Collective Brands Cuts Q4 Loss; Saucony/Sperry Top-Sider Pace Sales

 

Fourth quarter sales inched up 0.9% to $741.7 million. Excluding year-ago sales from the expiration of the Hilfiger footwear license, sales grew 3.3%. Comps were up 1% at Payless while decreasing 3.3% at the Performance + Lifestyle Group (PLG), which includes Stride Rite stores. 

 

The net loss narrowed to $10.9 million, or 17 cents a share, in Q4, from $144.0 million, or $2.28, in the prior-year quarter. Excluding special items, the loss was $11.6 million, or 18 cents a share, down from $38.1 million, or 60 cents.  Gross margins improved to 32.9% of sales from 28.3% of sales in Q4 2008 due to a double-digit percentage reduction in product costs due primarily to lower commodity prices and better leverage. Also boosting margins were lower markdowns, higher sales and lower freight and distribution costs.

 

Among segments, Payless Domestics sales eased 0.8% to $457.5 million as a comp increase was offset by 73 fewer stores at year-end. Sales increased in children’s footwear, boots, and women’s accessories. The segment‘s operating loss was cut to $13.7 million in Q4 from $29.4 million a year earlier, primarily due to gross margin expansion. Payless retail prices grew nearly 2% while average unit sales remained flat for the quarter. Branded products accounted for 59% of sales, flat with last year, as increases in Airwalk matched gains in private label accessories.

 

On a conference call with analysts, company Chairman, CEO and President Matt Rubel said consumer insights shows that Payless Domestic saw relative increases versus peers in brand strength and shopper loyalty for both women and moms in the fourth quarter. This particularly helped drive broad success in children’s across product categories and gender. The strength in boots is expected to continue in 2010 while accessories continue to benefit from the rollout of fixtures. Rubel also expects important contributions this year from Champion footwear, driven by its entrance into fitness and toning. 

 

Earnings at Collective Licensing International, which is included in Payless Domestic, increased as deals were finalized for Airwalk in Argentina, Canada and the U.K., along with a co-branded agreement with Marvel Entertainment. Vision Street Wear closed deals in the U.S. and South Korea. New programs are being set for its recently-acquired Above The Rim basketball brand.

 

At Payless International, sales grew 10.6% to $123.9 million, driven primarily by 28 new store openings in Colombia and a $5 million benefit from foreign exchange rates. The increase was partially offset by a sales decline in Ecuador due to incremental tariffs. Operating earnings climbed 62% to $16.7 million from $10.3 million due primarily to a stronger holiday season and lower operating expense.

 

PLG Wholesales revenues slid 2.2% to $115.8 million, dragged down by the loss of the Hilfiger license. Excluding Hilfiger sales in the year-ago period, sales advanced 14.5% in the latest period due to Saucony and Sperry. Operating profits were $8.3 million in the latest period against a $2.9 million loss due to margin expansion.

 

Results were led by the domestic run specialty and sporting goods channel, while Germany and Canada posted strong numbers, too, said Rubel. The Guide 3 led run specialty while the Cohesion paced sporting goods. Apparel also saw good sales growth, driven by VisiPro, the line of high reflective wear. Rubel said Saucony took over the number two market share position in the run specialty track and field market.

 

Sperry increased sales and earnings in the quarter with growth across genders, product categories and channels, including success elevating the brand in premium channels. Non-boat and dress casual performed very well. The first three Sperry retail stores opened in the U.S. – two in Florida and one in Kansas City – with at least three more to come later this year.

 

The Keds business is stabilizing and generated higher profit in the quarter, due primarily to more first-quality sales and a reduction in allowances and returns. Rubel said Keds continues to benefit from efforts to elevate the brand through designer and retail collaborations. Exclusive Keds collections will reach Gap stores starting in July.

 

In kids, Saucony, Keds and Sperry all showed gains. A new pricing segmentation strategy now in place for the baby category is being extended to other kids categories to further distinguish its Stride Rite flagship brand and its other owned brands, and get this division back on track, said Rubel.

 

PLG Retail sales inched up 1.8% to $44.5 million from $43.7 million. Eight additional stores at quarter-end offset lower comps. The operating loss increased slightly to $7.6 million from $7 million. In response, a new store service model is being rolled out to all Stride Rite stores. PLG will open 20 stores this year due primarily to Stride Rite’s store-in-store additions at Macy’s, as well as new Sperry stores.