(Source: MARKETWIRE)
Collective Brands, Inc. (NYSE: PSS) today reported financial results for the second quarter ended August 1, 2009. Second quarter 2009 net earnings attributable to Collective Brands, Inc. were $18.7 million, or $0.29 per diluted share, compared to $8.1 million, or $0.13 per diluted share, in the second quarter of 2008. Earnings for last year's second quarter were impacted by litigation expenses and the final year of the Tommy Hilfiger adult footwear license; taking these adjustments into account, the second quarter 2008 adjusted net earnings(1) were $32.0 million or $0.50 per diluted share.
Collective Brands generated $67.2 million of free cash flow(1) in the first half of 2009, an increase of $58.4 million over the first half last year primarily as a result of lower capital spending, reduced litigation costs, and effective inventory management. Net debt(1) at the end of the quarter was $596.0 million, down $86.3 million compared to the end of the second quarter last year. The Company had total liquidity at the end of the quarter of $539.9 million with $295.2 million in cash and cash equivalents and $244.7 million of borrowing capacity available under its revolving credit facility.
"While the retail environment remains challenging, I am pleased that our largest brands -- Payless, Stride Rite, Saucony, and Sperry Top-Sider -- continued to gain share at the retail level," said Matthew E. Rubel, Chairman, Chief Executive Officer and President of Collective Brands, Inc. "We remain focused on driving innovation for consumers while investing in key growth opportunities. During the second quarter, we also lowered operating costs, reduced inventories, and generated stronger cash flows."
Consolidated Results -- Selected unaudited financial data (dollars in millions, except per share data) for the 13 weeks ended August 1, 2009:
2009 v 2008 2008 Adjusted 2009 v Adjusted 2009 2008 (1) 2008 (1) -------- -------- -------- -------- -------- Net sales $ 836.3 $ 911.7 $ 895.6 -8.3% -6.6% Gross margin rate 33.0% 31.0% 35.1% 200 bps -210 bps Selling, general & administrative (SG&A) $ 243.4 $ 259.2 $ 257.2 -6.1% -5.4% Earnings before interest, taxes, depreciation and amortization (EBITDA) $ 67.5 $ 58.5 $ 92.0 15.4% -26.6% Net earnings attributable to Collective Brands, Inc. $ 18.7 $ 8.1 $ 32.0 130.9% -41.6% Diluted earnings per share $ 0.29 $ 0.13 $ 0.50 123.1% -42.0%
-- Net sales for the quarter decreased from last year due primarily to a decline in comparable store sales, the impact of the expiration of the Tommy Hilfiger adult footwear license, and foreign currency exchange rates. This was offset in part by sales growth in Saucony and Payless accessories. For the second quarter of 2009, comparable store sales for Payless Domestic declined 6.0% and 2.7% for Stride Rite. Collective Brands comparable store(2) sales declined 7.3% due to the impact of Payless International and foreign currency exchange rates. Without the unfavorable impact of foreign currency, comparable store sales declined 6.2%. Last year, second quarter comparable store sales for Collective Brands increased 0.2%. -- The increase in gross margin rate was primarily due to litigation expense last year, higher initial mark-on, and increased direct sourcing of product through the Company's vertically-integrated sourcing organization. The rate was unfavorably impacted by negative sales leverage, promotional activity, and merchandise cost increases. -- SG&A expenses were approximately $15.0 million lower than the prior year primarily due to continuous process improvement actions that reduced payroll and other expenses.
Inventory at the end of the second quarter was $462.0 million, down 4.4% compared to the prior year period. Capital expenditures were $46.9 million through the first half of 2009 compared to $78.2 million at the same time last year. The lower expenditures reflect the substantial completion of distribution centers and reduced spending on stores. During the second quarter of 2009, Collective Brands added 20 new stores (16 Payless and 4 Stride Rite), closed 33 Payless stores, and relocated 5 stores (4 Payless and 1 Stride Rite).
2nd 1st 4th 2nd Quarter Quarter Quarter Quarter Retail Store Counts 2009 2009 2008 2008 --------- --------- --------- --------- Payless 4,503 4,520 4,522 4,547 Stride Rite 360 356 355 351 --------- --------- --------- --------- Total Stores 4,863 4,876 4,877 4,898 ========= ========= ========= =========
Segment Results (dollars in millions)
Stride Stride Payless Payless Rite Rite Domestic International Wholesale Retail Total --------- ---------- --------- ------- -------- Second Quarter 2009 Net Sales $ 546.8 $ 103.7 $ 137.7 $ 48.1 $ 836.3 Operating Profit (Loss) $ 24.1 $ 4.4 $ 7.3 ($ 3.5) $ 32.3 Second Quarter 2008 Net Sales $ 587.4 $ 117.0 $ 158.6 $ 48.7 $ 911.7 Less: Adjustment for Tommy Hilfiger - - 16.1 - 16.1 --------- ---------- --------- ------- -------- Adjusted Net Sales(1) $ 587.4 $ 117.0 $ 142.5 $ 48.7 $ 895.6 ========= ========== ========= ======= ======== Operating Profit (Loss) ($ 3.9) $ 17.3 $ 13.4 ($ 3.2) $ 23.6 Add: Adjustments for Litigation and Tommy Hilfiger 36.2 - (2.7) - 33.5 --------- ---------- --------- ------- -------- Adjusted Operating Profit (1) (Loss) $ 32.3 $ 17.3 $ 10.7 ($ 3.2) $ 57.1 ========= ========== ========= ======= ======== Second Quarter 2009 Depreciation and Amortization 24.3 3.9 5.3 1.7 $ 35.2
-- Payless Domestic -- The net sales decline was driven primarily by lower consumer traffic partially offset by higher average unit retail prices and increases in the sale of accessories. Operating profit was higher due primarily to litigation expense last year and SG&A and occupancy cost reductions this year. -- Payless International -- The net sales decline was driven by lower consumer traffic as well as foreign currency rates, which negatively impacted segment sales by $7.6 million. This was partially offset by 25 new store openings in Colombia. Operating profit declined due primarily to lower sales in Canada and Puerto Rico combined with increased costs to comply with new regulations and taxes in Ecuador. -- Stride Rite Wholesale -- Net sales declined due primarily to the expiration of the Tommy Hilfiger adult footwear licensing agreement and lower Keds sales due to its strategic repositioning. These declines were partially offset by sales gains at Saucony. Operating profit decreased due to more promotional selling, the expiration of the Tommy Hilfiger adult footwear licensing agreement, and higher product costs. -- Stride Rite Retail -- Net sales were flat, as the impact of higher sales at outlet stores and the addition of nine stores was offset by lower comparable store sales at children's specialty stores. Operating loss increased due to the comparable store sales decline and greater promotional activity.
Amortization of intangible assets due to the Stride Rite acquisition totaled $3.5 million in the quarter.
Outlook for Collective Brands
-- The 2009 effective tax rate is expected to be a mid-to-high teens percentage, excluding discrete events associated with the resolution of outstanding tax audits. -- Depreciation and amortization in 2009 is expected to total approximately $140 million, due to greater investments in supply chain and stores in recent years as well as the 2007 acquisition of Stride Rite. -- Capital expenditures in 2009 are expected to total approximately $85 million. -- Collective Brands 2009 retail store count is expected to decline by 60, net of store openings.
Open Close Change --------- --------- -------- Payless Payless Domestic 31 133 (102) Payless International 45 10 35 --------- --------- -------- Payless Total 76 143 (67) Stride Rite Total 11 4 7 --------- --------- -------- Collective Brands Total 87 147 (60) ========= ========= ========
Notes to Financial Data
(1) This release contains certain non-GAAP financial measures. These measures are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help explain underlying performance trends in Collective Brands business and provide useful information to both management and investors by excluding certain items that are not indicative of Collective Brands core operating results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Please see the reconciliations of the non-GAAP financial measures after the condensed consolidated statements of cash flows. The measures used in this release are as follows:
Adjusted net sales -- Defined as net sales excluding adjustments related to the expired Tommy Hilfiger adult footwear license.
Adjusted gross margin rate -- Defined as gross margin as a percentage of sales excluding adjustments related to litigation and the expiration of the Tommy Hilfiger adult footwear license.
Adjusted SG&A -- Defined as SG&A excluding adjustments related to the expiration of the Tommy Hilfiger adult footwear license.
Adjusted operating profit -- Defined as operating profit excluding adjustments related to litigation and the expiration of the Tommy Hilfiger adult footwear license.
Adjusted EBITDA -- Defined as EBITDA excluding adjustments related to litigation and the expiration of the Tommy Hilfiger adult footwear license.
Adjusted net earnings attributable to Collective Brands, Inc. -- Defined as net earnings attributable to Collective Brands, Inc. adjusted for litigation and the expiration of the Tommy Hilfiger adult footwear license as well as their tax impacts.
Adjusted diluted earnings per share -- Defined as diluted earnings per share excluding adjustments related to litigation, inventory step-up, and the expiration of the Tommy Hilfiger adult footwear license.
Free cash flow -- Defined as cash flow provided by operating activities less capital expenditures. Free cash flow provides useful information about the Company's liquidity, its ability to make investments, and its ability to service debt.
Net debt -- Defined as total debt minus cash and cash equivalents. Net debt also provides useful information about the capacity of the Company to reduce its debt load and improve its capital structure.
