On Thursday, Jan. 11, sneaker and casual footwear maker Stride Rite (NYSE:SRR) will release its financial results for Q4 2006 -- which is shaping up to be something of a cakewalk.

What analysts say:

  • Buy, sell, or waffle? Of the three analysts that cover Stride Rite, two say buy and one says hold.
  • Revenues. Revenues for the third quarter are anticipated to grow at 13% over the fourth quarter in 2005, to $148.7 million, or 20% growth for the full fiscal year.
  • Earnings. Profits are also forecast to be walking briskly, coming in at $0.02 per share for the quarter compared to the $0.08 loss the sneaker maker reported last year. For the full year, per share profits are expected to be $0.93, up 37% from the $0.68 per share it knotted in 2005.

What management says:
At the beginning of the fiscal year, management had forecast that it would earn between $0.82 and $0.88 per share, which accounted not only for stock options ($0.05 per share) but also for its $170 million 2005 acquisition of sneaker-maker Saucony, which was a recommendation of Motley Fool Hidden Gems at the time. The acquisition was expected to shave a total of $0.08 per share off earnings, and all year long, the company has affirmed that those targets are still on track.

Last quarter, the company reported a mix of success with its various brands. Chairman and CEO David Chamberlain said, "Our strategy of adding stores and growing store comps combined with strong brands and developing great product is working." Well, in some parts, it was; in others, it seems Stride Rite was tripping over itself. Saucony and Sperry Topsider were performing well, and its newest acquisition, Robeez, is a leader in the 0-3 years old category. Unfortunately Keds and its Tommy Hilfiger line were off 12% and 36%, respectively, though management believes Keds will turn around.

What management does:
Even in the face of stumbling performance at some of its brands, the company has been able to steadily increase its margins virtually across the board, pointing to the strength of the kids' footwear market and Stride Rite's position in it.

Margin %

06/05

09/05

12/05

03/06

06/06

09/06

Gross

39.1

39.9

39.9

40.2

40.3

41.2

Op.

7.2

7.5

7.3

7.7

7.9

8.7

Net

4.6

4.8

4.2

4.0

4.6

4.5
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Stride Rite is running on solid ground, despite the slower-than-expected turnaround at Keds and the dismally disappointing Tommy Hilfiger sales. The strength of its performance has been concentrated in its other lines, but they can't make up all the distance (which led management to keep earnings forecasts on track, but slightly lower its sales guidance). Moreover, the company should continue -- for this quarter at least -- to receive favorable tax rates based upon an earlier tax audit that will reduce its corporate rate to 32% for the full year.

The benefit to performing admirably even with a couple of divisions holding you back is that if they begin to gain traction, your overall financial health will improve substantially. Should Keds, for example, find its stride, sales growth can look to increase measurably. And if the Hilfiger lines could simply stop losing as much as they have, things could improve markedly as well. As it is, it looks like the Hilfiger brand will be a drag on performance, since Stride Rite renewed its licensing deal until March 2008.

Competitors:

  • Nike (NYSE:NKE)
  • Skechers (NYSE:SKX)
  • K-Swiss (NASDAQ:KSWS)

Related Foolishness:

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.