Hyde Athletic Industries, Inc.

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Hyde Athletic Industries, Inc.

Centennial Industrial Park
Centennial Drive, P.O. Box 6046
Peabody, Massachusetts 01961
U.S.A.
(508) 532-9000
Fax: (508) 532-6105

Public Company
Incorporated: 1912 as A.R. Hyde and Sons
Employees: 362
Sales: $102.56 million (1995)
Stock Exchanges: NASDAQ
SICs: 3149 Footwear Except Rubber, Not Elsewhere Classified; 3021 Rubber & Plastics Footwear; 3949 Sporting & Athletic Goods

Peabody, Massachusetts-based Hyde Athletic Industries, Inc. produces the top-rated Saucony line of quality athletic footwear, as well as footwear for coaches and sports officials under Hyde’s Spot-Bilt brand. Hyde’s Brookfield division markets roller skates, in-line and hockey skates, and other recreational and enthusiast sports products, including protective wrist, elbow, and knee pads, primarily for children and young adults. Brookfield products are marketed under the Brookfield, Hyde, and Spot-Bilt brands, as well as under brand names such as Barbie, Playskool, Spalding, Mickey and Minnie, and Nerf, licensed from Mattel, Inc., Hasbro, Inc., Spalding, Inc., Walt Disney Co., and Franklin Sports, Inc. Hyde’s acquisition of Quintana Roo adds that branded line of road, triathlon, and mountain bicycles, and wet suits. Hyde also operates a chain of six factory outlet stores selling the company’s discontinued and factory-second merchandise, as well as sports-oriented third party merchandise. Most Saucony products are assembled at the company’s Bangor, Maine factory, from parts manufactured in China, Taiwan, and Thailand. Products in Hyde’s other branded line are manufactured and assembled entirely in the Far East.

Hyde, still controlled by its founding family, generated $102.5 million, for a net income of $1.6 million, in 1995. The Saucony brand, which includes running, cross training, walking, and hiking shoes, contributes more than one-third of Hyde’s annual revenues. Saucony ranks fifth in sales among leading producers of athletic footwear, with a market share of seven percent. International sales of both Saucony and Brookfield products account for approximately 25 percent of total annual revenues.

Early History

Cobbler Abraham Hyde emigrated to the United States from Russia in 1890. Hyde established a reputation as a shoemaker and, in 1910, opened his own store. His first products were carpet slippers, so called because they were crafted from carpet remnants. Two years later, Hyde was successful enough to purchase a wood frame house in Cambridge, Massachusetts. In that year, Hyde established A.R. Hyde and Sons. Joined by son Maxwell C. Hyde, the small company’s product line grew to include women’s and children’s shoes. By the 1930s, however, ice skates, ladies’ figure skates, and roller skate boots figured strongly in the company’s sales. When Maxwell Hyde took over operations, Hyde added more products to its athletic line, including baseball and bowling shoes.

At the outbreak of the Second World War, Hyde ceased production of civilian shoes, turning instead to manufacturing boots for the U.S. Army. For its wartime efforts, Hyde was the only shoe company to be awarded the Army-Navy E Award for excellence in manufacturing. The company returned to civilian production in 1946, now concentrated on athletic footwear. In 1952, Hyde made its first acquisition, purchasing the Athletic Shoe Company and adding that company’s Spot-Bilt line of team sports shoes. With the acquisition completed, Hyde changed its name to Hyde Athletic Industries, Inc.

Hyde renewed its government contract work in the early 1960s, when NASA awarded the company the contract to supply footwear for the first astronauts. When the first astronaut walked in space, he wore boots made by Hyde. Yet Hyde remained a small company. By 1967, its annual revenues had grown to only $5.5 million. Earnings in that year were a slight $196,000.

Passed by the Fitness Boom of the 1970s

The next phase in Hyde’s development was again fueled by an acquisition. In October 1968, the purchase of Saucony Manufacturing Company added that company’s branded line of athletic footwear. A second acquisition, of K&B Shoe Co., Inc., was merged with Saucony to form Hyde’s new Saucony Shoe Manufacturing Co., Inc. division. The company’s expanded product line helped raise revenues to nearly $9 million in 1969, for net earnings of $4.5 million. One year later, the company’s revenues topped $10 million for the first time. The company’s production facilities had by then grown from its single Cambridge location to a factory in Bangor, Maine, three plants in Pennsylvania, and three additional plants in New Hampshire, California, and Chicago.

By the 1970s, the company’s product line had expanded to include footwear for ice skating and roller skating, bowling, soccer, football, track, tennis, jogging, and other sports. The company also manufactured a line of figure skating and ice hockey outfits. Products were sold under the Hyde, Spot-Bilt, and Saucony trademarks. The 1970 purchase of 60 percent of Mitchel & King Skates Ltd. of England, later boosted to 70 percent, brought Hyde into production of ice skating blades as well, under the MK trademark. By 1976, Hyde’s revenues grew to $15 million. In 1977, Maxwell Hyde retired, turning over the company to son-in-law Leonard R. Fisher.

By then, the United States was undergoing a fitness craze, with running and jogging, popularized by personalities such as Jim Fixx, providing a boom to athletic shoemakers. Early industry leaders, such as Adidas and Puma, would soon give way to new giants Nike and, later, Reebok. Endorsements by professional athletes were providing a new boost, and brand loyalty, to sports shoe sales. By the late 1970s, most manufacturers had shifted production overseas, primarily to the Far East, a trend that had already begun in the late 1960s. Hyde, however, continued to manufacture solely in the United States. It also refused to buy professional endorsements.

Nonetheless, Hyde’s Saucony line helped fuel the company’s sales, raising revenues to $21 million in 1977. In that year, a leading consumer magazine gave Saucony running shoes its top rating. Saucony became a favorite shoe among the small but growing population of professional runners. Yet Hyde’s refusal to seek endorsements limited its acceptance by the broader public. Hyde sales grew only slowly, reaching $23 million in 1978 and $26 million in 1979. Despite the rise in sales, however, net earnings were slipping. In 1978, Hyde posted a net profit of only $320,000. The following year, the company posted a loss of $69,000. The pressures of maintaining its domestic manufacturing facilities were crippling the company. Hyde was also saddled with high interest payments, which had reached $2 million per year. At last, Hyde was forced to undergo a drastic restructuring.

The company sold its interest in Mitchel & King in 1979. Hyde then began to shift production overseas, closing all of its domestic plants except its Saucony facility in Bangor, Maine. The restructuring caused losses to deepen to $471,000 in 1980. But Hyde was back in the black the following year, earning a net just over $400,000 on $26 million in sales. By 1982, when Hyde completed its plant closings, sales jumped to nearly $37 million, bringing net earnings of almost $5 million.

Building a Professional Reputation in the 1980s

The company was poised to expand. But a family dispute erupted after Fisher, with his wife Phyllis, acquired a controlling interest in the company’s stock. After a lengthy court battle, the Fishers agreed to a settlement in which Hyde posted a second public offering, reducing the Fishers’ share to 41 percent. Rumors that the company might be sold placed a hold on Hyde’s expansion, just as the boom in running shoes was building. Fisher, joined by his son, John H. Fisher, helped rebuild confidence in the company, when, as reported by the Boston Globe, he stated that the settlement “will put to rest the endless speculation about the company’s future… This company is not for sale.”

Nevertheless, sales of the Saucony line, which by then enjoyed a strong reputation among serious and professional runners, helped to raise total revenues to $44.5 million, for net earnings of nearly $3 million in 1983. The company also turned to professional endorsements and sponsorships, hiring O.J. Simpson as its vice-president of promotions. The company added several new products, including basketball and tennis shoes, as well as a line of performance running shirts and shorts, rain suits, and warmup suits under the Saucony Magic brand name. Sales continued strongly into the next year, building to $47 million. With an eye on further expansion, Hyde began construction on a new $5 million headquarters facility, which also housed a warehouse, pilot plant, and research and development laboratories, and moved the company from its Cambridge home to nearby Peabody, Massachusetts the following year. By the end of 1985, the company’s revenues rose to $54 million.

Company Perspectives:

We believe that our most valuable resources are: one, our customers, to whom we are committed to providing the very best in world quality service and support; two, our employees, whose individuality we respect and whom we offer an environment where creativity, risk taking and effort are encouraged and rewarded; and three, our shareholders, to whom we commit to a philosophy of long-term strategic planning that yields superior return on investment.

The company also made a new acquisition that year, purchasing the Brookfield Athletic Shoe Company, also of Massachusetts. Brookfield helped extend Hyde into the children’s and young adults’ market. The Brookfield acquisition also brought Hyde the venerable PF Flyer brand. The canvas PF Flyers, which with Keds had been the most popular kids’ sneaker in the postwar years, had faded significantly with the advent of leather-topped shoes in the 1970s. But Hyde hoped to capitalize on the surging demand for canvas sneakers in the mid-1980s (Keds sales had more than tripled between 1985 and 1988) in the 20-to 35-year-old adult market. The company’s revenues rose to nearly $68 million in 1987, with net earnings of $2.2 million.

Consumer Reports to the Rescue

Yet Hyde faltered badly in 1988. Revenues plunged to $55 million, forcing a net loss of $1.75 million. By the end of that year, Hyde had agreed to be acquired by Silvershoe Partners, a New York-based investment partnership. Terms of the deal would have provided $8.50 per share, for a total of $23 million, while retaining the Fisher family in management. Little more than a week later, Hyde received an offer from a European-based investment group for $9.50 per share. But Hyde’s agreement with Silvershoe precluded the company from entertaining the new offer.

By August of 1989, however, the merger acquisition with Silvershoe still had not been completed. When Silvershoe proved unable to arrange financing for the merger, the acquisition agreement was ended. Hyde’s sales barely grew to $57 million, with a net loss of $650,000, for the year. As explained in that year’s somewhat bitter annual report, the uncertainty surrounding the Silvershoe deal had cut deeply into Hyde’s ability to compete in the booming athletic shoe market. Over the next two years, the company rebuilt its profit, although slowed by the looming recession, posting net earnings of $611,000 in 1990 and more than $1 million in 1991. Sales were relatively flat, however, hovering around $57 million. In a market dominated by Nike and Reebok, Hyde struggled to maintain a three percent share.

But the following year marked a turning point for Hyde. In a review of running shoes, Consumer Reports awarded Saucony’s Jazz 3000 shoe its top rating, as well as its “best buy rating.” The magazine, with a subscriber base of five million and an estimated readership of 15 million, had long been acknowledged as a powerful force in consumer spending. Hyde, led by John Fisher since his father’s death in 1990, saw a surge in orders. The number of outlets carrying the Saucony brand rose by 25 percent in one year, including the 170-store Oshman’s Sporting Goods chain. By the end of 1992, Hyde’s sales, led by its Saucony line, had risen to $81 million, for net earnings of nearly $3.5 million.

Hyde responded by retooling its Bangor facility, thereby tripling its production capacity. The company also increased its advertising budget to $5 million from $2 million. But many analysts doubted Hyde’s financial ability to capitalize in the long term on the Consumer Reports article. Nevertheless, sales continued to gain strongly in 1993, helped in part by a new Consumer Reports article recommending the Saucony walking shoes, posting a 28 percent increase in sales, to nearly $104 million, and a 46 percent earnings increase, to $4.6 million. Hyde’s market share also grew, to seven percent of the athletic shoe market. At the same time, Hyde posted a new stock offering, creating nonvoting Class B shares. With the money raised, about $19.5 million, Hyde increased its stake in its foreign joint venture distribution partnership. The creation of the new class of stock was also seen as a means of thwarting a possible hostile takeover: potential buyers would be forced not only to control all of the company’s Class A shares, but also to achieve a required percentage of Class B shares.

Yet by the end of 1993, Hyde’s growth spurt was already slowing. The market for athletic shoes was being pummeled by the surge in outdoor shoe sales, led by Timberland’s hiking boots. Among young adults, the athletic shoe was increasingly being replaced by Doc Martens. In response, Hyde introduced its own line of outdoor footwear. But added to Hyde’s difficulties were well-publicized false advertising charges from the Federal Trade Commission (FTC) against Hyde and competitor New Balance, Inc. Both companies were accused of falsely labeling their products as “Made in USA” when most of the components for the shoes were manufactured overseas. Hyde, which had never disguised the fact that its domestic plant assembled its shoes from foreign-made components, settled with the FTC, agreeing to relabel their products. New Balance, however, chose to fight the FTC’s complaint, prompting a renewed discussion, given the growing global economy, of the meaning of the “Made in USA” claim. The controversy did not help Hyde sales, which rose only slightly, to $107 million in 1994.

The following year, Hyde’s sales slumped, with a poor fourth quarter showing dropping sales to $103 million. In its annual report, the company attributed this performance to a failed “cosmetic attractiveness of our footwear models. Fashion has become almost synonymous with success in all athletic footwear categories in today’s retail environment.” Nonetheless, most analysts agreed that the Saucony line’s core customer, the professional and serious athlete, would likely remain loyal to the brand. Reinforcing this image, Hyde acquired Quintana Roo, Inc. of California in 1995, adding that company’s line of professional and triathlon racing bicycles and triathlon wetsuits and swimwear.

Principal Subsidiaries

Spot-Bilt, Inc.; Brookfield Athletic Company, Inc.; Hyde International Services Ltd. (Hong Kong); Hyde Securities Corp.; Saucony, Inc.; Saucony Sports BV (Netherlands; 76%); Saucony Deutschland Vertriebs GmbH (Germany); Saucony Canada Inc. (Canada; 85%); Saucony Sp Pty Limited (Australia; 50%).