Collective Brands Q2 Revenues Drop 8.3%, Earnings Down Excluding Special Items

Earnings reached $18.7 million, or 29 cents a share, versus $8.1 million, or 13 cents, a year ago. Earnings for last year's second quarter were impacted by litigation expenses and the final year of the Tommy Hilfiger adult footwear license. Taking these adjustments into account, the second quarter 2008 adjusted net earnings were $32.0 million, or 50 cents a share.

“While the retail environment remains challenging, I am pleased that our largest brands — Payless, Stride Rite, Saucony, and Sperry Top-Sider — continued to gain share at the retail level,” said Matthew E. Rubel, chairman, chief executive officer and president of Collective Brands, Inc. “We remain focused on driving innovation for consumers while investing in key growth opportunities. During the second quarter, we also lowered operating costs, reduced inventories, and generated stronger cash flows.”

For the second quarter of 2009, comparable store sales for Payless Domestic declined 6.0% and 2.7% for Stride Rite.  Collective Brands     comparable store(2) sales declined 7.3% due to the impact of Payless International and foreign currency exchange rates.  Without the unfavorable impact of foreign currency, comparable store sales declined 6.2%. Last year, second quarter comparable store sales for Collective Brands increased 0.2%.

The increase in gross margin rate to 33% from 31% was primarily due to litigation expense last year, higher initial mark-on, and increased direct sourcing of     product through the Company's vertically-integrated sourcing organization. The rate was unfavorably impacted by negative sales leverage, promotional     activity, and merchandise cost increases.

SG&A expenses were approximately $15.0 million lower than the prior year primarily due to continuous process improvement actions that reduced payroll and other expenses.
 

Inventory at the end of the second quarter was $462.0 million, down 4.4% compared to the prior year period. Capital expenditures were $46.9 million through the first half of 2009 compared to $78.2 million at the same time last year. The lower expenditures reflect the substantial completion of distribution centers and reduced spending on stores. During the second quarter of 2009, Collective Brands added 20 new stores (16 Payless and 4 Stride Rite), closed 33 Payless stores, and relocated 5 stores (4 Payless and 1 Stride Rite).

Payless International — The net sales decline was driven by lower consumer traffic as well as foreign currency rates, which negatively impacted segment sales by $7.6 million.  This was partially offset by 25 new store openings in Colombia.  Operating profit declined due primarily to lower sales in Canada and Puerto Rico combined with increased costs to comply with new regulations and taxes in Ecuador.

Stride Rite Wholesale — Net sales declined due primarily to the expiration of the Tommy Hilfiger adult footwear licensing agreement and lower Keds sales due to its strategic repositioning.  These declines were partially offset by sales gains at Saucony.  Operating profit decreased due to more promotional selling, the expiration of the Tommy Hilfiger adult footwear licensing agreement, and higher product costs.

Stride Rite Retail — Net sales were flat, as the impact of higher sales at outlet stores and the addition of nine stores was offset by lower comparable store sales at children's specialty stores.  Operating loss increased due to the comparable store sales decline and greater promotional activity.

Amortization of intangible assets due to the Stride Rite acquisition totaled $3.5 million in the quarter.

Outlook for Collective Brands

The 2009 effective tax rate is expected to be a mid-to-high teens percentage, excluding discrete events associated with the resolution of outstanding tax audits.

Depreciation and amortization in 2009 is expected to total approximately $140 million, due to greater investments in supply chain and stores in recent years as well as the 2007 acquisition of Stride Rite.

Capital expenditures in 2009 are expected to total approximately $85 million.

Collective Brands 2009 retail store count is expected to decline by 60, net of store openings.