Collective Brands Get Lift from Saucony and Oprah in Third Quarter

Adjusted earnings exclude costs in the latest period related to the settlement of certain litigation and severance; as well as a special credit in the year-ago period related to litigation. Including these special items, net earnings dropped 22.3%.

Sales in the latest quarter were $867.0 million, up 0.5% versus last year and up 2.9% versus last year when adjusted for the expiration of the Tommy Hilfiger adult footwear license. Comps increased 3.1% as a 3.4% gain at Payless offset a 0.7% slide at the Performance + Lifestyle Group (PLG), which includes Stride Rite stores.

At Payless Domestic, comps jumped 5.4% although 3% of the comp was attributed to guest designer Christian Siriano's appearance on the Oprah Winfrey show. On the show, Oprah announced a half-off promotion that started late Thursday, Oct. 29, and ran through the end of the next day on Friday, generating huge traffic gains.

“The event made it possible to connect with hundreds of thousands of new customers, and validate Payless as a store for fashionable and affordable footwear and accessories,” said Matt Rubel, CEO and president. But Rubel also said the chain's strong price-value offerings, extended sizes in all stores, targeted marketing and promotions, strength in girls and canvas, and increased breadth of assortment and in-stock positions also helped drive the gains.

Among categories, children's continued to show strength, and “very strong growth” was tallied in boots with the help of cold October weather. Accessories, particularly jewelry and sunglasses, produced strong gains as accessories fixtures have now been rolled out to all stores.

Operating profits at Payless Domestic increased due to higher sales and gross margin rate expansion. Reduced costs of purchasing goods and services, the roll out of an energy management programs and educed occupancy costs all bolstered the bottom line.

Payless International saw a net sales decline driven by lower consumer traffic as a result of the continuing global economic slowdown. The decline was almost entirely offset by 28 new store openings in Colombia and the impact of the strategic marketing event in Canada. Operating profit declined due primarily to the sales decline and increased costs to comply with incremental tariffs in Ecuador, partially offset by reduced operating expenses.

In Canada, Payless saw sequential improvement in the rate of change in sales and customer traffic. Operational and financial improvements in Canada were driven by stronger boot and slipper merchandise programs, and lower costs in product, rent and payroll. In Latin America, Payless is “focused on cash conversion,” said Rubel.

At its PLG Wholesale segment, sales declined as increases at Saucony and Sperry Top-Sider were offset by the expiration of the Hilfiger footwear license and lower Keds and Stride Rite Children's Group sales. Operating profit decreased due primarily to the expiration of the agreement and an unfavorable merchandise mix shift.

Saucony recorded “excellent” sales with solid sales growth across all of its selling channels, domestically and in Europe and in Canada.
“The team is doing a terrific job and continues to build a strong pipeline of new products and generate results from core platforms, including the Ride and Guide,” said Rubel.

For the fall season, Saucony successfully launched an updated model of the Triumph running shoe at the New York Marathon. Saucony's new apparel line, VisiPro, is also seeing strong sell-throughs at retail, according to Rubel.

Sperry Top-Sider increased sales due to a strong back-to-school season and increased demand for both boat shoes and non-boat categories. The women's segments notably showed strength in the quarter, and the premium channel was “particularly strong.” Sperry also saw a “great response among younger consumers who value the authenticity of the brand,” said Rubel.

Keds is improving profitability through more first quality sales and more favorable merchandising mix, emphasizing its flagship silhouette, the Champion, and building a core program around the sport category. Rubel said the brand is gaining traction with premium and trend-leading accounts through the continued collaboration with designers to help elevate its positioning. Internationally, Keds continues to see good results in Europe in both women's and men's.            

In the Stride Rite children's group, some adult take downs, such as licensed Jessica Simpson brand and owned brands like Keds and Saucony, saw momentum. New sensory response technology also holds potential for the kids' area. But Rubel said the wholesale segment's focus will be on increasing its higher-growth adult brands
In its PLG Retail segment, net sales increased due to 10 additional stores and higher sales at outlets. This was offset in part by lower comparable store sales at children's specialty stores. Operating profit decreased due to the comparable store sales decline, greater promotional activity, and severance costs.   

Company-wide gross margins improved 140 basis points as a result of lower product costs due to commodity prices, lower product costs, reduced occupancy expenses due to lease renegotiations, and lower freight and distribution costs related to the new distribution centers. On an adjusted basis, gross margins improved 180 basis points. The increase in gross margin was partially offset by litigation related to Crocs. The dispute was settled during the quarter to the mutual satisfaction of both parties. On an adjusted basis, SG&A expenses were reduced 10 basis points as a percent of sales.

Inventory at the end of the third quarter was down 13.8% due to good inventory management, lower product costs and higher Payless sales. Aged inventory declined both in dollars and units.