Collective Brands Inc. reported a loss of $114.3 million, or $1.91 a share, in the third quarter after charges totaling $151.4 million for restructuring activities at its Payless division. Adjusted net earnings were $37.1 million, or 61 cents per share, slightly down from earnings of $47.6 million, or 75 cents a share.

The adjustments of $151.4 million in the third quarter 2011 included:

  • Cash charges of $5.3 million including lease termination costs and expenses related to the review of strategic alternatives.
  • Non-cash charge of $105.7 million to record a valuation allowance against domestic net deferred tax assets; these tax assets remain available to offset future domestic tax obligations.
  • The tax benefit of $40.4 million resulting from a lower full year effective tax rate and the catch-up effect of applying that rate through the third quarter.

Collective Brands' third quarter 2011 net sales were $894.4 million, up 1.4 percent compared to the year-ago quarter due primarily to growth at PLG Wholesale, which was somewhat offset by lower sales at Payless in the U.S. Collective Brands' same store sales(2) declined 3.7 percent in the 2011 third quarter. Quarterly operating profit this year was $15.4 million, or $20.7 million on an adjusted basis, compared to $68.8 million in the third quarter of 2010. Adjusted earnings before interest taxes depreciation and amortization (EBITDA) was $52.5 million in the third quarter of 2011 compared to $102.8 million last year.

“Our operating results in the third quarter reflect both the challenges we are facing as well as opportunities we see for marked improvement at Collective Brands,” said Michael J. Massey, chief executive officer of Collective Brands, Inc. “While August was weak in our Payless business, we took pricing actions that improved sales sequentially during the quarter. At the same time, we continued to implement the previously announced aggressive actions to transform the Payless business model for the longer term including increasing our mix of Incredible Value Every Day product, introducing additional tailored assortments across more than half of our domestic store base, and targeted discounts for our most loyal customers. As we implement these actions, we have seen signs that confirm that we are on the right track.”

Massey continued, “We again saw strong growth in our Performance + Lifestyle Group driven by robust performance at wholesale. This was evident in the sales gains delivered by all four of our businesses, led by Sperry Top-Sider, which reinforced its position as one of the nation's leading footwear brands.”

Quarterly Operating Segment Sales

Payless Domestic net sales declined 5.1 percent and same store sales decreased 4.5 percent. This was driven principally by weak performance in August, offset to some extent by improving sales in September and October. During the quarter, the combined impacts of lower customer traffic, lower athletic sales, and lower sandals sales led to a decline in footwear units sold. Strong performance was achieved in boots and accessories.

Payless International net sales increased 1.2 percent, as seven net new stores more than offset the impact of a 1.4 percent same store sales decrease. Same store sales increased in Latin America and decreased in Puerto Rico and Canada.

PLG Wholesale sales increased 27.3 percent led by Sperry Top-Sider growth across virtually all product categories, distribution channels, and customer segments. Saucony, Stride Rite, and Keds also delivered higher sales.

PLG Retail net sales increased 0.7 percent due to higher sales at new and existing Sperry retail stores. The overall 1.1 percent same store sales decrease was due to a decline at Stride Rite stores.

Other Financial and Store Metrics

The gross margin rate in the quarter was 31.7 percent. On an adjusted basis(1), the gross margin rate was 32.1 percent, a decrease of 520 basis points compared to last year as a result of higher product costs and the pricing actions taken during the quarter.

Third quarter selling, general & administrative expenses as a percent of sales increased 50 basis points, or 30 basis points adjusted(1), due to deleverage in the retail businesses.

Inventory at the end of the quarter was $556.3 million, up 13.0 percent. The higher inventory level was driven principally by higher product costs, growth at PLG, and additional Payless accessories.