Collective Brands, Inc. reported earnings climbed 42.6% in the first quarter, to $54.2 million, or 83 cents per diluted share, compared to $38.0
million,
or 59 cents, in the first quarter of 2009.
Sales increased 1.8% to $878.8
million. This was driven by international sales growth of 23.1% from
increases at both Payless and the Performance + Lifestyle Group (PLG).
Collective Brands' comparable store sales(2) decreased 1.2%. Excluding
the
impact of foreign exchange rates, the net sales increase was 0.5% and
the
comparable store sales decrease was 2.2%.
First
quarter 2010 earnings before interest, taxes, depreciation and
amortization (EBITDA) were a record $115.2 million, an increase of
$20.7 million over last year driven by a gross margin increase of 240
basis
points. In addition, operating profit increased 34.9% as operating
margin
increased 230 basis points. Net debt decreased $214.9 million, to
$417.3 million. The company also repaid $79.7 million of long term debt
during the first quarter of 2010.
“We had strong earnings
growth globally as we connected with consumers by
offering compelling and innovative product,” said Matthew E. Rubel,
Chairman, Chief Executive Officer and President of Collective Brands,
Inc.
“The strength of our business model, with a diverse portfolio of brands
serving multiple consumers across different distribution channels and
geographies, was evident in our first quarter results. We experienced
strong global growth in a number of our Performance and Lifestyle Group
brands and had excellent sales performance at Payless International to
drive strong earnings and cash flow for the Company.”
Rubel added,
“Our wholesale backlog is up significantly and retail metrics
such as customer conversion and customer satisfaction scores increased
as
well. Even though certain customer segments are still being negatively
impacted by the economy, the resilience and diversity of our hybrid
business model gives us confidence that we can generate continued growth
in
earnings.”
Consolidated Quarterly Results — Selected unaudited
financial data
(dollars in millions, except per share data) for the 13 weeks ended May
1,
2010 and May 2, 2009:
1st Qtr 1st Qtr
2010 2009 Change
------- ------- --------
Net sales $ 878.8 $ 862.9 $ 15.9
Gross margin % 38.3% 35.9% 240 bps
Operating profit $ 81.6 $ 60.5 $ 21.1
Operating margin 9.3% 7.0% 230 bps
EBITDA(1) $ 115.2 $ 94.5 $ 20.7
Net earnings attributable to Collective
Brands, Inc. $ 54.2 $ 38.0 $ 16.2
Diluted earnings per share $ 0.83 $ 0.59 $ 0.24
-- Net sales for the quarter increased 1.8% due to global growth at PLG
led by Saucony, Sperry Top-Sider, and Keds; and in retail at Payless
International. Foreign exchange was also a favorable driver.
-- The gross margin rate increased 240 basis points due primarily to lower
markdowns, as a result of a clean inventory position, and lower product
costs.
-- Operating profit and operating margin increased $21.1 million and 230
basis points, respectively, as a result of higher net sales and gross
margin expansion.
-- Loss on early extinguishment of debt was $0.8 million, which reduced
diluted earnings per share by $0.01.
Inventory
at the end of the first quarter was $467.4 million, down 2.8%
versus last year due to lower product costs and a decrease in units.
Aged
inventory declined. Capital expenditures were $19.8 million for first
quarter 2010, down $6.9 million over last year. The lower capital
expenditures reflects the timing of certain technology and store
investments. During the first quarter of 2010, Collective Brands added
27
new stores (14 Payless and 13 PLG), closed eight Payless stores, and
relocated four Payless stores.
Retail Store Counts May 1, 2010 Jan. 30, 2010 May 2, 2009
------------ ------------ ------------
Payless ShoeSource 4,476 4,470 4,520
Performance + Lifestyle Group 376 363 356
------------ ------------ ------------
Total Stores 4,852 4,833 4,876
============ ============ ============
As
of May 1, 2010, the Company also franchised 13 Payless stores.
Free
cash flow(1) for the first quarter of 2010 was $33.4 million, an
increase of $2.7 million over the same period last year.
Quarterly
Segment Results (dollars in millions)
2010 2009 $ Change % Change
--------- --------- --------- ---------
NET SALES
Payless Domestic $ 546.6 $ 570.8 ($ 24.2) (4.2%)
Payless International $ 100.0 $ 84.8 $ 15.2 17.9%
PLG Wholesale $ 173.4 $ 148.8 $ 24.6 16.5%
PLG Retail $ 58.8 $ 58.5 $ 0.3 0.5%
--------- --------- --------- ---------
TOTAL $ 878.8 $ 862.9 $ 15.9 1.8%
========= ========= ========= =========
2010 2009 $ Change % Change
--------- --------- --------- ---------
OPERATING PROFIT
Payless Domestic $ 49.3 $ 42.2 $ 7.1 16.8%
Payless International $ 7.1 $ 1.8 $ 5.3 294.4%
PLG Wholesale $ 23.3 $ 14.3 $ 9.0 62.9%
PLG Retail $ 1.9 $ 2.2 ($ 0.3) (13.6%)
--------- --------- --------- ---------
TOTAL $ 81.6 $ 60.5 $ 21.1 34.9%
========= ========= ========= =========
2010 2009 Change
--------- --------- ---------
OPERATING MARGIN
Payless Domestic 9.0% 7.4% 160 bps
Payless International 7.1% 2.1% 500 bps
PLG Wholesale 13.4% 9.6% 380 bps
PLG Retail 3.2% 3.8% (60)bps
--------- --------- ---------
TOTAL 9.3% 7.0% 230 bps
========= ========= =========
-- Payless Domestic - Net sales decreased due to a 3.3% comparable store
sales decrease and 59 fewer stores. Lower store traffic, particularly
in the southwestern and California markets, drove the sales decline, as
core Payless Domestic customers continue to be impacted by
unemployment. The sales decrease was partially offset by sales gains
in accessories, sandals, and fitness/toning. Operating margin
increased due to gross margin expansion.
-- Payless International - Net sales were higher driven by a 14.0%
comparable store sales increase as a result of both favorable foreign
exchange rates in Canada and stronger business performance. In
addition, the Company operated 15 more net new stores internationally
with the growth coming in Latin America. Operating profit increased
due primarily to expense leverage in virtually all regions.
-- PLG Wholesale - Net sales increased due to higher sales at Saucony,
Sperry Top-Sider, and Keds domestically and internationally. Operating
profit increased due to gross margin rate expansion coupled with the
higher net sales. Amortization of intangible assets due to the
acquisition of the Stride Rite Corporation was approximately $3
million, or $0.03 per share, in the quarter.
-- PLG Retail - Net sales were about flat due to 15 additional stores
offset in part by a 3.1% comparable store sales decline. Operating
profit declined due to costs related to opening new stores.
Outlook
for Collective Brands
-- The Company intends to reduce its ratio of Net Debt to EBITDA(1)
to approximately 1x by the end of fiscal 2010.
-- The 2010 effective tax rate is expected to be approximately 20%
excluding discrete events.
-- Depreciation and amortization for 2010 is expected to total
approximately $140 million.
-- Capital expenditures in 2010 are expected to total approximately $100
million.
-- Year-end 2010 retail store count is expected to increase by
approximately 30 stores, net of store closings. The Company revised
its fiscal year net store count projection due to successfully
improving the profitability of its low-volume stores. In addition, the
Company anticipates having approximately 35 franchise stores, in total,
in five countries by year-end.
Open Close Change
------- ------- ------
Payless
Payless Domestic 60 80 (20)
Payless International 40 10 30
------- ------- ------
Payless Total 100 90 10
PLG Total 20 0 20
------- ------- ------
Collective Brands Total 120 90 30
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