Stride Rite Stumbles

A lot of our recent coverage of the shoe business has been pretty positive, but it can't all be Vans (Nasdaq: VANS  ) and Velcro.

Yesterday, we watched shares of children's footwear company Stride Rite (NYSE: SRR  ) fall more than 5% on news that fiscal first-quarter (ended Feb. 27) sales fell 11% year over year, leading to a marked drop in net income and earnings per share (EPS).

The company, however, is optimistic about the rest of the year. Gross margins improved, and while operating margins fell, the company at least managed to trim operating expense in dollar terms thanks to lowered marketing and administrative spending. The firm's retail business, which made up 25% of sales in the fiscal year ended Nov. 28, was solid in the first quarter. Revenues rose 14%, while same-store sales improved nearly 12%. International revenues, meanwhile, were ahead 8%.

Stride Rite's key wholesale business, however, fell 13% as Keds and Tommy Hilfiger (NYSE: TOM  ) branded shoes were off significantly year over year. (This can't please Tommy, which has increasingly looked to the retail and licensing businesses to offset weakness in its department store wholesale business.) Retailer Footstar's filing for Chapter 11 bankruptcy earlier this month didn't help matters.

Now Stride Rite, which can point to a strong balance sheet with solid cash and no long-term debt, says a range of brand developments may reenergize business. The company stands behind previous guidance of sales growth between 3% and 5% and net income growth of between 8% and 12% for the current fiscal year. That wouldn't be bad news for a company with a strong history of free cash flow much higher than reported net income.

Investors seem to agree, as its shares, which have outpaced the S&P 500 over the last 12 months (though less so recently), still command a multiple of 15 times the low-end estimate for the current fiscal year even after yesterday's slide.

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Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story.