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LEXINGTON, MA-A slip in sales for two of its popular brands caused footwear maker Stride Rite Corp.’s profits to drop 1% and sales to decline 3% in the second fiscal quarter of 2005 but the company said it still expects strong year-end earnings.

Additionally, year-over-year, same-store sales at company-owned stores rose 1.9% after a 7% overall sales gain. Stride Rite opened eight of its children’s-related stores during the quarter, bringing its overall store count to 259.

A 15% drop in the sales of Keds and 14% decline in Tommy Hilfiger Footwear sales contributed to the decline in profits, the company said. Sales of the firm’s other brands, however, drove up sales for Stride Rite’s Children’s Group 3% during the quarter.

David M. Chamberlain, Stride Rite’s chairman and chief executive officer, said the decline in Keds sales was due largely to the firm’s decision to reposition to the brand, best known for its low priced, casual sneakers, to an “upscale active lifestyle brand” that will command a higher sales price. While the firm’s brands showed “solid success” in upscale department and specialty stores, Chamberlain said, retail sales were slower than expected for mid-tier stores due to higher prices.

The sluggish brand sales caused earnings to slip slightly from $11.8 million, or 32 cents per share on revenue of $159.6 million, during the quarter ending June 3, compared to $11.9 million in earnings, or 30 cents per share, on revenue of $165 million for the same period a year earlier.

The Lexington, MA-based company saw a slight improvement in its profit margins, however, with those figures rising slightly to 40.8% of sales due largely to fewer closeout of Keds and smaller price markdowns. An expansion of the firm’s children’s retail stores and increased advertising and promotional spending drove up the firm’s operating costs by 5%, the company said.

Despite the sluggish numbers for the quarter, the nation’s leading wholesaler of high quality children’s footwear said it expects to see a 3% to 5% increase in sales and a 5% to 10% hike in earnings for the year.

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