------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q
(Mark One)

(X)        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                 EXCHANGE ACT OF 1934

                 For the quarterly period ended June 1, 2007

()         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                 EXCHANGE ACT OF 1934

       For the transition period from                 to
                                      ---------------     -----------------


                         Commission File Number: 1-4404

                           THE STRIDE RITE CORPORATION
             (Exact name of registrant as specified in its charter)

           Massachusetts                             04-1399290
    ---------------------------                 ---------------------
    (State or other jurisdiction             (I.R.S. Employer Identified No.)
    of Incorporation or Organization)

                191 Spring Street, Lexington, Massachusetts 02421
               (Address of principal executive offices) (Zip Code)

                                 (617) 824-6000
                  --------------------------------------------
              (Registrant's telephone number, including area code)


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

              Yes (X)                   No ()

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and larger  accelerated  filer" in Rule 12b-2 of the Exchange Act.  (Check
One):

Large accelerated filer ( ) Accelerated filer (X) Non-accelerated filer ( )

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act).

              Yes ()                    No (X)

As of June 29, 2007, 36,572,013 shares of the Registrant's common stock, $.25
par value, and the accompanying Preferred Stock Purchase Rights were
outstanding.


<PAGE>


PART I - FINANCIAL INFORMATION

ITEM 1.     Financial Statements

                           THE STRIDE RITE CORPORATION
<TABLE>
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<CAPTION>
                                        June 1                      June 2,
                                         2007       December 1,       2006
                                     (Unaudited)       2006        (Unaudited)
                                     -----------    -----------    ------------

  Assets

  Current Assets:
<S>                                      <C>           <C>          <C>
     Cash and cash equivalents           $21,340       $17,502      $23,349

     Accounts and notes
       receivable, net                   109,953        75,263       96,102

     Inventories                         125,496       119,917      123,108

     Deferred income taxes                14,290        14,293       13,620

     Other current assets                  8,422        16,676       15,741
                                      -----------   -----------   ----------

     Total current assets                279,501       243,651      271,920

  Property and equipment, net             53,621        53,472       52,373

  Goodwill                                70,277        70,575       56,794

  Trademarks and other intangibles        71,890        71,890       58,590

  Other assets, net                       18,114        18,299       18,736
                                      -----------   -----------   ----------

     Total assets                       $493,403      $457,887     $458,413
                                      ===========   ===========   ==========
</TABLE>


          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION
<TABLE>
                CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
                      (In thousands, except for share data)

<CAPTION>
                                              June 1,                  June 2,
                                               2007      December 1,    2006
                                           (Unaudited)     2006      (Unaudited)
                                          ------------   ----------- -----------
Liabilities and Stockholders' Equity
Current Liabilities:
<S>                                            <C>         <C>         <C>
   Accounts payable                            $42,515     $27,838     $32,041
   Income taxes payable                          2,785       8,204           -
   Accrued expenses and other liabilities       31,712      30,836      29,195
                                              ---------  ---------   ---------
   Total current liabilities                    77,012      66,878      61,236

Long term debt                                  54,200      54,200      68,000
Deferred income taxes                           24,866      25,194      23,472
Pension obligation and other
   long-term liabilities                        15,310      14,886      16,202

Stockholders' Equity:
   Preferred stock, $1 par value
     Shares authorized - 1,000,000
     Shares issued - None                            -           -           -

   Common stock, $.25 par value
     Share authorized - 135,000,000
     Shares issued and outstanding -
      36,560,818 on June 1, 2007
      36,320,579 on December 1, 2006
      and 36,420,263 on June 2, 2006             9,152       9,087       9,100

   Capital in excess of par value               31,549      26,962      22,417

   Retained earnings                           286,656     266,508     265,395
   Accumulated other
      comprehensive loss                        (5,342)     (5,828)     (7,409)
                                             ---------   ---------   ---------
   Total stockholders' equity                  322,015     296,729     289,503
                                             ---------   ---------   ---------

   Total liabilities and stockholders'
      equity                                  $493,403    $457,887    $458,413
                                             =========   =========   =========
</TABLE>


          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION
<TABLE>
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
               For the periods ended June 1, 2007 and June 2, 2006
                   (In thousands, except for per share data)

<CAPTION>
                               Three Months Ended         Six Months Ended
                             ----------------------   --------------------------
                              June 1,      June 2,       June 1,     June 2,
                                2007        2006          2007         2006
                             ----------   ----------   ----------   ----------
<S>                           <C>          <C>          <C>          <C>
Net sales                     $209,201     $194,007     $403,872     $377,423

Cost of sales                  118,517      111,728      233,698      221,912
                             ----------   ----------   ----------   ----------

Gross profit                    90,684       82,279      170,174      155,511

Selling and administrative
    expenses                    68,022       60,291      128,821      119,201
                             ----------   ----------   ----------   ----------

Operating income                22,662       21,988       41,353       36,310


Investment income                  345          336          736          820
Interest expense                (1,482)      (1,347)      (2,916)      (2,551)
Other income (expense), net        173          (53)         166         (156)
                             ----------   ----------   ----------   ----------
                                  (964)      (1,064)      (2,014)      (1,887)

Income before
  income taxes                  21,698       20,924       39,339       34,423

Provision for
  income taxes                   7,533        4,031       14,079        9,245
                             ----------   ----------   ----------   ----------

Net income                     $14,165      $16,893      $25,260      $25,178
                             ==========   ==========   ==========   ==========

Net income per
common share:
  Diluted                         $.38         $.45         $.67         $.67
                             ==========   ==========   ==========   ==========
  Basic                           $.39         $.46         $.69         $.69
                             ==========   ==========   ==========   ==========

Dividends per
  common share                    $.07         $.06         $.14         $.12
                             ==========   ==========   ==========   ==========
Average common
  shares used in
  per share
    computations:
  Diluted                       37,602       37,623       37,567       37,619
                             ==========   ==========   ==========   ==========
  Basic                         36,684       36,650       36,620       36,625
                             ==========   ==========   ==========   ==========
</TABLE>

          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION
<TABLE>
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
             For the six months ended June 1, 2007 and June 2, 2006
                                 (In thousands)

<CAPTION>
                                                             2007        2006
                                                          ---------    ---------
Cash flows from operating activities:
<S>                                                         <C>        <C>
   Net income                                               $25,260    $25,178
   Adjustments to reconcile net income to net
      cash used  by operating activities:
   Depreciation and amortization                              8,008      7,822
   Deferred income taxes                                       (632)        74
   Compensation expense related to stock plans                1,691      1,628
   Loss on disposals of property and equipment                  224        592
   Other non-cash items                                        (144)         -
   Changes in:
      Accounts and notes receivable                         (34,080)   (32,181)
      Inventories                                            (4,981)    (6,683)
      Other current assets                                    8,795      9,660
      Other current liabilities                               7,668    (10,070)
      Other long-term assets                                   (236)       648
      Other long-term liabilities                               424      1,539
                                                         -----------  ---------
      Net cash provided from (used by)
          operating activities                               11,997     (1,793)
                                                         -----------  ---------

Cash flows from investing activities:
   Additions to property and equipment                       (7,604)    (9,399)
   Purchase of minority interest in Saucony
       Canada, Inc.                                               -       (853)
                                                         -----------  ---------
   Net cash used by investing activities                     (7,604)   (10,252)
                                                         -----------  ---------

Cash flows from financing activities:
   Borrowings under revolving credit facility               249,600     63,000
   Payments under revolving credit facility                (249,600)   (55,000)
   Proceeds from sale of stock under stock plans              2,126      2,943
   Tax benefit in connection with exercise of
       stock options                                          1,104        685
   Cash dividends paid                                       (4,786)    (4,398)
   Repurchase of common stock                                     -     (6,338)
                                                         -----------  ---------
      Net cash (used) provided from
            financing activities                             (1,556)       892

                                                         -----------  ---------
Effect of exchange rate changes on cash and
    cash equivalents                                          1,001      1,408
                                                         -----------  ---------
Net increase (decrease) in cash and cash equivalents          3,838     (9,745)

Cash and cash equivalents at beginning of the period         17,502     33,094
                                                         -----------  ---------

Cash and cash equivalents at end of the period              $21,340    $23,349
                                                         ===========  =========
</TABLE>

          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -   Summary of Significant Accounting Policies

Basis of Presentation

     The financial information included in this Form 10-Q of the The Stride Rite
Corporation  (the "Company") for the periods ended June 1, 2007 and June 2, 2006
is unaudited, however, such information includes all adjustments (including only
and all normal recurring  adjustments) which, in the opinion of management,  are
considered  necessary for a fair  presentation of the  consolidated  results for
those periods.  The results of operations for the periods ended June 1, 2007 and
June 2, 2006 are not  necessarily  indicative of the results of operations  that
may be expected for the complete  fiscal year.  The year-end  condensed  balance
sheet data was derived from audited financial  statements,  but does not include
all  disclosures  required by accounting  principles  generally  accepted in the
United  States of America.  The Company filed with the  Securities  and Exchange
Commission audited consolidated financial statements for the year ended December
1, 2006 on Form 10-K, which included all information and footnotes necessary for
such presentation.

     The  Company's  preparation  of financial  statements  in  conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the dates of the financial  statements and the reported  amounts of revenues and
expenses  during the respective  periods.  The Company's  significant  estimates
included in these financial statements include valuation allowances and reserves
for accounts  receivable;  sales  returns  allowances;  markdowns  (which reduce
revenues); inventory valuation; income taxes; assumptions related to the defined
benefit  pension  plan;  assumptions  used  in the  calculation  of  share-based
compensation  costs;  assumptions  and estimates  used in valuing the assets and
liabilities  acquired  through  business  acquisitions;  and estimates of future
undiscounted  cash flows used to evaluate  the  carrying  amount on property and
equipment. Actual results could differ materially from those estimates.

Stock Purchase and Option Plans

     During  2002,   the  Company's   stockholders   approved  The  Stride  Rite
Corporation  Amended and Restated  Employee Stock  Purchase  Plan.  Amending the
Employee Stock Purchase Plan, among other things, increased the number of common
shares  available  for  issuance  thereunder  by  500,000  shares  to a total of
6,140,000  shares.  Under the Plan,  participating  associates can authorize the
Company to withhold up to 10% of their  earnings  during  consecutive  six month
payment  periods for the purchase of shares.  At the  conclusion  of the period,
associates  can purchase  shares at the lesser of 95% of the market value of the
Company's  common stock on either their entry date into the Plan or the last day
of the payment  period.  During the first six months ended June 1, 2007, a total
of  23,844  shares  were  issued  under  the Plan  for an  aggregate  amount  of
approximately  $346 thousand.  At June 2, 2007, a total of 5,973,224  shares had
been purchased  under the Plan since inception and 166,776 shares were available
for purchase by  participating  associates.  Upon  completion of the withholding
period ended June 30, 2007,  withholdings under the Employee Stock Purchase Plan
were stopped due to the pending merger with Payless ShoeSource, Inc.; see Note 2
for further information.

     During  1998,   the  Company's   stockholders   approved  The  Stride  Rite
Corporation  1998  Non-Employee  Director Stock Ownership  Plan.  Under the 1998
Director's Plan, awards of common stock and options to purchase common stock are
granted to any director who is not an employee of the Company in accordance with
the  provisions  of the Plan.  During  April 2003,  the  Company's  stockholders
approved an  amendment  to the 1998  Director's  Plan  increasing  the number of
shares of common stock authorized for issuance from 300,000 to 600,000.  Options
to



<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

purchase  common stock  are  granted  at a price  equal to  the closing price of
the Company's common stock on the date the option is granted.  Directors receive
an annual  grant of options to purchase  5,000  shares of common stock under the
Plan. Options have a term of ten years and are non-transferable. Under the Plan,
options become exercisable over a three-year period and must be paid for in full
at the time of exercise.  In April 1999, the stockholders  approved an amendment
to the Plan which  allowed  directors to receive  their annual  retainer  either
entirely in shares of common  stock or  one-half  in shares of common  stock and
one-half in cash at the election of each  director.  In addition,  directors may
defer  receipt of the stock  and/or  cash  portion of their  annual  retainer by
electing  to  participate  in  the  Company's  Deferred  Compensation  Plan  for
Directors.  At June 1, 2007, the issuance of 131,020 shares has been deferred by
participating directors. At June 1, 2007, 77,257 options were available to grant
under the 1998 Director's Plan.

     During 2004, the Company's  stockholders  approved an amendment to the 2001
Stock Option and Incentive Plan. This amendment,  among other things,  increased
the number of common shares of stock  reserved and available for issuance  under
the 2001 plan to  6,000,000  shares,  of which  3,000,000  shares  represent  an
increase over the previous number of shares reserved.  The 2001 Stock Option and
Incentive  Plan,  which  expires in April  2011,  replaced  a similar  long-term
incentive plan which had been approved by the  stockholders  in 1998.  Under the
Plan, as amended,  options to purchase common stock and stock awards of up to an
aggregate of 6,000,000  shares of the  Company's  common stock may be granted to
officers  and  other key  associates.  At June 1,  2007,  989,615  options  were
available  to grant under the 2001 plan.  The option price of the shares may not
be less than the fair market value of the Company's  common stock at the date of
grant.  Options issued under the Plan prior to fiscal 2005 generally vest over a
three-year  period and the rights to  purchase  common  shares  expire ten years
following  the date of grant.  Options  issued  since the  beginning of the 2005
fiscal  year  generally  vest over a  four-year  period and expire  seven  years
following the date of grant. During the first quarter of fiscal 2007 certain key
executives and employees were granted  awards of restricted  stock  representing
135,050 shares of common stock under the 2001 plan.  Certain of these restricted
shares are subject to pre-established performance criteria, which may affect the
number  of  restricted  shares  received.  If  issued,  these  performance-based
restricted  shares will vest over four years in equal annual  installments.  The
restricted shares which were issued without performance criteria will vest three
years after the grant date.

     A summary of the activity in share based  compensation  with respect to all
plans for the six months ended June 1, 2007 are as follows:

<TABLE>
                                          Number of
<CAPTION>
                                         Options and            Weighted
                                          Restricted            Average
                                            Shares            Exercise Price
                                     --------------------    ------------------
<S>                     <C>                  <C>                       <C>
Outstanding at December 1, 2006              3,812,420                 $9.98
Granted                                        693,525                 16.82
Exercised                                     (162,500)                 9.73
Canceled                                       (72,981)                 9.29
                                     --------------------    ------------------
Outstanding at March 2, 2007                 4,270,464                $11.08
Granted                                         40,000                 15.07
Exercised                                      (22,711)                 8.72
Canceled                                       (31,395)                13.38
                                     --------------------    ------------------
Outstanding at June 1, 2007                  4,256,358                $11.11
                                     ====================    ==================
</TABLE>



<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following table summarizes  information about stock options outstanding
at June 1, 2007:

<TABLE>
                                       Weighted
                                       Average         Weighted
                                       Remaining        Average     Aggregate
<CAPTION>
Range of Exercise       Number        Contractual      Exercise     Intrinsic
  Prices              Outstanding        Life           Price         Value
------------------    ------------   -------------    ----------  --------------

 $5.00-$6.88            921,530        3.3 years      $   6.61    $  12,484,781
 $7.38-$10.63           805,965        5.3 years          8.24        9,604,652
<C>    <C>            <C>              <C>               <C>          <C>
$10.64-$12.25         1,082,339        5.6 years         11.56        9,309,670
$12.95-$16.82         1,446,524        6.3 years         15.24        7,114,637
                    ------------   --------------    ----------  ---------------
                      4,256,358        5.3 years       $ 11.11     $ 38,513,740
                    ============   ==============    ==========  ===============
</TABLE>


     The following table summarizes  information about stock options exercisable
at June 1, 2007:


<TABLE>
                                     Weighted
                                     Average          Weighted
                                    Remaining         Average       Aggregate
<CAPTION>
Range of Exercise     Number       Contractual       Exercise       Intrinsic
    Prices          Exercisable        Life           Price           Value
----------------- --------------  -------------    ------------   --------------

$5.00-$6.88             921,530        3.3 years        $ 6.61    $  12,484,781
$7.38-$10.63            805,965        5.3 years          8.24        9,604,652
<C>    <C>              <C>            <C>               <C>          <C>
$10.64-$12.25           787,391        5.9 years         11.41        6,888,141
$12.95-$16.82           177,175        5.9 years         13.76        1,134,128
                    ------------     ------------   -----------  ---------------
                      2,692,061        4.8 years        $ 8.97    $  30,111,702
                    ============     ============   ===========  ===============
</TABLE>


     In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R"),
which  requires  all  share-based  payments to  employees,  including  grants of
employee stock options,  to be recognized in the financial  statements  based on
their fair values. SFAS 123R revises SFAS No. 123 and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees".  Effective December 3, 2005, the
Company  adopted  the  provisions  of SFAS 123R using the  modified  prospective
application  transition  method.  Under this transition method, the compensation
cost related to all equity  instruments  granted prior to, but not yet vested as
of adoption is recognized  based on the grant-date fair value which is estimated
in  accordance  with the original  provisions of SFAS 123. The  grant-date  fair
value of the awards are generally recognized to expense over the service period.
Under the  provisions  of SFAS  123R,  the  Company  is  required  to include an
estimate of the number of the awards  that will be  forfeited.  Previously,  the
Company had recognized the impact of forfeitures as they occurred.




<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     Share-based  compensation costs were $960 thousand and $1.7 million for the
three  and  six  months  ended  June  1,  2007,  respectively.  The  portion  of
share-based  compensation costs included in selling and administrative  expenses
in the accompanying  condensed  consolidated  statements of income for the three
and six  months  ended  June  1,  2007  was  $842  thousand  and  $1.5  million,
respectively.  The portion of share-based compensation costs included in cost of
sales in the accompanying  condensed  consolidated  statements of income for the
three  months  and six  months  ended  June 1, 2007 was $118  thousand  and $198
thousand,  respectively.  Share-based  compensation costs were $908 thousand and
$1.6 million for the three and six months ended June 2, 2006, respectively.  The
portion of share-based compensation costs included in selling and administrative
expenses in the accompanying condensed consolidated statements of income for the
three and six months  ended  June 2, 2006 was $785  thousand  and $1.4  million,
respectively.  The portion of share-based compensation costs included in cost of
sales in the accompanying  condensed  consolidated  statements of income for the
three  months  and six  months  ended  June 2, 2006 was $123  thousand  and $228
thousand,   respectively.   The  Company  did  not  capitalize  any  share-based
compensation  costs as the costs  that  qualified  for  capitalization  were not
material.  The  related  tax  benefit  of  the  share-based  compensation  costs
recognized  in the six  months  ended  June 1,  2007 and  June 2,  2006 was $1.1
million and $685 thousand, respectively.




<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The  weighted  average  grant date fair value  used in the  calculation  of
share-based  compensation  costs  in  the  accompanying  condensed  consolidated
statements of income for the three and six months ended June 1, 2007 and June 2,
2006 has been calculated using the  Black-Scholes  option pricing model with the
following  weighted average  assumptions and the resulting weighted average fair
value:

<TABLE>
<CAPTION>
                                  Three Months Ended         Six Months Ended
                             ---------------------------------------------------
                                 June 1,      June 2,       June 1,      June 2,
                                  2007         2006          2007         2006
                               ----------    --------       -------      -------
Employee Stock Options
<S>                                <C>         <C>            <C>         <C>
Risk-free interest rate            4.67%       4.85%          4.76%       4.36%
Dividend yield                     1.8%        1.8%           1.8%        1.8%
Volatility factor                 32.2%       30.6%          29.7%       30.6%
Weighted average
   expected life of
   options (years)                 6.0         5.5            4.8         4.8
Weighted average grant
   date fair value of options     $4.95       $4.71          $4.72       $3.98
</TABLE>


     The weighted  average  expected  life of options was  calculated  using the
simplified  method as prescribed  by the  Securities  and Exchange  Commission's
Staff  Accounting  Bulletin  No.  107.  This  decision  was based on the lack of
relevant  historical data due to both decreasing the option's  contractual  term
from 10 years to 7 years and  increasing  the  vesting  period from 3 years to 4
years for options that were granted  starting in fiscal year 2005. The risk-free
interest  rate  assumption  was based on the United States  Treasury's  constant
maturity's  rate for the term of the expected life of the option on the date the
option was granted.  The volatility  assumption  was based on weekly  historical
volatility  during the time period that  corresponds  to the  expected  weighted
average  life of the  option.  The  assumed  dividend  yield  was  based  on the
Company's  expectation of future dividend payouts.  The post-vesting  forfeiture
rate is based on the four year historical  average  turnover rate for two groups
of option eligible  employees.  These assumptions are evaluated,  and revised as
necessary, based on changes in market conditions and historical experience.

     Total  unrecognized  share-based  compensation  costs related to non-vested
stock options was approximately $8.1 million as of June 1, 2007 which related to
approximately  1.9 million shares with a per share weighted value of $4.35. This
unrecognized cost is expected to be recognized over a weighted average period of
approximately 3 years. The intrinsic value of options exercised during the three
and six  months  ended June 1, 2007 was  approximately  $177  thousand  and $2.5
million, respectively.



<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Proposed Merger

     On May 22, 2007,  the Company  entered into an Agreement and Plan of Merger
("Merger Agreement") between Payless ShoeSource,  Inc.  ("Payless"),  a Delaware
corporation,  and San Jose Acquisition Corp., a wholly owned indirect subsidiary
of Payless (the  "Merger  Subsidiary").  For the Merger to occur,  holders of at
least  two-thirds of the outstanding  shares of the Company's  common stock must
approve the Merger Agreement.

     Subject to the terms and  conditions  of the Merger  Agreement,  the Merger
Subsidiary will merge with and into the Company,  with the Company continuing as
the surviving corporation.  As a result of the merger, the Company will cease to
be a publicly  traded  company  and will  become a  wholly-owned  subsidiary  of
Payless (the  "Merger").  The Merger will be  effective at the time  articles of
merger  are  duly  filed  with  the  office  of the  Secretary  of  State of the
Commonwealth of  Massachusetts.  Upon completion of the Merger,  each issued and
outstanding  share of the Company's common stock,  other than those owned by any
of  the  Company's  wholly-owned   subsidiaries  or  owned  by  Payless'  Merger
Subsidiary or any other direct or indirect  wholly-owned  subsidiary of Payless,
will be converted  into the right to receive  $20.50 in cash per share,  without
interest (the "Merger Consideration").

     At the effective time of the merger,  shares of the Company's  common stock
will cease to be outstanding  and shall be cancelled and cease to exist and each
certificate  formerly  representing  any of the shares shall  represent only the
right to receive the Merger Consideration.  Additionally, each outstanding stock
option,  whether or not exercisable,  will be accelerated and become exercisable
in full immediately prior to the completion of the Merger.  Upon consummation of
the Merger,  each such outstanding  stock option and restricted stock awards for
which  the  performance   criteria  has  not  been  met  will  be  cancelled  in
consideration  for a cash  payment  without  interest  and less  any  applicable
withholding  taxes,  equal to the product of (1) the  excess,  if any, of $20.50
over the per share exercise price for the option multiplied by (2) the number of
shares of the Company's common stock that the option holder could have purchased
(assuming full vesting) upon full exercise of that option  immediately  prior to
completion of the Merger.  In the event that the Merger Agreement is terminated,
under certain  circumstances  the Company would be required to pay a termination
fee of $23 million to Payless.  Refer to the Form 8-K filed with the  Securities
and Exchange Commission on May 23, 2007 for further information.

     Neither the Company nor Payless is required to complete the Merger unless a
number of conditions are satisfied or waived.  The consummation of the Merger is
subject to specified  customary closing conditions,  including  conditions that:
(i) the Merger Agreement shall have been approved by the Company's shareholders;
(ii) the waiting period  applicable to the  consummation of the merger under the
Hart-Scott-Rodino  Antitrust  Improvement Act of 1976 shall have expired or been
earlier  terminated;  (iii) no court or other  governmental  entity of competent
jurisdiction shall have enacted,  issued,  promulgated,  enforced or entered any
law  (whether  temporary,  preliminary  or  permanent)  that  is in  effect  and
restrains,  enjoins or  otherwise  prohibits  consummation  of the Merger or the
transactions  contemplated  by the Merger  Agreement;  and absence of any law or
legal  ruling that would  prohibit  the  consummation  of the  Merger,  and (iv)
subject to certain  exceptions,  there has been no change,  event or effect that
has a material adverse effect on the business,  operations, assets, liabilities,
properties, results of operations, or financial condition of the Company and the
Company's subsidiaries, taken as a whole since the date of the Merger Agreement.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Earnings Per Share

     Basic  earnings  per common  share  excludes  dilution  and is  computed by
dividing net income  available to common  stockholders  by the weighted  average
number of common shares outstanding for the period.  Diluted earnings per common
share  reflects the  potential  dilution  that could occur if stock  options and
other types of stock-based compensation that issue common stock are exercised.

     The  following is a  reconciliation  of the basic and diluted  earnings per
share computations based on the number of shares used in the calculations:

<TABLE>
                                     Three Months Ended       Six Months Ended
                                    ---------------------    -------------------
<CAPTION>
                                    June 1,      June 2,     June 1,     June 2,
                                     2007         2006        2007        2006
                                    --------    ---------   ---------   --------
                                     (In thousands, except for per share data)
Net income                          $14,165      $16,893     $25,260     $25,178

Weighted average common shares
<S>                                  <C>          <C>         <C>         <C>
  outstanding (basic)                36,684       36,650      36,620      36,625

Dilutive effect of stock options        918          973         947         994
                                  ----------    ---------  ----------   --------

Weighted average common shares
  outstanding (diluted)              37,602       37,623      37,567      37,619
                                  ==========    =========  ==========   ========

Earnings per common share:
   Basic                               $.39         $.46        $.69        $.69
                                  ==========    =========  ==========   ========

   Diluted                             $.38         $.45        $.67        $.67
                                  ==========    =========  ==========   ========
</TABLE>


     The  following  weighted  shares have been excluded in the  computation  of
diluted earnings per share because the weighted shares are anti-dilutive:

<TABLE>
<CAPTION>
                                           Second Quarter      First Six Months
                                        ------------------   -------------------
                                           2007       2006       2007      2006
                                         --------   --------    -------  ------
                                                     (In thousands)
Options to purchase shares of common
<S>                                        <C>        <C>        <C>       <C>
  stock and restricted stock               1,439      1,358      1,361     1,162

</TABLE>


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Comprehensive Income

<TABLE>
      Comprehensive income is as follows:
<CAPTION>
                                     Three Months             Six Months
                                         Ended                   Ended
                                -----------------------  -----------------------
                                 June 1,       June 2,      June 1,      June 2,
                                  2007          2006         2007         2006
                                 ---------    ---------    ---------   ---------
                                                (In thousands)
Net income                        $14,165      $16,893     $25,260     $25,178

Other comprehensive
  income(loss):
Foreign currency translation
<S>                                 <C>          <C>           <C>       <C>
  adjustments                       1,366        1,275         486       2,058
                                 ---------    ---------   ---------    ---------

Total comprehensive income        $15,531      $18,168     $25,746     $27,236
                                 ---------    ---------   ---------   ---------
</TABLE>

<TABLE>
     Components  of  accumulated  other   comprehensive   loss  consist  of  the
following:

<CAPTION>
                                      June 1,      December 1,       June 2,
                                       2007          2006             2006
                                    -----------    ----------      -----------
                                                 (In thousands)
Foreign currency
<S>                                    <C>            <C>            <C>
    translation adjustments            $2,871         $2,385         $2,005
Minimum pension liability
    adjustments, net of taxes          (8,213)        (8,213)        (9,414)
                                    ----------      ---------       --------
Accumulated other comprehensive
    loss                              $(5,342)       $(5,828)       $(7,409)
                                    ==========      =========       ========
</TABLE>

Note 5 - Robeez Acquisition

     On September 5, 2006, the Company  purchased all of the outstanding  shares
of three  holding  companies  that,  together  with their  direct  and  indirect
subsidiaries,  constitute  the Robeez Group  ("Robeez")  for a purchase price of
approximately $28.7 million, net of cash acquired.  As a result, Robeez became a
wholly-owned  subsidiary of the company.  Robeez was  purchased  using cash from
operations in addition to approximately  $17 million borrowed under our existing
revolving credit facility.

     As part of the  acquisition  and in the fourth quarter of 2006, the Company
terminated   certain  executives  at  a  cost  of  approximately  $1.3  million.
Additionally,  approximately $313 thousand of other acquisition liabilities were
incurred   relating  to  lease   termination   costs  on  equipment   and  other
miscellaneous expenses.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     Details of the Robeez  acquisition  related reserves at June 1, 2007 are as
follows:

                                      Acquisition Related    Acquisition Related
                                          Severance              Exit Costs
--------------------------------------------------------------------------------
 Balance at December 1, 2006                $ 1,191                   $304
 Deductions from reserve                     (1,017)                    (3)
 Foreign currency translation impact             15                     19
                                          -----------         --------------
                                               $189                   $320
                                          -----------         --------------

Note 6 - Debt

     In connection with the  acquisition of Saucony,  the Company entered into a
five-year  revolving  credit  facility  pursuant  to a  Credit  Agreement  dated
September 16, 2005 (the "Credit  Agreement').  The Credit Agreement provides for
collateralized  revolving  loans in an aggregate  amount up to $275 million (the
"revolver"),  including a $75 million  sublimit  for the  issuance of letters of
credit  and a $15  million  sublimit  for  swingline  loans,  with $200  million
currently  committed.  Borrowings  under the Credit  Agreement  are scheduled to
mature on September 16, 2010 and are  collateralized by substantially all of the
assets of the Company.

     During the first six months of fiscal  2007,  borrowings  under this Credit
Agreement  averaged $73.3 million,  with a maximum amount  outstanding of $104.4
million. For the same period in the prior fiscal year, borrowings averaged $82.7
million  with a  maximum  borrowing  of $101.0  million.  The  weighted  average
interest  rate on these  borrowings  during the first six months of fiscal  year
2007 was 8.09% versus 5.90% in the same period in the prior fiscal year. On June
1, 2007 and June 2, 2006,  $54.2 million and $68.0 million,  respectively,  were
outstanding  under the revolver.  Cash  interest  payments were $2.7 million and
$2.6 million in the first six months of fiscal year 2007 and 2006, respectively.

Note 7 - Benefit Plans

     The following table  summarizes the components of net periodic benefit cost
for the Company:

                              -------------------------   ----------------------
<TABLE>
                                 Three Months Ended          Six Months Ended
                              -------------------------   ----------------------
<CAPTION>
                                   June 1,    June 2,     June 1,     June 2,
                                    2007       2006        2007        2006
                                ----------   ---------   ---------   ---------
                                                (In thousands)
Service cost                         $  -        $570       $   -      $1,140
<S>                                 <C>         <C>         <C>         <C>
Interest cost                       1,108       1,029       2,216       2,058
Expected return on assets          (1,173)     (1,143)     (2,346)     (2,286)
Net loss recognized                   190         510         380       1,020
Amortization of prior
   services cost                        -           3           -           6
                                ----------   ---------   ---------   ---------

Net periodic benefit cost           $ 125        $969       $ 250      $1,938
                                ==========   =========   =========   =========
</TABLE>

     During the first six months of fiscal 2007, no  contributions  were made to
the Company's defined benefit pension plan. At this time, the Company expects to
make an $802,000  contribution  to its defined  benefit  pension plan during the
fourth quarter of the 2007 fiscal year.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Contingencies

     The revenue of Tommy Hilfiger branded footwear is a significant  portion of
the Company's business.  The Tommy Hilfiger footwear sales are contingent on the
Company's licensing agreement with Tommy Hilfiger Licensing,  Inc. In July 2006,
the Company amended the terms of the current license  agreement,  which extended
the term of the  agreement to expire in March 2008.  During the first quarter of
fiscal 2007, the Company entered into an additional extension of the term of the
agreement  through  December  2008.  Whether the  Company's  license  with Tommy
Hilfiger will remain in effect depends in part on the Company  achieving certain
minimum sales levels for the licensed products.  The Company continues to expect
to meet  the  minimum  sales  levels  required  by the  Tommy  Hilfiger  License
agreement.  If the Tommy Hilfiger license is lost, the Company's  business would
be materially and adversely  affected.  Revenues derived from our Tommy Hilfiger
licenses were  approximately  $20 million and $41 million in the second  quarter
and first six months of fiscal 2007,  respectively.  This revenue is included in
the Tommy  Hilfiger  Footwear  segment,  the Other  Wholesale  Footwear  segment
(specifically the Stride Rite  International  division),  Stride Rite Children's
Group - Retail  division,  and the  Stride  Rite  Children's  Group -  Wholesale
Division.

     In  December  of  2004,   Saucony,   Inc.  recorded  a  charge  to  address
environmental  conditions at a Saucony owned distribution facility. The facility
and the related  liability  were  acquired by the Company as part of the Saucony
acquisition  in September  2005.  The liability as of June 1, 2007 is $1,815,000
and is included as an accrued expense in the accompanying condensed consolidated
balance sheet.  The estimated  costs ranged from  $1,242,000 to $4,621,000.  The
Company's  management  determined  that the  liability  was fairly  stated  upon
acquisition.  The  assessment of the liability and the  associated  costs are an
estimate based upon available  information after consultation with environmental
engineers,  consultants and attorneys  assisting the Company in addressing these
environmental issues.  Actual costs to address the environmental  conditions may
change  based  upon  further  investigations,   the  conclusions  of  regulatory
authorities about information  gathered in those  investigations  and due to the
inherent  uncertainties involved in estimating conditions in the environment and
the costs of  addressing  such  conditions.  During  the first six months of the
fiscal 2007, there were $50 thousand of expenses deducted from the reserve.

Note 9 - Income Taxes

     During the  second  quarter of 2006,  a state tax audit was  concluded  for
which the Company had established  reserves in prior periods. The outcome of the
tax audit was  favorable  and  resulted in a net tax benefit of $4.2  million of
prior period tax reserve reversals. The reversals positively impacted the second
quarter effective income tax rate by 19.9%.

Note 10 - Operating Segments and Related Information

     In September 2005 the Company acquired Saucony, Inc. During the 2006 fiscal
year,  Saucony's  operations were integrated into the existing operations of the
Company.  As a result,  during the first  quarter of fiscal  2006,  the  Company
re-assessed   its  operating  and  reportable   segments  under  SFAS  No.  131,
"Disclosures  about  Segments of an  Enterprise  and Related  Information".  The
changes to the Company's  segments were as follows:  the Stride Rite  Children's
Group - Retail Division includes the Saucony factory outlet stores (11 stores as
of June 1, 2007); Saucony's international  operations are included in the Stride
Rite International division, which is aggregated in the Other Wholesale Footwear
reportable  segment and the Saucony domestic footwear  division,  which includes
the Hind unit, is also aggregated into the Other Wholesale  Footwear  reportable
segment.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     In September  2006, the Company  completed its acquisition of three holding
companies that, together with their direct and indirect subsidiaries, constitute
the Robeez Group  ("Robeez")  pursuant to a Share  Purchase  Agreement.  At that
time,  Robeez became our wholly-owned  subsidiary.  Robeez results of operations
have been included in our results since the date of acquisition. Robeez has been
reported  as a  separate  segment  since  the  date  of  acquisition,  based  on
management's   evaluation   of  the  business  for  the  purposes  of  assessing
performance and allocating resources.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following  table  summarizes  the results of the  Company's  reportable
segments  for the  three  months  ended  June 1,  2007  and  June  2,  2006  and
identifiable assets as of June 1, 2007 and June 2, 2006:

<TABLE>
<CAPTION>
Three      Stride     Stride
Months      Rite       Rite                                     Un-
ended     Children's Children's Other     Tommy             allocated
June 1,    Group -    Group -   Whlsle    Hilfiger          Corporate   Consoli
2007       Retail     Whlsle    Footwear  Footwear Robeez   & Other     -dated
--------------------------------------------------------------------------------

Sales      $57,988   $15,408    $117,197  $15,170  $ 5,941         -   $211,704

Inter-
company
sales            -       (50)     (2,055)    (215)    (183)        -     (2,033)
           -------   --------    -------- -------- --------   ------   ---------

Net
sales
to
external
customers  $57,988   $15,358    $115,142  $14,955  $ 5,758         -   $209,201
           =======   =======    ========  =======  =======    ======   =========

Operating
income
<S>         <C>       <C>        <C>        <C>    <C>       <C>       <C>
 (loss)     $8,151    $1,487     $19,414    $ 688  $    77   $(7,155)  $ 222,662


Interest
and other,
net              -         -           -        -        -      (964)      (964)
           -------   -------     -------  -------  --------  --------  ---------


Income (loss)
before
income
taxes       $8,151    $1,487     $19,414  $  688   $   77   $ (8,119)   $21,698
            ======    ======     =======  ======   ======   =========   =======

Total
assets     $49,462   $54,229    $306,538  $11,559  $39,150   $32,365   $493,403
           =======   =======    ========  =======  =======   =======   ========

</TABLE>



<PAGE>



PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Three      Stride     Stride
Months      Rite       Rite                                     Un-
ended     Children's Children's Other     Tommy             allocated
June 2,    Group -    Group -   Whlsle    Hilfiger          Corporate   Consoli
2006       Retail     Whlsle    Footwear  Footwear Robeez   & Other     -dated
--------------------------------------------------------------------------------

Sales      $55,789   $18,292    $108,239  $14,583        -         -   $196,903

Inter-
company
sales            -       (28)     (2,331)    (537)       -         -     (2,896)
           -------   --------    -------- -------- --------   ------   ---------

Net
sales
to
external
customers  $55,789   $18,264    $105,908  $14,046        -         -   $194,007
           =======   =======    ========  =======  =======    ======   =========

Operating
income
<S>         <C>       <C>        <C>        <C>              <C>       <C>
 (loss)     $9,604    $1,451     $16,181    $(761)       -   $(3,947)  $ 21,988


Interest
and other,
net              -         -           -        -        -    (1,064)    (1,064)
           -------   -------     -------  -------  --------  --------  ---------


Income (loss)
before
income
taxes       $9,064    $1,451     $16,181   $ (761)       -  $ (5,011)   $20,924
            ======    ======     =======   ======   ======  =========   =======

Total
assets     $42,532   $53,768    $290,896  $13,889        -   $57,328   $458,413
           =======   =======    ========  =======  =======   =======   ========

</TABLE>


<PAGE>


The following table summarizes the results of the Company's reportable segments
for the six months ended June 1, 2007 and June 2, 2006:

<TABLE>
<CAPTION>
Six        Stride     Stride
Months      Rite       Rite                                     Un-
ended     Children's Children's Other     Tommy             allocated
June 1,    Group -    Group -   Whlsle    Hilfiger          Corporate   Consoli
2007       Retail     Whlsle    Footwear  Footwear Robeez   & Other     -dated
--------------------------------------------------------------------------------

Sales     $101,117   $36,388    $229,432  $30,642  $13,025         -   $410,604

Inter-
company
sales            -       (98)     (5,328)    (986)    (320)        -     (6,732)
           -------   --------    -------- -------- --------   ------   ---------

Net
sales
to
external
customers $101,117   $36,290    $224,104  $29,656  $12,705         -   $403,872
           =======   =======    ========  =======  =======    ======   =========

Operating
income
<S>         <C>       <C>        <C>      <C>      <C>       <C>       <C>
 (loss)     $5,649    $4,002     $38,075  $ 1,516  $   475   $(8,364)  $ 41,353


Interest
and other,
net              -         -           -        -        -    (2,014)    (2,014)
           -------   -------     -------  -------  --------  --------  ---------


Income (loss)
before
income
taxes       $5,649    $4,002     $38,075   $1,516   $  475  $(10,378)   $39,339
            ======    ======     =======   ======   ======  =========   =======
</TABLE>



<PAGE>


<TABLE>
<CAPTION>
Six       Stride     Stride
Months      Rite       Rite                                     Un-
ended     Children's Children's Other     Tommy             allocated
June 2,    Group -    Group -   Whlsle    Hilfiger          Corporate   Consoli
2006       Retail     Whlsle    Footwear  Footwear Robeez   & Other     -dated
--------------------------------------------------------------------------------

Sales      $93,713   $39,448    $221,199  $29,516        -         -   $383,876

Inter-
company
sales            -       (55)     (4,996)  (1,402)       -         -     (6,453)
           -------   --------    -------- -------- --------   ------   ---------

Net
sales
to
external
customers  $93,713   $39,393    $216,203  $28,114        -         -   $377,423
           =======   =======    ========  =======  =======    ======   =========

Operating
income
<S>         <C>       <C>        <C>      <C>                <C>       <C>
 (loss)     $6,158    $4,253     $34,110  $(1,098)       -   $(7,113)  $ 36,310


Interest
and other,
net              -         -           -        -        -    (1,887)    (1,887)
           -------   -------     -------  -------  --------  --------  ---------


Income (loss)
before
income
taxes       $6,158    $4,253     $34,110  $(1,098)       -  $ (9,000)   $34,423
            ======    ======     =======  =======   ======   =========   =======

</TABLE>




<PAGE>



PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11 - Recent Accounting Pronouncements

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards  ("SFAS")  No. 158 ("SFAS  158"),  Employers'  Accounting  for Defined
Benefit Pension and Other Postretirement  Plans, an amendment of FASB Statements
No. 87, 88, 106 and 132 (R).  This  Statement  requires  an  employer  that is a
business entity and sponsors one or more single-employer defined benefit pension
plans to  recognize  the  funded  status of a  benefit  plan -  measured  as the
difference  between plan assets at fair value (with limited  exceptions) and the
benefit  obligation - in its statement of financial  position.  It also requires
companies to recognize as a component of other comprehensive income, net of tax,
the gains and losses and prior  service  costs or credits  that arise during the
period  but are not  recognized  as  components  of net  periodic  benefit  cost
pursuant to FASB  Statement No. 87; to measure  defined  benefit plan assets and
obligations  as of the  date of the  employer's  fiscal  year-end  statement  of
financial  position;  and to disclose in the notes to the  financial  statements
certain other information.  The provisions of this statement are effective as of
the end of fiscal  years ending  after  December 15, 2006.  The Company does not
expect the  provisions  of SFAS 158 to have a material  impact on its  financial
position, results of operations and cash flows.

     In June  2006,  the  FASB  issued  FASB  interpretation  No.  48  ("FIN48")
"Accounting for Uncertainty in Income Taxes", an interpretation of SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109").  This  interpretation  clarifies the
accounting  for  uncertainty  in  income  taxes  recognized  in an  enterprise's
financial  statements  in  accordance  with SFAS No. 109.  FIN 48  prescribes  a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return.  FIN 48 also provides  guidance on  de-recognition,  classification,
interest  and  penalties,   accounting  in  interim   periods,   disclosure  and
transition.  This  interpretation  is effective for fiscal years beginning after
December 15, 2006;  the Company's  first quarter of fiscal 2008.  The Company is
currently  evaluating  the  provisions  of FIN 48 to determine the impact on our
financial position, results of operations and cash flows.

     In September 2006, the FASB issued SFAS No. 157, "Fair Value  Measurements"
("SFAS No. 157").  SFAS No. 157 defines fair value,  establishes a framework for
measuring  fair  value  and  requires  enhanced  disclosures  about  fair  value
measurements.  SFAS No. 157  requires  companies  to disclose  the fair value of
their  financial  instruments  according to a fair value hierarchy as defined in
the standard. Additionally, it requires companies to provide enhanced disclosure
regarding financial instruments in Level 3 of the fair value hierarchy. SFAS No.
157 is effective  for  financial  statements  issued for fiscal years  beginning
after  November 15, 2007,  and interim  periods  within those fiscal  years.  We
believe  the  adoption  of SFAS No. 157 will not have a  material  impact on our
financial position, results of operations and cash flows.




<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Overview

     The following discusses The Stride Rite Corporation's results of operations
and liquidity and capital resources. The discussion,  including known trends and
uncertainties  identified by management,  should be read in conjunction with the
condensed consolidated financial statements and related notes.

     This Form 10-Q contains  forward-looking  statements  within the meaning of
the  Private  Securities  Litigation  Reform Act of 1995 and  Section 21E of the
Securities  Exchange Act of 1934. We caution investors that any  forward-looking
statements  presented in this report and presented  elsewhere by management from
time to time are based on  management's  beliefs  and  assumptions  made by, and
information   currently   available  to,   management.   When  used,  the  words
"anticipate",   "believe",   "expect",   "intend",  "may",  "plan",  "estimate",
"project",  "should",  "will be" and  similar  expressions  which do not  relate
solely  to   historical   matters  are  intended  to  identify   forward-looking
statements.  Such statements are subject to risks, uncertainties and assumptions
and are not guarantees of future performance, which may be affected by known and
unknown risks,  trends,  uncertainties  and factors that are beyond our control.
Should  one or more of  these  risks or  uncertainties  materialize,  or  should
underlying assumptions prove incorrect,  actual results may vary materially from
those   anticipated,   estimated  or  projected.   We  expressly   disclaim  any
responsibility to update forward-looking statements.  Accordingly,  past results
and trends  should not be used by  investors  to  anticipate  future  results or
trends.

     On May 22, 2007,  the Company  entered into an Agreement and Plan of Merger
("Merger Agreement") between Payless ShoeSource,  Inc.  ("Payless"),  a Delaware
corporation,  and San Jose Acquisition Corp., a wholly owned indirect subsidiary
of Payless (the  "Merger  Subsidiary").  For the Merger to occur,  holders of at
least  two-thirds of the outstanding  shares of the Company's  common stock must
approve  the  Merger  Agreement.  See  Note  2  to  the  accompanying  condensed
consolidated financial statements for further information.

     Risks and  uncertainties  that may affect future  performance  are detailed
from time to time in reports filed by the Company with the SEC,  including Forms
10-Q and 10-K, and include, among others, the following:  the inability to fully
realize the anticipated  benefits from the acquisitions of Robeez Footwear,  the
challenges of achieving the expected  synergies  with Robeez  Footwear,  and the
possibility of incurring costs or difficulties related to the integration of the
business of Stride Rite and Robeez Footwear and Saucony; increased leverage from
the  financing of our recent  acquisitions;  the possible  failure to retain the
Tommy  Hilfiger  footwear  license;  international,  national and local  general
economic and market conditions;  the size and growth of the overall footwear and
general  retail  market;   intense   competition  among  designers,   marketers,
distributors and sellers of footwear;  demographic changes;  changes in consumer
fashion trends that may shift to footwear styling not currently  included in our
product  lines;  popularity  of particular  designs and  categories of products;
seasonal and  geographic  demand for the  Company's  products;  difficulties  in
anticipating  or  forecasting  changes in  consumer  preferences;  delays in the
opening of new stores;  difficulties in implementing,  operating and maintaining
the  Company's  complex  information  systems and controls,  including,  without
limitation,  the systems related to the Company's retail stores, systems related
to demand and supply planning, and inventory control;  interruptions in data and
communications  systems;  fluctuations  and difficulty in forecasting  operating
results;  the ability of the Company to sustain,  manage or forecast  its growth
and  inventories;  the  size,  timing  and  mix of  purchases  of the  Company's
products;  the underperformance or delay of new products;  the ability to secure
and protect trademarks, patents and other intellectual property; performance and
reliability of our products;  customer service;  adverse publicity;  the loss of
significant  suppliers or  customers,  such as  department  stores and specialty
retailers; the consolidation or restructuring of such customers, including large
department stores,  which may result in unexpected store closings;  our reliance
on independent manufacturers in


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
            RESULTS OF OPERATIONS

China  and  potential  disruptions  in  such  manufacturing  caused by political
instability,  the  occurrence  of a natural  disaster  or other  disruptions  in
China's  social or  economic  structure;  the  impact of changes in the value of
foreign  currencies,  including the Chinese Yuan and the currencies of countries
where  Stride  Rite  markets  its  various  brands;  the  ability  to secure raw
materials;  delays and  increased  costs of freight and  transportation  to meet
delivery  deadlines;  the impact on product  development or  manufacturing  as a
result of health  risks;  acts of  terrorism;  changes in  business  strategy or
development  plans;  general risks  associated  with doing business  outside the
United States, including, without limitation, import duties, tariffs, quotas and
political and economic instability; changes in government regulations; liability
and other claims asserted against the Company; the ability to attract and retain
qualified  key  personnel;  and other  factors  referenced  or  incorporated  by
reference in this report and other reports.

     The risks  included  here are not  exhaustive.  Other  sections,  including
without limitation the section entitled "Risk Factors",  of our annual report on
Form 10-K may  include  additional  factors  which  could  adversely  affect the
Company's business and financial performance.  Moreover, the Company operates in
a very  competitive and rapidly  changing  environment.  New risk factors emerge
from time to time and it is not possible for management to predict all such risk
factors,  nor can it assess the impact of all such risk factors on the Company's
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any  forward-looking
statements.  Given these  risks and  uncertainties,  investors  should not place
undue reliance on forward-looking statements as a prediction of actual results.

     Investors should also be aware that while the Company does communicate with
securities  analysts  from time to time, it is against our policy to disclose to
them any non-public or confidential information.  Accordingly,  investors should
not assume  that we agree with any  statement  or report  issued by any  analyst
irrespective of the content of the statement or report. Furthermore, the Company
has a policy against  issuing or confirming  financial  forecasts or projections
issued by others.  Therefore,  to the extent that reports  issued by  securities
analysts  contain any projections,  forecasts or opinions,  such reports are not
the responsibility of the Company.

Critical Accounting Policies and Estimates

     The  preparation  of  financial   statements  and  related  disclosures  in
conformity with accounting principles generally accepted in the United States of
America  requires  management to make judgments,  assumptions and estimates that
affect  the  amounts  reported.  Please  refer  to the  discussion  of  critical
accounting  policies and estimates in the Company's  Annual Report on Form 10--K
for the fiscal year ended  December 1, 2006 for  additional  information.  There
have been no  changes  to the  Company's  critical  accounting  policies  in the
quarter ended June 1, 2007.

Contingencies

     The sale of Tommy Hilfiger branded footwear is a significant portion of our
business.  The Tommy  Hilfiger  footwear  sales are  contingent on our licensing
agreement with Tommy Hilfiger Licensing, Inc. During fiscal 2006, we renewed the
agreement  for an  additional  one-year  term,  to March 2008.  During the first
quarter of fiscal 2007, we subsequently  entered into an additional extension of
the term of the  agreement  to December  2008.  Whether  our license  with Tommy
Hilfiger  will  remain in effect  depends,  in part,  on our  achieving  certain
minimum  sales levels for the licensed  products.  We expect to continue to meet
the minimum  sales  levels  required by the Tommy  Hilfiger  license  agreement.
During  2006,  the  parent  company of Tommy  Hilfiger  Licensing,  Inc.,  Tommy
Hilfiger Corp. was sold to Apax Partners. If we lose the Tommy Hilfiger license,
our business would be materially and adversely  affected.  Revenues derived from
our Tommy Hilfiger licenses are included in the Tommy Hilfiger Footwear


<PAGE>


segment, the Other Wholesale footwear segment (specifically the Stride Rite
International division), Stride Rite Children's Group - Retail Division, and the
Stride Rite Children's Group - Wholesale Division.



<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Results of Operations
---------------------

     The following  table  summarizes the Company's  performance  for the second
quarter of fiscal  2007 as compared to the results for the same period in fiscal
2006:

<TABLE>
<CAPTION>
                                           Percentage Increase (Decrease)
                                       --------------------------------------
                                          Second Quarter       Six Months
                                       ------------------- ------------------

<S>                                               <C>                <C>
 Net sales                                        7.8%               7.0%
 Gross profit                                    10.2%               9.4%
 Selling and administrative expenses             12.8%               8.1%
 Operating income                                 3.1%              13.9%
 Income before income taxes                       3.7%              14.3%
 Net income                                     (16.2)%               0.3%
</TABLE>


<TABLE>
<CAPTION>
                                                  Percentage of Net Sales
                                     -------------------------------------------
                                       Second Quarter             Six Months
                                     --------------------   --------------------
                                       2007        2006        2007       2006
                                     ---------   --------   ----------  --------

<S>                                      <C>       <C>         <C>        <C>
 Gross profit                            43.3%     42.4%       42.1%      41.2%
 Selling and administrative expenses     32.5%     31.1%       31.9%      31.6%
 Operating income                        10.8%     11.3%       10.2%       9.6%
 Income before income taxes              10.4%     10.8%        9.7%       9.1%
 Net income                               6.8%      8.7%        6.3%       6.7%

</TABLE>


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Second Quarter of 2007 Compared to the Second Quarter of 2006
-------------------------------------------------------------

Net Sales
---------

<TABLE>
      The second quarter breakdown of net sales is as follows:

                                                                      Percentage
                                                                        Change
                                                                       2007 vs.
<CAPTION>
                                                 2007       2006        2006
                                              ---------   ---------   --------
(In millions, except percentages)
<S>                                              <C>        <C>       <C>
Stride Rite Children's Group - Wholesale         $15.4      $ 18.3    (15.8)%
Stride Rite Children's Group - Retail             58.0        55.8       3.9%
                                              ---------   ---------   --------
Stride Rite Children's Group                      73.4        74.1     (0.9)%

Keds                                              34.4        34.9     (1.5)%
Sperry Top-Sider                                  35.0        28.5      22.8%
Stride Rite International                         22.6        19.2      17.6%
Saucony                                           22.7        22.2       2.2%
Hind                                               2.5         3.4    (26.1)%
                                              ---------   ---------   --------
Other Wholesale Footwear                         117.2       108.2       8.3%

Tommy Hilfiger Footwear                           15.2        14.6       4.0%

Robeez                                             5.9           -        n/a

Elimination of intercompany sales                (2.5)       (2.9)        n/a
                                              ---------   ---------   --------

Total net sales                                 $209.2      $194.0       7.8%
                                              =========   =========   ========
</TABLE>

     During the second quarter of fiscal 2007,  consolidated net sales increased
$15.2 million to $209.2  million,  or 7.8% above the sales level achieved in the
second quarter of fiscal 2006. The increase in sales is primarily related to the
inclusion of Robeez sales as well as the increase in Sperry Top-Sider and Stride
Rite  International  sales.  Wholesale net sales increased $11.9 million or 8.7%
for the  second  quarter  of 2007,  and  overall  retail  sales,  including  the
e-commerce  sites,  increased  $3.3  million or 5.8% when  compared  to the same
period in the prior year.  Unit shipments of first quality  merchandise  for the
wholesale  brands during the second quarter were 6.9% higher than the comparable
period in 2006.

     First quality  wholesale  gross sales  increased by $10.6 million,  or 7.9%
above the  wholesale  net sales level  achieved in the second  quarter of fiscal
2006.  The  combined  negative  impact  of  increased  discounts,   returns  and
allowances was $0.3 million.  Sales of closeout products  increased $0.8 million
from the comparable period in the 2006 fiscal year. Additionally, royalty income
increased $0.4 million versus the comparable period in the 2006 fiscal year.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATION

Gross Profit
------------

     During the second  quarter of fiscal 2007,  the  Company's  gross profit of
$90.7 million  increased $8.4 million or 10.2% above the amount  recorded during
fiscal 2006's second  quarter.  The gross profit  percentage rate for the fiscal
2007 second quarter increased 0.9 percentage  points to 43.3%,  versus the 42.4%
rate achieved in the prior year's second  quarter.  Contributing to the improved
gross profit  dollars was the impact of Robeez gross sales in 2007 and increased
sales of higher priced Sperry Top-Sider  products in premier  department stores,
moderate  and  independent  retail  channels.  Offsetting  a  portion  of  these
increases  were the lower gross  profit  dollars  caused by the declines in Keds
sales,  an increase  in  promotional  event sales in the Stride Rite  Children's
Group  retail  stores,  and a shift in  product  mix.  The higher  gross  profit
percentage was largely attributable to the significant increase in first quality
sales in the second  quarter of fiscal 2007 as compared to the second quarter of
fiscal 2006.

Operating Costs
---------------

     During  the second  quarter  of fiscal  2007,  selling  and  administrative
expenses were $68.0 million, an increase of $7.7 million or 12.8% as compared to
the second quarter of fiscal 2006.  This increase was  principally the result of
the  inclusion of Robeez which added $2.9  million in operating  expenses.  Also
contributing  to the higher  expense levels in the second quarter of fiscal 2007
were $1.7 million in incremental  costs  associated with the increased number of
Stride Rite Children's  Group retail stores,  which includes  Saucony's  factory
outlet stores, in addition to increased  investment in European operations which
added $1.0 million in expenses during the quarter. Offsetting a portion of these
expense  increases  were $0.8  million in  reduced  pension  expense  due to the
previously  announced changes in our defined benefit plan that included stopping
the accrual of future  retirement  benefits and preserving earned benefits as of
December 31, 2006. In addition,  second quarter  acquisition related integration
costs of $0.3 million for Robeez in fiscal 2007 were $0.7 million lower than the
integration  expenses  in the prior  year's  comparable  period  related  to the
acquisition of Saucony.  The second quarter of fiscal 2007 results also included
$0.5 million of expenses related to the pending merger with Payless ShoesSource,
Inc. As a percentage of sales,  operating costs were 32.5% in the second quarter
of fiscal 2007 compared to 31.1% in the second quarter of fiscal 2006.

Other Income and Taxes
----------------------

     Investment  income related to the Company's cash equivalents and marketable
securities was $0.3 million in the second  quarter of fiscal 2007,  which was up
slightly as compared to the similar  period in fiscal  2006.  Interest  expense,
which relates to borrowings under the revolving credit  agreement,  increased by
$0.2  million in the second  quarter of fiscal  2007,  as compared to the second
quarter of fiscal 2006.

     The provision for income taxes increased $3.5 million in the second quarter
of fiscal 2007 as compared to the similar  period in fiscal 2006.  This increase
was due to the higher  pre-tax  income  amount  coupled  with a higher tax rate.
Affecting  the tax rate  comparisons  was the  favorable  outcome of a state tax
audit in the second quarter of fiscal 2006,  which resulted in a net tax benefit
of $4.2  million.  Our  effective  tax rate was 34.7% in the  second  quarter of
fiscal 2007 as compared to 19.3% in the second quarter of fiscal 2006.




<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Net Income
----------

     Net income  for the second  quarter  of fiscal  2007 was $14.2  million,  a
decrease of $2.7  million,  or 16.2% as compared to the same period in the prior
year.  The higher net sales and  resulting  gross  profit,  due, in part, to the
addition of Robeez, were not able to offset corresponding increases in operating
expenses and a larger provision for income taxes.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Segments Review
---------------

     In September  2006, the Company  completed its acquisition of three holding
companies that, together with their direct and indirect subsidiaries, constitute
the Robeez Group  ("Robeez")  pursuant to a Share  Purchase  Agreement.  At that
time, Robeez became our wholly-owned  subsidiary.  Robeez' results of operations
have been included in our results since the date of acquisition. Robeez has been
reported as a separate segment based on management's  evaluation of the business
for the purposes of assessing performance and allocating resources.

Stride Rite Children's Group - Retail
-------------------------------------

     The  net  sales  of the  Stride  Rite  Children's  Group -  Retail  segment
increased  $2.2  million or 3.9% in the second  quarter as  compared to the same
quarter in the prior year.  Sales at comparable  Children's  Group retail stores
(stores  open for 52 weeks in each fiscal  year)  decreased  2.5% for the second
fiscal quarter of 2007. The comparable  stores category were partially  impacted
by the shift of the annual pre-Easter  holiday  promotional event into the first
quarter of fiscal 2007,  as compared to the later timing of the event during the
first quarter of fiscal 2006.  At the end of the second  quarter of fiscal 2007,
the Stride Rite  Children's  Group - Retail  operated 315 Stride Rite children's
shoe stores and outlets.  This is a net increase of 27 stores,  or 9.4% from the
end of the same period in the prior year.  In  addition  Stride Rite  Children's
Group-Retail  operated 11 Saucony outlet  stores.  Current plans for fiscal 2007
include the opening of 32  Children's  Group retail stores and the closing of 15
underperforming retail locations.

     The Stride Rite Children's Group - Retail operating income decreased due to
higher  operating  expenses  which offset the income  impact of higher sales and
corresponding gross profit impact versus the prior year. The gross profit margin
improvement was primarily the result of fewer  promotional  events in our retail
stores and a higher gross profit  dollar  product  mix.  The  operating  expense
increase is  primarily  related to the  additional  number of stores and certain
increased indirect store costs.

Stride Rite Children's Group - Wholesale
----------------------------------------

     Net sales decreased $2.9 million or 15.8% during the second quarter of 2007
as compared to the same quarter last year.  This  decrease was  attributable  to
lower  sales of first  quality  products to all retail  channels,  mainly in the
Stride Rite,  Tommy  Hilfiger and B0rn product  lines,  as well as a decrease in
closeout  products  sales.  Offsetting a portion of these  declines  were higher
sales of Sperry Top-Sider and Saucony children's products.

     The Stride Rite Children's  Group - Wholesale  operating income was flat to
the prior year. The lower sales and the corresponding  gross profit dollars were
offset by lower operating expenses.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Other Wholesale Footwear
------------------------

     The  increase  in net sales of the Other  Wholesale  Footwear  segment  was
primarily attributable to increases in Sperry Top-Sider, Saucony and Stride Rite
International.  These increases were partially offset by sales decreases in Keds
and Hind.

     During the second quarter of fiscal 2007, the increase in Saucony  domestic
sales was driven by strong sales of several new technical  and athletic  product
introductions.  Offsetting  a  portion  of this was a  decrease  in  promotional
product sales.

     The Sperry  Top-Sider  sales increase was  attributable  to strong sales of
both men's and women's product lines. The growth in the Sperry Top-Sider product
sales in the second  quarter  resulted  from  increases in most retail  channels
including  the  premier  department  store,  moderate  and  independent  stores.
Offsetting a portion of this sales growth was a decrease in promotional  product
sales.

     The Stride Rite  International  division's  net sales  growth in the second
quarter  of fiscal  2007 was  primarily  the  result of strong  sales of Saucony
products in Europe, Keds sales increases in Canada and Europe and Tommy Hilfiger
sales in Latin America.

     The Keds sales decline  during the second quarter of fiscal 2007 versus the
same period last year was partially  attributable  to a decrease in core product
sales in the mid-tier channel, as well as lower children's sales offset by sales
increases in the women's product in the premium  department stores as well as in
the Grasshoppers  product line. We have continued to add new distribution in the
younger-oriented  specialty stores and premier department stores.  These updated
product offerings have generally performed well in these channels.

     The Hind sales  decline  was  primarily  related to sales  declines  in the
outdoor  channel.  We expect this trend to continue  through  the  remainder  of
fiscal 2007 as we reposition the technical apparel strategy.

     The  increased  operating  income versus the prior year in this segment was
primarily related to the impact of higher net sales in Saucony, Sperry Top-Sider
and  International  and the  corresponding  increases  in gross  profit  dollars
partially  offsetting these increases were the impact of lower net sales in Keds
and Hind and the corresponding decreases in gross profit dollars.

Tommy Hilfiger Footwear, Inc.
-----------------------------

     Net sales of Tommy  Hilfiger  footwear  adult  products  increased  by $0.6
million,  or 4.0% above  sales in the second  quarter of fiscal  2006.  This was
primarily  attributable  to positive  trends in both  women's and men's  product
lines sales to family shoe store accounts.  In fiscal 2007,  under this license,
we are  projecting  an improved  sales  trend as compared to last year  although
still an overall sales decline for the second half.

     The  Tommy  Hilfiger  operating  income  increase  versus  prior  year  was
primarily  related  to the  impact  of higher  net  sales and the  corresponding
increase in gross profit dollars coupled with decreases in operating expenses.



<PAGE>



PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Robeez
------

     Robeez sales for the second  quarter of fiscal 2007 were $5.9 million.  Net
sales of Robeez  products met the  Company's  financial  expectations  on strong
European sales with offsetting softness in the United States.

     Robeez'  operating  income of $77 thousand for the quarter related to gross
profit dollars generated from sales less operating expenses.








<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
            RESULTS OF OPERATIONS

First Six Months of 2007 Compared to the First Six Months of 2006
-----------------------------------------------------------------

Net Sales
---------

<TABLE>
      The first six months breakdown of net sales is as follows:

                                                                      Percentage
                                                                        Change
                                                                       2007 vs.
<CAPTION>
                                               2007         2006         2006
                                            ----------   ----------   ---------
(In millions, except percentages)
<S>                                            <C>          <C>          <C>
Stride Rite Children's Group - Wholesale       $ 36.4       $ 39.5       (7.8)%
Stride Rite Children's Group - Retail           101.1         93.7        7.9%
                                            ----------   ----------   ---------
Stride Rite Children's Group                    137.5        133.2        3.3%

Keds                                             72.5         76.9       (5.7)%
Sperry Top-Sider                                 61.0         52.1       17.1%
Stride Rite International                        45.9         42.0        9.2%
Saucony                                          45.1         43.3        4.2%
Hind                                              4.9          6.9      (28.5)%
                                            ----------   ----------   ---------
                                            ----------   ----------   ---------
Other Wholesale Footwear                        229.4        221.2        3.7%

Tommy Hilfiger Footwear                          30.6         29.5        3.8%

Robeez                                           13.0            -         n/a

Elimination of intercompany sales               (6.6)        (6.5)         n/a
                                            ----------   ----------   ---------
                                            ----------   ----------   ---------

Total net sales                                $403.9      $ 377.4        7.0%
                                            ==========   ==========   =========
</TABLE>

     During  the  first  six  months  of  fiscal  2007,  consolidated  net sales
increased $26.5 million to $403.9 million,  or 7% above the sales level achieved
in the first six  months of fiscal  2006.  The  increase  in sales is  primarily
related  to the  inclusion  of Robeez  sales as well as the  increase  in Sperry
Top-Sider,  Stride  Rite  International,  and  Stride  Rite  Children's  Group -
Retail's  sales.  Wholesale  net sales  increased  $17.1 million or 6.1% for the
first six months of 2007,  and overall  retail sales,  including the  e-commerce
sites,  increased  $9.4 million or 9.7% when  compared to the same period in the
prior year. Unit shipments of first quality merchandise for the wholesale brands
during the first six months were 4.0% higher than the comparable period in 2006.

     First quality  wholesale  gross sales  increased by $13.5 million,  or 4.8%
above the wholesale  net sales level  achieved in the first six months of fiscal
2006.  The  combined  positive  impact  of  decreased  discounts,   returns  and
allowances was $0.7 million.  Sales of closeout products  increased $2.2 million
from the comparable period in the 2006 fiscal year. Additionally, royalty income
increased $1.0 million versus the comparable period in the 2006 fiscal year.


<PAGE>



Gross Profit
------------

     During the first six months of fiscal 2007,  the Company's  gross profit of
$170.2 million  increased $14.7 million or 9.4% above the amount recorded in the
comparable period of fiscal 2006. The gross profit percentage rate for the first
six months of fiscal 2007 increased 0.9 percentage  points to 42.1%,  versus the
41.2% rate reported in the first six months in the prior year.  Contributing  to
the improved  gross profit  dollars was the impact of Robeez gross sales in 2007
and increased  sales of higher priced Sperry  Top-Sider  products in the premier
department store, moderate and independent retail channels. Offsetting a portion
of these increases were the lower gross profit dollars caused by the declines in
Keds sales, an increase in promotional event sales in the Stride Rite Children's
Group retail stores, and a shift in product mix. The gross profit comparison was
also impacted by the $2.6 million pre-tax expense  recorded in the first quarter
of the prior year which  related to the flow through of the  remaining  purchase
accounting  inventory  write-up  to fair value  recorded  as part of the Saucony
acquisition.

Operating Costs
---------------

     During  the first six months of fiscal  2007,  selling  and  administrative
expenses were $128.8 million, an increase of $9.6 million or 8.1% as compared to
the first six months of fiscal 2006. This increase was principally the result of
the  inclusion of Robeez which added $6.2  million in operating  expenses.  Also
contributing to the higher expense levels in the first six months of fiscal 2007
was $3.5 million in incremental  costs  associated with the increased  number of
Stride Rite Children's  Group retail stores,  which includes  Saucony's  factory
outlet stores in addition to increased cost in European  operations  which added
$1.8  million in expenses  during the first six months.  Offsetting a portion of
these expense  increases was $1.6 million in reduced  pension expense due to the
previously  announced changes in our defined benefit plan that included stopping
the accrual of future  retirement  benefits and preserving earned benefits as of
December  31,  2006.  In  addition,  the first six months'  acquisition  related
integration  costs of $0.6  million for Robeez in fiscal 2007 were $1.5  million
lower  than the  integration  expenses  in the prior  year's  comparable  period
related to the  acquisition  of Saucony.  The first half of fiscal 2007  results
also  included  $0.5  million of  expenses  related to the  pending  merger with
Payless Shoes Source, Inc. As a percentage of sales,  operating costs were 31.9%
in the first six months of fiscal 2007 compared to 31.6% in the first six months
of fiscal 2006.

Other Income and Taxes
----------------------

     Investment  income related to the Company's cash equivalents and marketable
securities was $0.7 million in the first six months of fiscal 2007, which was up
slightly as compared to the similar  period in fiscal  2006.  Interest  expense,
which relates to borrowings under the revolving credit  agreement,  increased by
$0.4 million in the first six months of fiscal 2007 as compared to the first six
months of fiscal 2006.

     The  provision  for income taxes  increased  $4.8 million for the first six
months of fiscal 2007 as compared to the  similar  period in fiscal  2006.  This
increase was due to the higher  pre-tax  income amount coupled with a higher tax
rate.  Affecting the tax rate  comparisons was the favorable  outcome of a state
tax audit in the second  quarter of fiscal  2006,  which  resulted  in a net tax
benefit  of $4.2  million.  Our  effective  tax rate was 35.8% for the first six
months of fiscal  2007 as  compared  to 26.9% for the first six months of fiscal
2006.

Net Income
----------

     Net income for the first six months of fiscal  2007 was $25.3  million,  an
increase of $0.1  million,  compared  to the same period in the prior year.  The
higher net sales and resulting  gross  profit,  due, in part, to the addition of
Robeez, were able to offset corresponding  increases in operating expenses and a
larger provision for income taxes.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Segments Review
---------------

     In September  2006, the Company  completed its acquisition of three holding
companies that, together with their direct and indirect subsidiaries, constitute
the Robeez Group  ("Robeez")  pursuant to a Share  Purchase  Agreement.  At that
time, Robeez became our wholly-owned  subsidiary.  Robeez' results of operations
have been included in our results since the date of acquisition. Robeez has been
reported as a separate segment based on management's  evaluation of the business
for the purposes of assessing performance and allocating resources.

Stride Rite Children's Group - Retail
-------------------------------------

     The  net  sales  of the  Stride  Rite  Children's  Group -  Retail  segment
increased  $7.4  million  or 7.9% in the  first six  months  of  fiscal  2007 as
compared to the same period in the prior year.  Sales at  comparable  Children's
Group retail  stores  (stores  open for 52 weeks in each fiscal year)  increased
1.2% for the first six  months  of 2007.  At the end of the first six  months of
fiscal 2007, the Stride Rite Children's  Group - Retail operated 315 Stride Rite
children's shoe stores and outlets. This is a net increase of 27 stores, or 9.4%
from the end of the same  period in the prior  year.  In  addition  Stride  Rite
Children's  Group-Retail  operated 11 Saucony outlet  stores.  Current plans for
fiscal 2007 include the opening of 32  Children's  Group  retail  stores and the
closing of 15 underperforming retail locations.

     The Stride Rite Children's Group - Retail operating income decreased due to
a lower gross profit  percentage and higher operating  expenses which offset the
income  impact of higher  sales versus the prior year.  The gross profit  margin
decline was  primarily the result of a high level of  promotional  events in our
retail stores and a lower gross profit dollar product mix. The operating expense
increase is  primarily  related to the  additional  number of stores and certain
increased indirect store costs.

Stride Rite Children's Group - Wholesale
----------------------------------------

     Net sales  decreased  $3.1  million or 7.8%  during the first six months of
2007 as compared to the same period last year. This decrease was attributable to
lower sales of first quality products to all channels, mainly in the Stride Rite
and Tommy  Hilfiger  product lines,  as well as a decrease in closeout  products
sales. Partially offsetting these declines were higher sales of Sperry Top-Sider
and Saucony children's products.

     The Stride Rite Children's  Group - Wholesale  operating  income  decreased
versus the prior year.  Operating  income  decreased year over year due to lower
sales and the  corresponding  gross  profit  impact,  partially  offset by lower
operating expenses.

Other Wholesale Footwear
------------------------

     The  increase  in net sales of the Other  Wholesale  Footwear  segment  was
primarily attributable to increases in Sperry Top-Sider, Saucony and Stride Rite
International.  These increases were partially offset by sales decreases in Keds
and Hind.

     During  the  first six  months of fiscal  2007,  the  increase  in  Saucony
domestic  sales was driven by strong sales of several new technical and athletic
product  introductions.   Offsetting  a  portion  of  this  was  a  decrease  in
promotional product sales.


<PAGE>


PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

     The Sperry  Top-Sider  sales increase was  attributable  to strong sales of
both men's and women's product lines. The growth in the Sperry Top-Sider product
sales in the first six months of fiscal  2007  resulted  from  increases  in the
premier department store, moderate and independent retail channels. Offsetting a
portion of this sales growth was a decrease in promotional product sales.

     The Stride Rite International  division's net sales growth in the first six
months of fiscal  2007 was  primarily  the  result  of strong  sales of  Saucony
products in Europe,  Keds sales  increases in Canada,  Europe and  Australia and
Sperry Top-Sider's sales in Europe, Asia and Latin America. Offsetting a portion
of this increase were lower Tommy Hilfiger sales in Canada and Latin America.

     The Keds sales  decline  during the first six months of fiscal  2007 versus
the same  period  last year was  partially  attributable  to a decrease  in core
product sales in the mid-tier and value  channels,  as well as lower  children's
sales partially  offset by sales increases in the women's product in the premium
department stores as well as in the Grasshoppers product line. We have continued
to add new  distribution in the  younger-oriented  specialty  stores and premier
department stores. These updated product offerings have generally performed well
in these channels.

     The Hind sales  decline  was  primarily  related to sales  declines  in the
outdoor  channel.  We expect this trend to continue  through  the  remainder  of
fiscal 2007 as we reposition the technical apparel strategy.

     The  increased  operating  income versus the prior year in this segment was
primarily related to the impact of higher net sales in Saucony, Sperry Top-Sider
and Stride Rite  International and the  corresponding  increases in gross profit
dollars.  Also contributing to the favorable  operating income comparison is the
$2.6 million expense  recorded in last year's first quarter for the flow through
of the remaining purchase  accounting  write-up of acquired Saucony inventory to
fair value.  Offsetting  these  increases  were the impact of lower net sales in
Keds and Hind and the corresponding decreases in gross profit dollars.

Tommy Hilfiger Footwear, Inc.
-----------------------------

     The net sales of Tommy Hilfiger  footwear adult products  increased by $1.1
million,  or 3.8%,  above the sales in the first six months of fiscal 2006. This
was primarily  attributable to positive trends in both women's and men's product
lines sales to family shoe store accounts.  In fiscal 2007,  under this license,
we are projecting an improved sales trend compared to last year,  although still
an overall sales decline.

     The  Tommy  Hilfiger  operating  income  increase  versus  prior  year  was
primarily  related  to the  impact  of higher  net  sales and the  corresponding
increase in gross profit dollars coupled with decreases in operating expenses.

Robeez
------

     Robeez  sales for the first six months of fiscal  2007 were $13.0  million.
Robeez met the Company's financial expectations for the six months.

     Robeez'  operating income of $475 thousand for the first six months related
to gross profit dollars generated from sales less operating expenses.


<PAGE>



PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
            RESULTS OF OPERATIONS

Liquidity and Capital Resources
-------------------------------

     At the  end of the  second  fiscal  quarter  of  2006,  our  balance  sheet
reflected  a current  ratio of 3.6 to 1.0 with $54.2  million in long term debt.
Our cash and cash equivalents  totaled $21.3 million at June 1, 2007, a decrease
of $2.0 million from the total cash and cash equivalents of $23.3 million at the
end of the second  quarter of fiscal  2006.  The  decrease in our cash  balance,
versus the comparable  period last year, is primarily  attributable to funding a
portion of the Robeez acquisition which was completed in September 2006.

     During the first six months of fiscal  2007,  the Company  generated  $12.0
million  of cash  from  operations  as  compared  to $1.8  million  used to fund
operations in the first six months of fiscal 2006.  Inventory  levels at the end
of the first six months of fiscal 2007 increased $2.4 million,  or 1.9% from the
levels recorded at the end of the prior year's second  quarter.  The increase in
inventory  related  primarily  to  the  addition  of  Robeez  product.  Accounts
receivable  at June 1, 2007 were $110.0  million or 14.4% higher than the amount
at the end of last year's second quarter which was primarily due to the addition
of Robeez and the timing of sales in the last month of the fiscal quarter.  Days
sales  outstanding  ("DSO"),  which measures the length of the collection period
for accounts receivable,  was 44 days at the end of the second fiscal quarter of
2007 which  increased when compared to the DSO of 42 days at the end of the same
period last year.  Accounts payable,  at the end of the second quarter of fiscal
2007,  increased  $10.5 million from the level  recorded at the end of the prior
year's second quarter.  The increase was primarily due to the addition of Robeez
and the timing of product  payments.  During the second fiscal  quarter of 2007,
the Company did not contribute to its defined  benefit pension plan and, at this
time, the Company plans to make an $802,000  contribution to its defined benefit
pension plan during the fourth quarter of the 2007 fiscal year.

     Additions to property and  equipment  totaled $7.6 million in the first six
months of fiscal 2007, a decrease  compared to the $9.4 million in the first six
months of fiscal  2006.  The capital  purchases  in the first six months of 2007
related primarily to the Company's  continued retail store expansion  efforts, a
new trade show booth for the brands and improvements  within our warehousing and
distribution  facilities.  Funding of our capital expenditures was provided from
operations and our revolving credit facility.

     At the end of the second  quarter of fiscal 2007,  there was $54.2  million
outstanding under the Company's  revolving credit facility.  The credit facility
was entered into in September 2005 as part of the Saucony  acquisition  and also
to provide funds for working capital and general corporate purposes.  As of June
1, 2007,  letters of credit  totaling  $11.7  million were  outstanding  for the
purchase of  inventories.  The use of letters of credit for inventory  purchases
does not impact the Company's  borrowing  capacity  under the revolving  line of
credit because these letters of credit are supported by other  uncommitted lines
of credit and  permitted by the terms of the  revolving  credit  agreement.  All
letters of credit generally expire within one year.

     During  the first six months of fiscal  2007 we  returned  $4.8  million to
shareholders through cash dividends.  Effective with the March 15, 2007 dividend
payment,  the Company's Board of Directors increased the quarterly dividend rate
from $0.06 per share to $0.07 per share.  This will result in an annual increase
in dividend payments to shareholders of approximately  $1.5 million.  We did not
repurchase any common shares under our share repurchase program during the first
half. As of June 1, 2007 we have  approximately  3.0 million shares remaining on
our share  repurchase  authorization  approved by the Board of Directors in June
2004.



<PAGE>



PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 2.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
            RESULTS OF OPERATIONS

     We do not have any relationships with unconsolidated  entities or financial
partnerships,  such as  entities  often  referred  to as  structured  finance or
special purpose  entities,  which would have been established for the purpose of
facilitating  off-balance-sheet  arrangements or other  contractually  narrow or
limited  purposes.  As such,  we are not  exposed to any  financing,  liquidity,
market or credit risk that could arise if we had engaged in such relationships.




<PAGE>



PART I - FINANCIAL INFORMATION (Continued)

                           THE STRIDE RITE CORPORATION

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     There  have  been no  material  changes  from  the  information  previously
reported  under  Item 7A of the  Company's  Annual  Report  on Form 10-K for the
fiscal year ended December 1, 2006.

ITEM 4.     CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

     For the  quarterly  period ended June 1, 2007,  the Company  carried out an
evaluation under the supervision of and with the  participation of the Company's
management, including the participation of its Chief Executive Officer and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls  and  procedures  pursuant to Rule 13a-15 of the
Securities Exchange Act of 1934, as amended.  Based upon that evaluation,  as of
the end of the period covered by this report,  our Chief  Executive  Officer and
Chief  Financial  Officer  have  concluded  that  our  disclosure  controls  and
procedures  (as  defined in Rules  13a-15(e)  and  15d-15(e)  of the  Securities
Exchange  Act of 1934,  as amended)  are  effective  to ensure that  information
required  to be  disclosed  by the  Company in reports  that it files or submits
under the Securities Exchange Act of 1934, as amended,  is recorded,  processed,
summarized  and reported  within the time periods  specified in  Securities  and
Exchange  Commission  rules and forms.  We continue to review and  document  our
disclosure  controls and procedures and may from time to time make changes aimed
at enhancing their  effectiveness  and ensuring that our systems evolve with our
business.

(b) Changes in internal controls over financial reporting.

     There  was no change  in the  Company's  internal  control  over  financial
reporting  (as  defined  in Rules  13a-15(f)  and  15d-15(f)  of the  Securities
Exchange Act of 1934, as amended)  during our second quarter that has materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial  reporting.  As disclosed in our Annual Report on Form 10-K filed
with the Securities and Exchange Commission,  we have included Saucony,  Inc. in
our  review  and  evaluation  of  internal  controls  and  procedures  as of the
beginning of fiscal 2006.


<PAGE>


PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS

     In addition to the other  information set forth in this report,  you should
carefully  consider the factors  discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended December 1, 2006,  which could
materially affect our business, financial condition or future results. The risks
described  in our Annual  Report on Form 10-K are not the only risks  facing our
Company. Additional risks and uncertainties not currently known to us or that we
currently  deem to be  immaterial  also  may  materially  adversely  affect  our
business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

     The Company  did not  repurchase  equity  securities  under the  repurchase
program in the second  quarter of fiscal  2007.  There is a maximum of 2,998,994
shares that may yet be purchased under the program as of June 1, 2007.

     In June 2004, the Board of Directors  increased the authorization  under an
existing  stock   repurchase   program  by  five  million   shares.   Under  the
authorization,  the Company can repurchase  shares in the open market or through
privately  negotiated  transactions.  The  repurchase  program  does not have an
expiration date. All shares repurchased during the period covered by this report
were purchased under a publicly announced plan.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Annual  Meeting  of the  Company's  shareholders  was held on April 12,
2007.  The three  directors  nominated by the Company's  Board of Directors were
elected by the vote set forth below:

<TABLE>
                                                    Votes
                                      ---------------------------------------
<CAPTION>
     Name of Director                 For               Withheld
     ---------------------------      ---------------------------------------
<S>                                   <C>               <C>
     Mark J. Cocozza                  33,957,441        219,138
     Christine M. Cournoyer           34,007,228        169,351
     James F. Orr III                 34,005,984        170,595
</TABLE>

     The Company's  other  directors,  whose term of office  continues after the
2007 stockholders' meeting, are as follows:

                           David M. Chamberlain
                           F. Lance Isham
                           Edward L. Larsen
                           Shira D. Goodman
                           Frank R. Mori
                           Myles J. Slosberg

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)

     The  Company's  shareholders  also  ratified  the  Company's  selection  of
PricewaterhouseCoopers  LLP as  auditors of the Company for the 2007 fiscal year
by the vote set forth below:

<TABLE>
                                 Votes
                 ------------------------------------------------------------
<CAPTION>
                        For               Against            Abstentions
                 ------------------   -----------------    -----------------
<S>                     <C>                    <C>                   <C>
                        33,897,265             257,780               19,314

</TABLE>


<PAGE>


PART II - OTHER INFORMATION (continued)

                           THE STRIDE RITE CORPORATION

ITEM 6.     EXHIBITS

 Exhibit No.            Description of Exhibit
--------------          --------------------------------------------------------
      2       (i)       The Agreement and Plan of Merger among the
                        Registrant, Payless ShoeSource, Inc. and San Jose
                        Acquisition Corp dated as of May 22, 2007. This document
                        was filed as Exhibit 2.1 to the Registrant's Form 8-K on
                        May 23, 2007 and is incorporated herein by reference.

      3       (i)       Restated Articles of Organization of the Registrant
                        with amendments thereto through November 28, 1986,
                        incorporated by reference from Exhibit 4(i) to the
                        Registrant's Form S-8 filed on October 25, 1996.

      3       (ii)      Articles of Amendment dated April 7, 1987 to
                        Restated Articles of Organization, incorporated by
                        reference from Exhibit 4(i) to the Registrant's Form S-8
                        filed on October 25, 1996.

      3       (iii)     Articles of Amendment dated December 16, 1987 to
                        Restated Articles of Organization of the Registrant,
                        incorporated by reference from Exhibit 4(i) to the
                        Registrant's Form S-8 filed on October 25, 1996.

      3       (iv)      Articles of Amendment dated December 3, 1991 to the
                        Restated Articles of Organization of the Registrant,
                        incorporated by reference from Exhibit 4(i) to the
                        Registrant's Form S-8 filed on October 25, 1996.

      3       (v)       Certificate  of Vote of Directors establishing a series
                        of a Class of Stock dated as of June 18, 1997.

      3       (vi)      By-laws of the Registrant, as amended.  This document
                        was filed as Exhibit 3 of the Registrant's Form 10-Q for
                        the fiscal period ended June 1, 1990 and is
                        incorporated herein by reference.

      4       (i)       Reference is made to Exhibits 3(i), (ii), (iii) and
                        (iv) referred to above, which are expressly incorporated
                        herein by reference.

    31.1*               Certification of the Company's Chief Executive Officer
                        pursuant to Section 302 of the Sarbanes-Oxley Act
                        of 2002

    31.2*               Certification of the Company's Chief Financial Officer
                        pursuant to Section 302 of the Sarbanes-Oxley Act
                        of 2002

    32.1*               Certification of the Company's Chief Executive Officer
                        pursuant to Section 906 of the Sarbanes-Oxley Act
                        of 2002

    32.2*               Certification of the Company's Chief Financial Officer
                        pursuant to Section 906 of the Sarbanes-Oxley Act
                        of 2002

*Filed herewith


<PAGE>



                           THE STRIDE RITE CORPORATION

                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.

                                      THE STRIDE RITE CORPORATION
                                      --------------------------------------
                                      (Registrant)



Date:     July 11, 2007               By: /s/ Frank A. Caruso
          -------------               --------------------------------------
                                         Frank A. Caruso
                                         Chief Financial Officer