http://media.marketwire.com/attachments/200909/563665_COLLECTIVElogo.jpghttp://at.marketwire.com/accesstracking/AccessTrackingLogServlet?PrId=791227ProfileId=051205sourceType=1TOPEKA, KS -- (Marketwire) -- 08/24/11 -- Collective Brands, Inc. (NYSE: PSS) today reported financial results for the second quarter ended July 30, 2011 and announced plans to close underperforming and low-volume, non-strategic stores. The Company also announced that its Board of Directors will, together with management, conduct a review of strategic and financial alternatives to further enhance shareholder value.
Net sales for the second quarter increased 4.9% to $882.4 million. The second quarter 2011 net loss attributable to Collective Brands, Inc. was $35.0 million or $0.58 per diluted share. Excluding certain impairment and severance charges, adjusted(1) net earnings attributable to Collective Brands were $9.9 million, or $0.16 per diluted share.
In the quarter, the Company recorded impairment and severance charges ("adjustments") that reduced pre-tax income by $83.6 million, of which $76.8 million was non-cash. The impairment charges, all of which are non-cash, consist of $33 million in asset impairments primarily related to the net book value of stores at both Payless and Stride Rite; $31 million in trade name impairments mostly related to Stride Rite; and $10 million in goodwill impairment in Payless Domestic. In addition, the Company recorded a $10 million severance charge of which $3 million is non-cash.
The Company said that as part of its efforts to optimize the performance of its Payless and Stride Rite store fleet, it would close approximately 475 under-performing and low-volume, non-strategic stores in the next three years with more than 300 of those closings coming by the end of this fiscal year. The Company estimated that the costs for lease terminations, severance, and other exit costs related to closing these stores could be in the range of $25 million to $35 million.
"While the second quarter was challenging for the company, we are taking aggressive actions to improve the business," said Michael J. Massey, Chief Executive Officer of Collective Brands, Inc. "In Payless Domestic, we are gaining a much greater understanding of our customers and their needs and expectations. With this clarity, we are taking short term actions to improve our performance, accelerating key initiatives, and adjusting our longer term strategies. At the same time, we will continue to invest for growth and profitability in our Performance + Lifestyle Group and international businesses."
Strategic Review
The Company also announced that its Board of Directors will, together with management, conduct a review of strategic and financial alternatives to further enhance shareholder value. Working with its advisors, Perella Weinberg Partners and Kurt Salmon, the Board and management will explore a full range of alternatives for Collective Brands.
The Board stressed that there can be no assurance that this review will result in any additional action, and the Company will not make any comments until the Board completes its review and has decided upon a specific course of action. The Board also announced that it adopted a short duration Rights Plan to protect shareholder rights while the review is being conducted.
Under the Rights Plan, the Rights will become exercisable if a person or group acquires 15% or more of Collective Brands outstanding common stock. The Record Date for the issuance of the Rights will be September 6, 2011 and the Rights will expire on August 15, 2012 unless earlier redeemed or terminated.
A Form 8-K will be filed with the United States Securities and Exchange Commission containing additional information regarding the terms and conditions of the Rights Plan.
D. Scott Olivet, Non-Executive Chairman of Collective Brands, said, "The Board is working with management on aggressive actions to drive shareholder value by positioning our brands, driving growth, improving profitability and return on invested capital as well as building the team and infrastructure for long-term success. The Board will also work with management and our advisors on a comprehensive review of strategic and financial alternatives to best unlock the value of the Company for our shareholders."
Second Quarter Financial Results
Net sales for Collective Brands increased 4.9% due to growth in three of our four segments -- PLG Wholesale, Payless International and PLG Retail. Same store sales(2) declined 0.7% due to the sales results in Payless Domestic.
PLG Wholesale continued its strong sales performance, increasing 25%. The increase was led by Sperry with growth across virtually all product categories, distribution channels, and customer segments. Saucony also delivered gains globally driven by innovative styles in the minimalist and lightweight categories.
PLG Retail net sales increased 9% on growth from new Sperry Top-Sider stores combined with a 4% same store sales increase.
Payless International sales increased 7% on the strength of a 3% same store sales increase driven primarily by Latin America stores.
Payless Domestic net sales declined 3%, with same store sales down 2% in the quarter. This sequential improvement from the 8% same store sales decline in the first quarter was partly the result of aggressive actions the Company took during the latter half of the quarter. These actions resulted in sharper pricing and greater value for consumers, and served to reduce sandal inventory.
The gross margin rate in the quarter was 23.6%. On an adjusted basis(1), the gross margin rate was 30.8%, a decrease of 360 basis points compared to last year as a result of higher product costs and pricing actions.
SGA expense in the quarter increased due to the severance charge, but decreased on an adjusted basis(1) by $2 million and 160 basis points as a percent of sales. The SGA rate decrease was driven by lower compensation-related expense in the Payless Domestic segment and expense leverage from sales growth in every other reporting segment.
Inventory at the end of the quarter was $585.0 million, up 17.6%. The higher inventory level was driven principally by higher product costs, more PLG footwear units, and additional Payless accessories.
Subsequent to the end of the quarter, the Company amended and extended its revolving credit facility. The Company will no longer have a limit on pre-payments of the 8.25% senior subordinated notes, subject to excess line availability. As a result, the Company intends to repay at least $50 million of the notes in the third quarter of 2011.
Collective Brands repurchased 900,000 shares of its stock, or 1.5% of its shares outstanding, on the open market for $13.0 million during the second quarter -- the maximum amount permitted under its credit agreements.
During the second quarter, the Company added 18 new stores (16 Payless and 2 PLG), closed 20 stores (19 Payless and 1 PLG), and relocated 14 stores (12 Payless and 2 PLG).
Wholly-Owned and Joint Venture Store Jul. 30, Apr. 30, Jan. 29, Jul. 31,
Counts 2011 2011 2011 2010
-------- -------- -------- --------
Payless ShoeSource 4,455 4,458 4,461 4,472
Performance + Lifestyle Group 384 383 383 385
-------- -------- -------- --------
Total Stores 4,839 4,841 4,844 4,857
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The Company also franchised stores in 14 countries and territories at the end of second quarter 2011.
Jul. 30, Apr. 30, Jan. 29, Jul. 31,
Franchise Store Counts 2011 2011 2011 2010
-------- -------- -------- --------
Payless ShoeSource 103 79 62 23
Stride Rite 11 10 8 0
-------- -------- -------- --------
Total Stores 114 89 70 23
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Quarterly Segment Results (dollars in millions)
2011 2010 $ Change % Change
--------- --------- --------- --------
NET SALES
Payless Domestic $ 494.5 $ 508.0 $ (13.5) (2.7%)
Payless International 117.2 109.8 7.4 6.7%
PLG Wholesale 217.7 174.7 43.0 24.6%
PLG Retail 53.0 48.8 4.2 8.6%
--------- --------- --------- --------
TOTAL $ 882.4 $ 841.3 $ 41.1 4.9%
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Adjusted
Adjusted 2011 vs. %
2011 Adjustments (1) 2011 2010 2010 Change
------- ----------- -------- ------ -------- ------
OPERATING PROFIT /
(LOSS)
Payless Domestic $ (63.8) $ 53.8 $ (10.0) $ 6.8 $ (16.8) (NMF)
Payless
International 8.6 2.5 11.1 11.6 (0.5) (4.3%)
PLG Wholesale (0.3) 24.2 23.9 22.9 1.0 4.4%
PLG Retail (6.9) 3.1 (3.8) (4.6) 0.8 17.4%
------- ----------- -------- ------ -------- ------
TOTAL $ (62.4) $ 83.6 $ 21.2 $ 36.7 $ (15.5) (42.2%)
======= =========== ======== ====== ======== ======
Adjusted
Adjusted(1) 2011 vs.
2011 2011 2010 2010
----------- ----------- ----------- -----------
OPERATING MARGIN
Payless Domestic (12.9%) (2.0%) 1.3% (330 bps)
Payless
International 7.3% 9.5% 10.6% (110 bps)
PLG Wholesale (0.1%) 11.0% 13.1% (210 bps)
PLG Retail (13.0%) (7.2%) (9.4%) 220 bps
----------- ----------- ----------- -----------
TOTAL (7.1%) 2.4% 4.4% (200 bps)
=========== =========== =========== ===========
Store Closings
Today, Collective Brands determined it will close approximately 475 underperforming and low volume, non-strategic stores within the next three years. Over the three years, approximately 400 of the stores slated to close are Payless stores in the U.S., Canada, and Puerto Rico and about 75 are Stride Rite Children's locations. This year, the Company expects to close more than 300 of those stores. Approximately 270 of the stores slated to close this year are Payless and about 45 are Stride Rite Children's locations. These actions will be taken to optimize the profitability of markets by removing many low sales volume stores which are cash flow negative or slightly positive but cannot support the assortments and staffing that the Company believes its stores should offer. In fiscal 2010, stores to be closed this year had sales of approximately $110 million. The Company will immediately begin to work with landlords to effect the store closings. Non-cash asset impairment charges of $19 million in the second quarter were related to these stores to be closed. Future lease termination, severance, and other cash exit costs associated with the store closings could be in the range of $25 million to $35 million. Lease termination costs will be recorded when the stores are closed or lease terminations are negotiated with the landlords.