reebok's $239 million. but far behind's Nike's $752 million. The company estimates that there's a total $4.4 billion market for performance takedowns. Performance product, it said, represented 62% of the boys market; 41% of the girls market; and 44% of the infants market; 3) It would increase Stride Rite's sales the sporting goods and athletic specialty channels. Stride Rite has limited exposure there with its Keds brand. It's hoped Saucony could lead the way for Keds into those channels; 4) Stride Rite has a huge business in the department and national chain store channels. there's an opportunityto bring Saucony into those channels, where it currently has no presence; 5) Stride Rite has a relatively small international business, $28 million. The acquisition would more than double the size of this business for Stride Rite to $65 million. 6) It would provide to athletic development and sourcing leverage. In addition, Chamberlain said it would accelerate earnings growth and increase shareholder value. Chamberlain summed it up in a statement, "Saucony is an ideal brand for take-down sales to the children's market, where performance footwear constitutes approximately 50% of total sales for children ages nine and under. Acquiring Saucony will provide an entree for Stride Rite in the growing athletic specialty and sporting goods channels, adding greater channel balance to Stride Rite's sales. Additionally, we expect that Stride Rite's strength in department stores and national chain accounts will help Saucony expand to its full potential. The acquisition will double our international sales and provide critical mass for growth of all of our brands in Europe and worldwide. Saucony will also enhance Stride Rite's athletic development, sourcing capabilities and leverage for our Stride Rite, Tommy Hilfiger and Sperry Top-Sider brands. We look forward to welcoming the talented Saucony employees to our Stride Rite family." The acquisition is expected to be accretive to Stride Rite's earnings and cash flow in 2006 before one-time costs, with significant cost savings through reduced public company and executive costs, and other operational synergies. Annual cost synergies of approximately $6-8 million are expected to be fully realized by fiscal 2007. At Susquehanna International Group, analyst John Shanley said the Saucony acquisition should provide substantial additional growth opportunities for the new combined company. “We believe that the largest opportunity arising from the acquisition is through improved economies of scale in Europe, as well as new athletic development and sourcing leverage the company will now enjoy,” wrote Shanley in a report. “Also, we anticipate that the Saucony brand will provide SRR with increased access to the growing athletic specialty and sporting goods channels (an area in which the company hopes to increase the distribution of its Keds brand). In addition, the opportunity to supply "take-down" children's versions of the Saucony product lines, to be marketed through its Stride Rite distribution network, should be a substantial revenue generator for the company." On the somewhat negative side, Shanley said the acquisition of Saucony may pose some short-term risks, due to Stride Rite's lack of expertise in performance athletic footwear. Although Keds was considered an athletic footwear brand many years ago, it is currently perceived as a "lifestyle" athletic brand, he notes. “The Saucony brand will mark Stride Rite's first entrance into the athletic footwear market in many years,” observes Shanley. “Despite this lack of prior experience in the performance athletic sector, we expect Stride Rite to ultimately be successful in integrating this business into its overall operations. Shawn Neville, who runs Stride Rite's Keds business segment, has a long history of involvement within the athletic industry, both as a brand executive and as the president of a major athletic chain. We believe Mr. Neville should be a significant asset in helping Stride Rite to rapidly integrate the Saucony brand into its portfolio of footwear business segments.” Stride Rite intends to finance the acquisition with cash on hand, Saucony's existing cash of approximately $30 million, and borrowings under a new credit facility led by Bank of America, N.A. Stride Rite will be conservatively leveraged at less than two times cash flow, and is expected to generate significant free cash. Keen Founder Working On Etonic Relaunch; Kinetic Sports Won't Renew License Etonic Worldwide will have a new line of running and walking styles ready to launch in July 2005 designed by consultant Martin Keen, the original designer of the very successful Keen footwear brand. The shoes will begin shipping to retailers in January 2006. The line features performance running and walking products that combine design with high-end materials and Etonic proprietary technologies. The news comes as Kinetic Sports announced that it would not renew its license agreement for walking and running shoes with Etonic Worldwide at the end of 2005. Kinetic had been running the Etonic footwear business since 2001. Tom Seeman, Etonic CEO, confirmed that Etonic has been preparing since last year to bring the running and walking divisions in-house. "At the time of our decision we notified our licensee Kinetic Sports, allowing them ample time to phase out of the business and of course, giving us time to develop our 2006 line. Strategically, we can now leverage our resources and build a stronger global brand." The move unites the running and walking shoe division with Etonic's high profile golf business and newly launched bowling line. The company has tapped former New Balance executive Gary Siriano to lead the newly formed division. Siriano brings 24 years of product development expertise back to Etonic where he worked from 1990-1999. "Our initial development builds on Etonic's heritage in the technical categories of Stability Cushioning and Motion Control," said Siriano. "Martin and I both enjoy a strong understanding of the brand and our history of innovation that has led the market." Meanwhile, Dan Werremeyer, president of Kinetic Sports, said that the board of Kinetic originally acquired the Etonic license from Spalding in 2000, (which had purchased the Etonic brand in 1989). The Kinetic license agreement allowed Spalding to concentrate their marketing efforts on golf, which included the Etonic golf shoe and glove, golf equipment and other sports. With experience in sourcing and marketing athletic shoes, For the past five years, Kinetic's substantial investment in product development, advertising, marketing, and professional sales efforts has led to regained distribution in major retail accounts and independent running specialty stores, and a more than ten-fold sales increase from date of the original license acquisition from Spalding. Most recently, The Etonic Hybrid was named Best New Shoe by independent testers in the Spring 2005 shoe review by the Running Network. "Since the brand's sale by Spalding to Etonic Worldwide, significant differences in marketing philosophies have led to our decision to move in a different direction," said Werremeyer. "We respect and value the Etonic association and can assure our many customers that we will be continuing to ship their orders through June 2006 to help make this transition as smooth as possible." 1Q Finish Line Sales Hit $291 Million The Finish Line reported 1Q net sales of $291.2 million, an increase of 13%. Comp-store net sales for increased 2% on top of a 14% increase reported for the comparable 13-week period last year. The net sales include the sales of Man Alive, a wholly owned subsidiary, which was acquired on January 29, 2005. However, the net sales of Man Alive are not included in the comp-store net sales for either period reported. COB/CEO Alan Cohen stated: "We are pleased to report our tenth consecutive quarterly comparable-store sales gain. The 2% gain for the quarter was on top of a combined two-year comparable increase of 28%. Sales were lead by premium product including new technologies and marquee shoes from our brand partners and resulted in an 8% increase in the average selling price of footwear and improved product margins for the quarter. Our inventory level remains on plan and is expected to be up 2%-4% on a comparable per-square-foot basis and fresher than one year ago. "These results, going against our most difficult quarterly comparisons for the year, give us positive momentum as we enter the second quarter and prepare for the important back-to-school selling season." The company expects that diluted 1Q EPS will be in the guidance range of 24v to 26¢ per share. For 1Q04, it reported 21¢. During 1Q, the company opened 28 new Finish Line stores, remodeled seven existing stores and closed one store. It also opened one Man Alive store, a new prototype, during this period. For FY06, the company plans to open 70 new Finish Line stores, remodel 25 existing stores and close three to five stores. Additionally, it plans to open 10-15 Man Alive stores during the year. As of May 28, 2005, it operated 625 Finish Line stores compared to 550 at May 29, 2004. In addition, Finish Line store square footage increased 12% to 3,547,000 square feet compared to 3,164,000 square feet at May 29, 2004. As of May 28, 2005, Man Alive operated 38 stores totaling 107,000 square feet. Shoe Carnival's May Comps Rise 7.1% Shoe Carnival reported May sales increased 11.5% to $48.0 million. Comp-store sales increased 7.1% in May 2005. Sales for the first four months of 2005 increased 10.7% to $208.7 million. Comp-store sales increased 5.9% for the seventeen-week period. Based on the strength of May sales, the company now expects comp-store sales to increase between 3% and 5% in 2Q05. Previously, the company had expected an increase of between 2% and 4%. EN-R-G Foods Hires Spector as National Sales manager EN-R-G Foods, manufacturer of Honey Stinger energy bars and gel, hired Adam Spector as national sales manager. Spector spent several years managing sales for Dermatone in the bike, outdoor and ski categories. Shortly after starting at EN-R-G Foods, he hired sales rep group Hoyt & Company to sell Honey Stinger to specialty outdoor accounts in the Rockies. The group is comprised of Patrick Hoyt, Sam Hoyt and Michelle Rampelt and will cover Colorado, New Mexico and Wyoming. "We're excited that Adam has joined the Honey Stinger crew as he knows how to work with reps and sell accessories into both the large and small specialty accounts," added Bill Gamber, EN-R-G Foods co-founder. "Not only does he bring the sales experience needed for the job but he's a core outdoor athlete and this combination helps him understand the needs of both our wholesale and retail customers." Chicago Marathoners Mistakenly Complete 27.2 Miles Chicago's Lakeshore Marathon course was inadvertently set a mile too long this year. More than 500 runners finished the Memorial Day race, running 27.2 miles (43.8 kilometres) instead of the standard 26.2 (42.2 kilometres). The long layout of the state's only spring marathon, as well as problems such as missing mile markers and unstaffed aid stations, led some runners to urge the city to stop issuing permits for the Lakeshore Marathon until it's under new management, according to the Associated Press. Race founder and organizer Mark Cihlar issued an apology on www.marathonguide.com last Thursday. Last-minute changes "caused us to miscalculate and we foolishly added an extra mile - how terrible!" he wrote in a memo to race participants. Cihlar, who has had sole responsibility for 90 percent of the marathon's planning for the past four years, said he plans to relinquish control over event co-ordination and is seeking qualified directors and coordinators to help on the 2006 race. Marathon entrant and lawyer Hugh Mainard of Chicago told the Associated Press it's not enough. Mainard was so upset that he complained about Cihlar to the officials at Chicago Area Runners Association, the Chicago Department of Special Events, the Chicago Park District and the Boston Athletic Association. "It's hard for me to fathom how someone can get the most basic element of a race wrong," Mainard said. Aurora's Dan Martin, 46, won the men's race in 2:50:24. Chicago's Megan Smiley, 30, won the women's race in 3:12:53. First Underground Marathon Run In Spain Eight Spanish athletes have completed the world's first underground marathon, running 25 miles along Madrid's underground system. The two women and six men used the underground number 12 route which circles around the southern part of the Spanish capital for their race. In order not to disturb the traffic the marathon took place at night - and all the runners had to buy a valid ticket to use the underground.