Collective Brands, Inc. made $47.5 million, or 75 cents per diluted share, in net earnings for the third quarter ended Nov. 1, 2008 compared to third quarter 2007 net earnings of $25.5 million, or 39 cents per diluted share. Excluding litigation items in 2008 and purchase accounting inventory step-up in 2007, third quarter 2008 net earnings were $26.6 million, or 42 cents per share, compared to third quarter 2007 net earnings of $31.3 million, or 48 cents per share.
For the third quarter of 2008, adjusted EBITDA was $85.1 million, up $1.3 million from the same period last year. Adjusted EBITDA year-to-date in 2008 was $289.6 million. On a trailing four quarters basis, adjusted EBITDA was $314.5 million.
Collective Brands third quarter 2008 net sales were $862.7 million, up $32.0 million, or 3.9%, versus the third quarter of 2007. The increase was primarily due to owning Stride Rite this year for 13 more days and a third quarter 2008 pro-forma sales increase for Stride Rite of 11.1%. This was offset in part by a third quarter 2008 comparable store sales decrease of 3.2%, as the impact of lower store traffic and unit sales offset the impact of higher average unit retail prices. Net sales for Payless and Stride Rite were $665.1 million and $197.6 million, respectively, for the third quarter of 2008.
“Our operating results demonstrated the strength and resiliency of our hybrid business model in a difficult operating environment,” said Chairman, CEO and President Matthew E. Rubel. “By staying true to our strategy, we delighted customers with new styles and record-setting customer service scores at Payless that resulted in increased retail market share. We had strong performances in Payless Latin America, Stride Rite International, Saucony, and Sperry Top-Sider. In addition, we effectively managed inventory, controlled costs and generated increased cash flow.”
Selling, general and administrative (SG&A) expenses were lower at 28.4% of sales in the third quarter of 2008 compared to 28.8% in the third quarter of 2007, an improvement of 40 basis points. The lower SG&A ratio was driven primarily by prudent expense management. SG&A expenses were $245.1 million in the third quarter of 2008, up $5.5 million versus the third quarter of 2007. Payless SG&A expenses, in dollars, declined. Stride Rite SG&A expenses, in dollars, were up primarily due to 13 more days in the third quarter of 2008.
Net interest expense in the third quarter of 2008 was $17.2 million, an increase of $2.0 million over the same period last year. The change was due primarily to drawing $215.0 million on the Company's revolving loan facility during the second quarter of 2008. Subsequent to the end of the third quarter, the Company paid back the entire $215.0 million outstanding on the revolving loan facility.
Due to a reduction in the 2008 annual effective tax rate, the third quarter 2008 income tax benefit was $12.9 million driven by the relative earnings mix by country. Tax efficient business initiatives, including integration opportunities, are expected to have a long-term favorable impact to cash flow.
Collective Brands net debt at the end of the third quarter of 2008 was $608.4, down $16.4 million versus the prior year period. The company ended the third quarter of 2008 with $523.6 million in cash and cash equivalents compared to $301.3 million at the end of the third quarter of 2007. Total debt at the end of the third quarter of 2008 was $1.1 billion, up $205.9 million over the third quarter of 2007. The increase in cash and cash equivalents as well as debt was due primarily to the use of the revolving loan facility.
Collective Brands inventory was $467.6 million at the end of the third quarter of 2008, down $8.5 million compared to the same period last year. The decline was due to having purchase accounting inventory step-up last year and not this year. Payless inventory per store was up 4% at the end of the third quarter this year versus the same period last year. The increase was driven by the company's strategy to flow fresh product, as well as timing of product flow and higher costs. Importantly, the percentage of Payless's aged inventory units was 13% lower than the prior year period reflecting a cleaner inventory position.
Year-to-date capital expenditures through the third quarter of 2008 totaled $107.5 million compared to $128.0 million in the prior year period. The reduction was due to the completion of projects including the implementation of advanced technology point-of-sale registers and supply chain as well as lower spending on domestic stores. During the third quarter of 2008, Collective Brands added 17 new stores (14 Payless and 3 Stride Rite), closed 25 stores (24 Payless and 1 Stride Rite), and relocated 8 Payless stores.
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Dollars and shares in millions,
except per share data) 13 Weeks Ended 39 Weeks Ended
——————– ——————–
November November November November
1, 3, 1, 3,
2008 2007 2008 2007
——— ——— ——— ———
Net sales $ 862.7 $ 830.7 $ 2,706.8 $ 2,258.6
Cost of sales 564.0 563.5 1,820.2 1,481.9
——— ——— ——— ———
Gross margin 298.7 267.2 886.6 776.7
Selling, general and
administrative expenses 245.1 239.6 768.1 650.5
Restructuring charges 0.1 (0.1) 0.2 0.2
——— ——— ——— ———
Operating profit from
continuing operations 53.5 27.7 118.3 126.0
Interest expense 19.9 18.1 57.7 27.7
Interest income (2.7) (2.9) (6.5) (11.6)
——— ——— ——— ———
Earnings from continuing
operations before income
taxes and minority interest 36.3 12.5 67.1 109.9
(Benefit) Provision for income
taxes (12.9) (15.1) (13.4) 16.4
——— ——— ——— ———
Earnings from continuing
operations before minority
interest 49.2 27.6 80.5 93.5
Minority interest, net of
income taxes (1.8) (2.0) (4.8) (4.2)
——— ——— ——— ———
Net earnings from continuing
operations 47.4 25.6 75.7 89.3
(Loss) Earnings from
discontinued operations, net
of income taxes and minority
interest 0.1 (0.1) (0.4) –
——— ——— ——— ———
Net earnings $ 47.5 $ 25.5 $ 75.3 $ 89.3
========= ========= ========= =========
Basic earnings per share:
Earnings from continuing
operations $ 0.75 $ 0.40 $ 1.20 $ 1.38
Earnings (loss) from
discontinued operations – – – –
——— ——— ——— ———
Basic earnings per share $ 0.75 $ 0.40 $ 1.20 $ 1.38
========= ========= ========= =========
Diluted earnings per share:
Earnings from continuing
operations $ 0.75 $ 0.39 $ 1.19 $ 1.36
Earnings (loss) from
discontinued operations – – – –
——— ——— ——— ———
Diluted earnings per share $ 0.75 $ 0.39 $ 1.19 $ 1.36
========= ========= ========= =========
Basic weighted average shares
outstanding 63.0 64.6 62.9 64.6
Diluted weighted average shares
outstanding 63.2 65.3 63.1 65.7
