The Saucony brand delivered another quarter of double-digit growth for parent Collective Brands, Inc. and healthy sales in kids drove market share gains for both its Payless domestic and Stride Rite chains, butCollective continued to be challenged in its first quarter by the weak retail environment.

“Retail traffic was down and the consumer marketplace contracted in Q1 as did the footwear marketplace,” said Matt Rubel, Collective Brands’ chairman, CEO and president, on a conference call with analysts.


Fiscal first quarter sales were down 7.5% to $862.9 million for the period ended May 2 from $932.4 million in the prior-year period. Excluding year-ago sales related to the expired Tommy Hilfiger adult footwear license, revenues were down 5.1% for the quarter. Sales were negatively impacted by $15 million in foreign currency exchange fluctuations. Overall comps declined 4.8% for the period, or 3.2% when excluding the foreign currency impact. Comps for Payless and Stride Rite declined 5.2% and 0.5%, respectively.


Earnings rose to $38.0 million, or 59 cents a share, in the quarter, compared to $19.7 million, or 30 cents a share, in the year- ago period.  Adjusting for charges in the prior year results, earnings would have slipped 9.7% from $42.1 million, or 66 cents a share-in the prior-year period. The charges primarily related to the settlement of a trademark infringement lawsuit filed by Adidas.


Payless Domestic sales slid 3.0% to $570.8 million from $588.5 million in the year-ago quarter. Lower traffic offset an 8% increase in average unit retail prices, a 4.2% comp gain in children's, and strong sales in accessories due to the rollout of new fixtures for costume jewelry, sunglasses and belts. Also supporting sales and margins was an increase in branded product to 59% of the mix from 50% a year ago, driven primarily by the Smart Fit children's brand and Dexter. Operating profit increased 20.2% to $42.2 million in Q1 from adjusted earnings of $35.1 million in Q1 last year due to cost reduction. After adding back expenses related to litigation, actual net operating profit was $5.1 million in the 2008 first quarter.


Payless International revenues fell 18.7% to $84.8 million from $104.3 million, due to lower customer traffic in Canada, Latin America and Puerto Rico. Foreign currency rates negatively impacted segment sales by $10.5 million. Operating profit tumbled to $1.8 million from $11.4 million, primarily due to lower sales, increased costs to comply with new regulations and taxes in Ecuador, and initial start-up costs related to entering Colombia.


At Stride Rite Retail, sales inched ahead 2.5% to $58.5 million from $57.1 million in fiscal Q1 2008 due to greater promotional activity, particularly at outlet stores, and the addition of eight more stores in this year’s quarter versus the prior year. Operating profit rose to $2.2 million from $1.6 million due to purchase accounting inventory step-up last year.


Company-wide, Collective ended the quarter with 4,876 stores (4,520 Payless, 356 Stride Rite) versus 4,910 (4,562 Payless, 348 Stride Rite) at first quarte-end. PSS expects its retail store count to decline by 60, net of store openings, in 2009.


At Stride Rite Wholesale, revenues slumped 18.5% to $148.8 million from $182.5 million in the year-ago period.  Excluding Hilfiger, sales were down 8.5% on lower Keds sales due to its strategic repositioning and a $4.5 million impact from changes in foreign currency rates. 



 

The Keds repositioning includes launching its Green, or environmentally-friendly collection, at retailers such as Nordstrom, and reestablishing the Champion as a product icon. Keds' sales are expected to decline by $8 million in the last nine months of 2009 due to this repositioning, half occurring in the second quarter.

The double-digit gains at Saucony were led by “broad-based success” across its three main channels of distribution: run specialty, sporting goods and family footwear. Women's sales were up, as well. Rubel said the brand experienced “an excellent quarter for brand awareness,” including three awards from Runners World.


Rubel said Sperry Top-Sider's wholesale performance was impacted by the bankruptcy of Boater's World and “just one quality issue.” But he added that retail sell-throughs are “as strong as they have been and we're seeing very, very strong comp store gains with them, as well.”


Operating profit at Stride Rite Wholesale reached $14.3 million, down from $23.1 million on an actual basis and $18 million on an adjusted basis. Operating profit decreased due to lower sales, the expiration of the Tommy Hilfiger adult footwear licensing agreement, and higher product costs. 


Looking ahead, Rubel said spending has not yet rebounded and he sees little signs of the promotional climate abating, especially at its Payless Domestic segment. The second quarter will be particularly challenging since the year-ago period was boosted by the government stimulus program.