Collective Brands, Inc., which in early May reached an agreement to be sold to Wolverine World Wide and a pair of private-equity firms, reported earnings improved 25.8 percent in its first quarter, particularly benefiting from an improved bottom line for its Payless U.S. stores. Among its wholesale brands, growth at Sperry Top-Sider and Stride Rite Children's Group offset declines at Saucony and Keds.
Earnings reached $33.2 million, or 54 cents per share. Excluding one-time charges in the latest period tied to its strategic review and store closings, earnings were 68 cents per share, compared with 42 cents per share in the first quarter of last year. Wall Street on average was looking for 44 cents. Sales advanced 5.0 percent to $912.1 million. An 8.1 percent overall comparable store sales increase and sales growth of 8.3 percent in the Performance + Lifestyle Group (PLG) Wholesale segment offset a year-over-year reduction in store count by 365.
Regarding Payless, Michael Massey, CEO of Collective Brands, said on a conference call with analysts that the turnaround in its domestic business appears to have begun, with increases in both same-store and total sales, despite operating 308 fewer stores. Added Massey, “We saw increases in traffic and conversion as our product was more aligned with our budget-conscious customers' needs, and we experienced unseasonably warm weather.”
Payless Domestic's revenues grew 3.1 percent to $513.9 million due to an 8.7 percent comp increase. Average store traffic being was up 3 percent and its conversion rose 6 percent. Women's across several major categories and both boys and girls footwear outpaced overall same-store sales performance. Men's, its smallest business, had a low-single-digit decline, while its e-commerce business grew by just over 50 percent year-over-year. Excluding non-recurring changes, operating income in the segment improved 140.8 percent to $31.3 million due principally to the higher sales, reduced markdowns and sales leverage.
Said LuAnn Via, President and CEO, Payless ShoeSource, on the call, “We certainly benefited from warmer weather during the quarter and we appear to be reconnecting with our core budget-conscious consumers through our key initiatives, improving our price, value, quality equation, tailoring our assortments, targeting our marketing messages, and improving our in-store shopping experience.”
Among the changes was adding greater breadth and depth at opening price points, which now accounts for just over 45 percent of Payless domestic's inventory. Its Incredible Value Every Day program accounted for 24 percent of sales in the quarter, up from low-single-digits a year ago, leading to lower markdowns and above-average gross margins. Overall assortments have been shifted toward basics and “more validated styles” to also reduce markdown risk. A multi-channel loyalty program and remodelings are being well received in early tests.
Payless International's revenues increased 3.8 percent to $101.2 million, reflecting a combination of a 1 percent same store sales increase and the opening of new, higher volume stores, offset by a reduction in overall store count. Canada posted a comp increase which was similar to Payless Domestic, while Latin America experienced a decline. The segment showed an adjusted loss of $700,0000 against earnings of $3.0 million due to a slowing of same store sales growth and the resultant margin decline in Latin America.
At the PLG group overall, sales grew by almost 9 percent to $297 million, while adjusted operating profit increased 5 percent to $28 million. PLG's first-quarter overall adjusted operating margin declined 40 basis points. Retail gross margins increased substantially, reflecting strong sales trends, but were more than offset by gross margin declines in the larger wholesale business.
In its PLG Wholesale segment, sales improved 8.3 percent to $230.2 million. Operating earnings were down the same 8.3 percent to $23.2 million due to higher product costs. On the call, Gregg Ribatt, president and CEO, PLG, sad that consistent with prior expectations, it anticipates that gross margins will stabilize in the second quarter and will improve in the back half of the year as cost increases moderate and wholesale prices are selectively increased.
Sperry Top-Sider again saw growth and market share gains in the quarter. Said Ribatt, “While boat shoe sales remained very strong, it is key to note that non-boat shoe product grew faster in the quarter than boat and Sperry Top-Sider women's business grew faster than men's and was slightly more than 50 percent of the overall business.”
Sperry Top-Sider direct-to-consumer platforms exceeded sales and profit plans, driven by both strong comps. It ended the quarter with 20 Sperry retail stores, compared to 11 at the end of Q1 2011, and expects to have more than 30 by the close of 2012.
Saucony's low-single digit percentage decline followed 16 consecutive quarters of growth, and was attributable primarily to a strategic decision to discontinue selected products to certain retailers, including special makeup products in value channels. International sales and sales to the running specialty channel in the U.S. grew at double-digit rates, driven by key franchise models. Ribatt noted that over the last six months, Saucony reintroduced four key franchise styles – the Guide, the Ride, the Triumph and the Hurricane and all have experienced strong double-digit growth in the quarter, and particularly high re-order rates.
Keds sales declined by a low-single-digit percentage as growth in the premium and value channels was offset by discontinued low-margin specialty programs with certain retailers. Said Ribatt, “We're refining the position of the brand under new leadership for spring 2013 with younger, fresher product, supported by new marketing and advertising.”
Stride Rite wholesale sales grew for the fifth consecutive quarter. In its wholesale business, it expanded in key channels of distribution, including better department stores, mall specialty retailers, and family footwear, each growing by more than 30 percent in the quarter over year-ago levels.
In the PLG Retail segment, sales rose 10.2 percent to $66.8 million as the result of a 14.9 percent increase in same store sales and the opening of 9 new Sperry Top-Sider stores, offset in part by operating 56 fewer Stride Rite stores. Operating earnings tripled to $4.5 million from $1.1 million as a result of stronger sales which improved gross margins and sales leverage.
Massey reiterated that the sales transaction is expected to close in the late third or early fourth calendar quarter although the company is seeking early termination of the waiting period with anti-trust authorities. In the transaction, Wolverine Worldwide agreed to acquire Collective PLG group, which includes the wholesale and retail operations of the Sperry Top-Sider, Saucony, Stride Rite and Keds brands, for $1.23 billion. Investment firms Blum Capital and Golden Gate will jointly acquire the operations of Payless ShoeSource and Collective Licensing International (CLI), which together will operate as a standalone entity. Including the assumption of debt, the deal is valued at $2 billion.