The other day I spotted a "Going Out of Business" sign stretched across the window of a Stride Rite (NYSE:SRR) store. Upon further investigation, I learned that the franchised store's troubles were not indicative of the company's core strength, but they did mirror sagging sales of its Keds and Tommy Hilfiger (NYSE:TOM) shoes.

The footwear industry is crowded with competitors such as Brown Shoe (NYSE:BWS), Nike (NYSE:NKE), and Reebok (NYSE:RBK), yet Stride Rite's name continues to carry a great deal of clout. Where I come from, baby's first shoes were always a pair of white Stride Rites. While I was tempted to put baby Air Jordans on my son's feet, I stuck with tradition in the end.

Loyalty aside, Stride Rite's third-quarter results showcased its difficulty in growing beyond its core brand shoes. Net sales were 2% lower than analysts' expectations, and earnings of $0.16 per share were a penny less than the consensus estimate. Positives for the company included a 5% sales increase at the Stride Rite Children's Group, which included 1.3% same-store sales growth and an 18% jump in international sales. However, sales of Keds and Tommy Hilfiger products declined 10% in the quarter on fewer closeout products and falling sales to promotional channels.

Stride Rite has been making an effort to reduce its closeout and promotional Keds sales as part of a major brand repositioning in spring 2005. The company is planning to use spokesmodel Mischa Barton, a fresh, young face and one of the stars of the hot Fox TV show The OC. This could breathe new life into Keds sales by exposing the brand to teens who want to wear exactly what celebrity idols make popular.

The company expects revenues for fiscal 2004 to be similar to slightly more than the $550.1 million logged last year. Stride Rite also sees earnings for the year coming between $0.65 and $0.67 per share, which is in line with the current consensus estimate of $0.66 a share.

Stride Rite's mixed results, along with progressive changes in its stumbling Keds line, have helped reinforce its balancing act. The shares, which trade at 14 times the fiscal 2005 consensus estimate of $0.72 per share, appear to be fairly valued relative to the 9% growth rate and attractive 1.96% dividend yield. Add in cash flow of $85 million and no long-term debt and Stride Rite could be positioned for a potential surge down the road.

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Fool contributor Phil Wohl spent more than 12 years on Wall Street. He has no stake in any firm mentioned above.