Collective Brands, Inc. reported earnings tumbled 51.3 percent to $26.4 million, or 42 cents per share, from $54.2 million, or 83 cents, a year ago. Sales decreased 1.1 percent to $869.0 million. Weak sales at its domestic Payless chain offset strength at its many footwear brands, led by Saucony and Sperry Top-Sider.

The sales decline was caused by a 7.4 percent comparable store sales decline, largely offset by sales growth of 22.5 percent in the Performance + Lifestyle Group (“PLG”) Wholesale segment.

Adjusted earnings before interest, taxes, depreciation and amortization were $75.0 million compared to $115.2 million the prior year, a decrease of 34.9 percent.

“We had a challenging first quarter driven by increasingly unfavorable economic conditions affecting mass market consumers as well as unseasonably cold weather. These factors unfavorably affected Payless stores in North America leading to lower customer traffic and sales. We are taking actions to provide better value to customers in light of these economic conditions. As a result, the second quarter is off to a better start,” said Matthew E. Rubel, chairman, chief executive officer and president of Collective Brands, Inc. “Other components of our hybrid business model continued to deliver strong results in the first quarter including PLG Wholesale, Payless Latin America, and franchising operations.”

Net sales for the quarter decreased due to Payless declines in North America offset in part by growth at PLG.  The impact of higher gas andfood prices on some of the Payless customer base as well as unfavorable weather in the northern tier of North America negatively impacted sales. Contributions from PLG Wholesale, Payless in Latin America, and Sperry retail stores helped offset most of the decline.

The gross margin rate decreased due principally to lower sales, the impact of previously anticipated higher product costs, and a greater mix of wholesale sales which generate lower gross margins than retail.

SG&A ratio rose driven by expense deleverage at Payless, partially offset by expense leverage at PLG.

Inventory at the end of the quarter was $575.9 million, up 23.2 percent. The higher inventory level was driven by higher product costs, as anticipated, additional accessories and footwear units, and a greater mix of higher-cost footwear at Payless and PLG.

Collective Brands repurchased 53,000 shares of its stock on the open market for $1.1 million during the first quarter.

During the first quarter, the company added 14 new stores (11 Payless and 3 PLG), closed 17 stores (14 Payless and 3 PLG), and relocated 7 stores (6 Payless and 1 PLG).

Quarterly Segment Results (dollars in millions)
 
                                  2011     2010    $ Change   % Change
                               ———- ———-    ———       ———
NET SALES
  Payless Domestic      $498.4 $546.6 $  (48.2)      (8.8%)
  Payless International    97.5   100.0       (2.5)      (2.5%)
  PLG Wholesale            212.5   173.4       39.1       22.5%
  PLG Retail                      60.6     58.8         1.8        3.1%
                               ———- ———- ———  ———
TOTAL                          $ 869.0 $878.8 $   (9.8)      (1.1%)
                               ======== =========  =========

                                  2011     2010    $ Change   % Change
                               ———- ———-    ———         ———
OPERATING PROFIT
  Payless Domestic    $13.0   $49.3 $   (36.3)           (73.6%)
  Payless Intl                 3.0        7.1       (4.1)           (57.7%)
  PLG Wholesale          25.3      23.3        2.0               8.6%
  PLG Retail                    1.1        1.9      (0.8)           (42.1%)
                               ———- ———- ———  ———
TOTAL                          $     42.4 $     81.6 $   (39.2)     (48.0%)
                               ========== ========== =========

                                  2011       2010      Change
                               ———    ———      ———-
OPERATING MARGIN
  Payless Domestic     2.6%       9.0%    (640) bps
  Payless Intl              3.1%       7.1%    (400) bps
  PLG Wholesale        11.9%    13.4%    (150) bps
  PLG Retail                  1.8%       3.2%  (140) bps
                               ———  ———  ———-
TOTAL                          4.9%       9.3%  (440) bps
                               ======= =========  ==========

 
  • Payless Domestic – Net sales were down due to a comparable store sales decrease of 8.3 percent, driven by the economic and weather considerations, as well as operating 43 fewer stores.  From a category perspective, the sales declines were primarily in sandals and children’s offset in part by gains in fitness and women’s casuals. Operating profit decreased due principally to the sales decline and higher product costs.
  • Payless International – Significant comparable store sales gains in Latin America and 25 net new stores were more than offset by a sales decline in Canada leading to an overall comparable store sales decline of 5.1 percent. Unfavorable weather in Canada drove the segment’s sales decline. Operating profit decreased due to the sales decline in Canada.
  • PLG Wholesale – Net sales increased both domestically and internationally with global gains in all four brands led by Sperry Top-Sider and Saucony. Operating profit increased due to higher sales partially offset by higher product costs and a less favorable channel mix.
  • PLG Retail – Net sales increased driven by seven more stores offset in part by a 2.8 percent comparable store sales decrease. Operating profit declined due primarily to higher product costs.

Outlook for Collective Brands

  • The 2011 effective tax rate is expected to be 17 percent to 18 percent excluding discrete events.
  • Depreciation and amortization for 2011 is expected to total approximately $135 million.
  • Capital expenditures are expected to total approximately $105 million in 2011.
  • Year-end 2011 retail store count is expected to decrease by  approximately 30 stores, as Payless and Stride Rite domestic closings more than offset openings in Payless International and Sperry.
  • As a result of its backlog of $196 million for delivery in second quarter 2011, which increased 39 percent year-over-year, PLG Wholesale sales in the second quarter of 2011 are expected to increase approximately 20 percent over second quarter 2010.