Collective Brands, Inc. reported earnings dropped 22.3% in the third quarter ended Oct. 31, 2009, to $36.9 million, or 57 cents per diluted share, from $47.5 million,
or 74 cents, a year ago. Adjusted earnings nearly tripled to $39.4 million, or 61 cents a share,
up from $13.4 million, a year ago.
Third
quarter 2009 adjustments were related to the settlement of certain
litigation and severance; and third quarter 2008 adjustments were related
to litigation, severance, and the expiration of the Tommy Hilfiger adult
footwear license.
Sales in the latest quarter were $867.0 million, up
0.5% versus last year and up 2.9% versus last year on an adjusted basis. Adjusted year-ago sales exclude the expiration of the Tommy Hilfiger adult footwear license.
The company's third quarter 2009 comparable store sales(2) increased 3.1%.
Comparable store sales for Payless and the Performance + Lifestyle Group
(PLG) were up 3.4% and down 0.7%, respectively, for the third quarter of
2009. Payless Domestic comparable store sales increased 5.4%.
Collective Brands generated $241.6 million of free cash flow(1) through the
first three quarters of 2009, an increase of $151.3 million over the same
period last year as a result of effective inventory management, lower
capital spending, reduced litigation costs, and higher earnings. Net
debt(1) at the end of the quarter was $419.8 million, down $188.6 million
compared to the end of the third quarter last year.
“Our strong third quarter operating results demonstrate the success of our
strategy in the midst of a difficult economy,” said Matthew E. Rubel,
Chairman, Chief Executive Officer and President of Collective Brands, Inc.
“Sales increased, operating margins improved, and we generated
substantially greater free cash flow. At Payless, we had strong
children's results that produced a successful back-to-school season, and we
had a strong boot performance as well. Saucony and Sperry Top-Sider also
showed continued strength. Across Collective Brands, we delivered on our
customer promise with innovative and fresh product, outstanding customer
service, effective marketing, and efficient merchandise flow, all of which
led to strong results.”
Consolidated Results — Selected unaudited financial data (dollars in
millions, except per share data) for the 13 weeks ended October 31, 2009
and November 1, 2008:
ADJUSTED(1)
=========================
2009 v 2009 v
2009 2008 2008 2009 2008 2008
======= ======= ======= ======= ======= =======
Net sales $ 867.0 $ 862.7 0.5% $ 867.0 $ 842.5 2.9%
Gross margin rate 36.0% 34.6% 140 bps 36.3% 34.5% 180 bps
Selling, general &
administrative
(SG&A) $ 250.8 $ 245.1 2.3% $ 249.8 $ 243.2 2.7%
SG&A rate 28.9% 28.4% 50 bps 28.8% 28.9% -10 bps
Earnings before
interest, taxes,
depreciation and
amortization
(EBITDA) $ 97.0 $ 89.4 8.5% $ 101.1 $ 83.1 21.7%
Net earnings
attributable to
Collective Brands,
Inc. $ 36.9 $ 47.5 -22.3% $ 39.4 $ 26.0 51.5%
Diluted earnings per
share $ 0.57 $ 0.74 -23.0% $ 0.61 $ 0.41 48.8%
-- Net sales for the quarter increased from last year due primarily to
higher comparable store sales and sales increases in Saucony and Sperry Top-
Sider. The comparable store sales increase was driven by the performance of
the Payless Domestic operating segment. A strategic marketing event with
The Oprah Winfrey Show contributed nearly three percentage points to
comparable store sales.
-- The increase in the gross margin rate was primarily due to lower
product and occupancy costs, as well as positive leverage of fixed costs.
-- SG&A expenses increased due to higher incentive compensation related
to company performance, as well as severance costs. SG&A as a percent of
sales was up slightly, but the adjusted SG&A(1) rate was down.
-- This year's net earnings comparison was unfavorably impacted due to an
income tax benefit last year. The benefit last year was primarily the
result of changes in the full year earnings projection by tax jurisdiction.
Inventory at the end of the third quarter was $403.2 million, down 13.8%
compared to the prior year period. Aged inventory declined both in dollars
and units. Capital expenditures were $61.2 million through the first three
quarters of 2009 compared to $107.5 million at the same time last year.
The lower expenditures reflect the completion of distribution centers and
reduced spending on stores. During the third quarter of 2009, Collective
Brands added 9 new stores (6 Payless and 3 PLG), closed 26 Payless stores,
and relocated 5 stores (4 Payless and 1 PLG).
3rd 2nd 4th 3rd
Quarter Quarter Quarter Quarter
Retail Store Counts 2009 2009 2008 2008
--------- --------- --------- ---------
Payless ShoeSource 4,483 4,503 4,522 4,537
Performance + Lifestyle Group 363 360 355 353
--------- --------- --------- ---------
Total Stores 4,846 4,863 4,877 4,890
========= ========= ========= =========
Segment Results (dollars in millions)
Payless Payless PLG
Domestic International Wholesale PLG Retail Total
---------- ----------- ---------- ---------- ----------
Third Quarter 2009
Net Sales $ 578.1 $ 110.0 $ 111.6 $ 67.3 $ 867.0
Operating Profit $ 44.5 $ 11.2 $ 0.1 $ 5.2 $ 61.0
Add: Adjustments
for Litigation
and Severance $ 3.7 - $ 0.3 $ 0.1 $ 4.1
---------- ----------- ---------- ---------- ----------
Adjusted
Operating
Profit(1) $ 48.2 $ 11.2 $ 0.4 $ 5.3 $ 65.1
========== =========== ========== ========== ==========
Third Quarter 2008
Net Sales $ 553.7 $ 111.4 $ 132.1 $ 65.5 $ 862.7
Less: Adjustment
For Tommy
Hilfiger - - $ 20.2 - $ 20.2
---------- ----------- ---------- ---------- ----------
Adjusted Net
Sales(1) $ 553.7 $ 111.4 $ 111.9 $ 65.5 $ 842.5
========== =========== ========== ========== ==========
Operating Profit $ 29.2 $ 12.3 $ 4.4 $ 7.6 $ 53.5
Less:
Adjustments
for
Litigation,
Severance, and
Tommy Hilfiger $ 4.3 - $ 2.1 - $ 6.4
---------- ----------- ---------- ---------- ----------
Adjusted
Operating
Profit(1) $ 24.9 $ 12.3 $ 2.3 $ 7.6 $ 47.1
========== =========== ========== ========== ==========
Third Quarter 2009
Depreciation and
Amortization $ 25.2 $ 4.0 $ 5.3 $ 1.5 $ 36.0
-- Payless Domestic -- The net sales increase was driven primarily by a
comparable store sales increase of 5.4%. Sales increased in children's
footwear, boots, and women's accessories impacted by the strategic
marketing event and a strong back-to-school season. Operating profit
increased due to higher sales and gross margin rate expansion.
-- Payless International -- The net sales decline was 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.
-- PLG Wholesale -- Net sales declined. Increases at Saucony and Sperry
Top-Sider were offset by the expiration of the Tommy Hilfiger adult
footwear licensing agreement 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.
-- PLG Retail -- 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.
Outlook for Collective Brands
-- The 2009 effective tax rate is expected to be a mid-to-high teens
percentage, excluding discrete events primarily associated with the
resolution of outstanding tax audits.
-- Depreciation and amortization in 2009 is expected to total
approximately $145 million.
-- Capital expenditures in 2009 are expected to total approximately $85
million.
-- Collective Brands 2009 retail store count is expected to decline by
55, net of store openings.
Open Close Change
-------- -------- --------
Payless
Payless Domestic 31 115 (84)
Payless International 46 25 21
-------- -------- --------
Payless Total 77 140 (63)
PLG Total 11 3 8
-------- -------- --------
Collective Brands Total 88 143 (55)
======== ======== ========
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Dollars and shares in
millions, except per
share data) 13 Weeks Ended 39 Weeks Ended
------------------------ ------------------------
October 31, November 1, October 31, November 1,
2009 2008 2009 2008
----------- ----------- ----------- -----------
Net sales $ 867.0 $ 862.7 $ 2,566.2 $ 2,706.8
Cost of sales 555.2 564.0 1,668.9 1,820.2
----------- ----------- ----------- -----------
Gross margin 311.8 298.7 897.3 886.6
Selling, general and
administrative
expenses 250.8 245.1 743.5 768.1
Restructuring charges - 0.1 - 0.2
----------- ----------- ----------- -----------
Operating profit from
continuing operations 61.0 53.5 153.8 118.3
Interest expense 14.8 19.9 46.4 57.7
Interest income (0.2) (2.7) (1.0) (6.5)
----------- ----------- ----------- -----------
Net earnings from
continuing operations
before income taxes 46.4 36.3 108.4 67.1
Provision (benefit) for
income taxes 8.2 (12.9) 13.1 (13.4)
----------- ----------- ----------- -----------
Net earnings from
continuing operations 38.2 49.2 95.3 80.5
Income (loss) from
discontinued
operations, net of
income taxes (0.1) 0.1 (0.2) (0.4)
----------- ----------- ----------- -----------
Net earnings 38.1 49.3 95.1 80.1
Net earnings
attributable to
noncontrolling
interests (1.2) (1.8) (1.5) (4.8)
----------- ----------- ----------- -----------
Net earnings
attributable to
Collective Brands,
Inc. $ 36.9 $ 47.5 $ 93.6 $ 75.3
=========== =========== =========== ===========
Basic earnings per
share attributable to
Collective Brands,
Inc. common
shareholders:
Earnings from
continuing
operations
attributable to
Collective Brands,
Inc. common
shareholders $ 0.58 $ 0.74 $ 1.47 $ 1.19
Loss from
discontinued
operations
attributable to
Collective Brands,
Inc. common
shareholders - - - -
----------- ----------- ----------- -----------
Basic earnings per
share attributable to
Collective Brands,
Inc. common
shareholders: $ 0.58 $ 0.74 $ 1.47 $ 1.19
=========== =========== =========== ===========
Diluted earnings per
share attributable to
Collective Brands,
Inc. common
shareholders:
Earnings from
continuing
operations
attributable to
Collective Brands,
Inc. common
shareholders $ 0.57 $ 0.74 $ 1.46 $ 1.19
Loss from
discontinued
operations
attributable to
Collective Brands,
Inc. common
shareholders - - - -
----------- ----------- ----------- -----------
Diluted earnings per
share attributable to
Collective Brands,
Inc. common
shareholders: $ 0.57 $ 0.74 $ 1.46 $ 1.19
=========== =========== =========== ===========
