Collective Brands reported third-quarter earnings rose 29.0% to $47.6 million, or 75 cents per share, from $36.9 million, or 57 cents a year ago. Taking into account last year's non-GAAP adjustments, third quarter 2009 net income was $39.4 million, or $0.61 per diluted share.
Net sales increased 1.7% to $881.8 million. This was driven by sales growth of 26.9% from the Performance + Lifestyle Group (PLG) Wholesale segment partially offset by Collective Brands' 2.7% comparable store sales decline. The Oprah Winfrey promotional event in third quarter 2009 was not anniversaried this year and included approximately $20 million in sales affecting the third quarter 2010 comparable store sales comparison by nearly three percentage points.
“Collective Brands had a strong quarter, as we again delivered a double-digit percentage earnings increase. Our business model is working well — offering customers great brands across multiple categories, price points, distribution channels and geographies while leveraging shared platforms and capabilities,” said Matthew E. Rubel, Chairman, Chief Executive Officer and President of Collective Brands, Inc. “Our Performance & Lifestyle Group delivered sales growth in every brand — Sperry Top-Sider, Saucony, Keds and Stride Rite — and in each distribution channel: wholesale, retail, and e-commerce. Payless sales and earnings again showed strong growth internationally, while the domestic business showed improvement from the second quarter.”
Consolidated Quarterly Results — Selected unaudited financial data (dollars in millions, except per share data) for the 13 weeks ended October 30, 2010 and October 31, 2009:
3rd Qtr 3rd Qtr
2010 2009 Change
------- ------- --------
Net sales $881.8 $867.0 $14.8
Gross margin 37.3% 36.0% 130 bps
Operating margin 7.8% 7.0% 80 bps
Net earnings attributable
to Collective Brands, Inc. $47.6 $36.9 $10.7
Diluted earnings per share $ 0.75 $0.57 $0.18
— Net sales for the quarter increased $14.8 million due to global growth in PLG Wholesale and Payless International partially offset by Collective Brands' 2.7% comparable store sales decline.
— The gross margin rate increased 130 basis points primarily due to less promotional activity at retail and more first-quality sales at wholesale as well as lower occupancy costs. Approximately 50 basis points of the increase was due to the combination of the Oprah promotion and non-GAAP adjustments last year.
— Operating margin increased 80 basis points as higher net sales and gross margin were partially offset by increased marketing spending
Year-to-date, Collective Brands sales increased 1.4% to $2,601.9 million and operating profit increased 21.7% to $187.1 million. Earnings per share increased 30.1% to $1.90.
Inventory at the end of the third quarter was $492.5 million, up 22.1% versus the third quarter last year. The higher inventory level was driven by lower than normal inventory last year due to sell-off related to the Oprah promotion, a greater mix of higher-cost product at Payless, inventory to support the growth of the PLG brands, and higher product costs per unit. Aged inventory as a percentage of total inventory decreased. Overall inventory levels are in-line with expectations and well-positioned for the fourth quarter.
During the third quarter, the company added 19 new Payless stores, closed 19 stores (14 Payless and 5 PLG), and relocated 8 Payless stores.
Retail Store
Counts 10/30/10 07/31/10 01/30/10 10/31/09
————- ————- ————- ————-
Payless
Lifestyle Group 380 385 363 363
————- ————- ————- ————-
Total Stores 4,857 4,857 4,833 4,846
============= ============= =============
As of October 30, 2010, the company also franchised 32 Payless stores internationally (which are not reflected in the above totals).
Net debt(2) at the end of the third quarter was $347.4 million, a decline of $72.4 million from the prior year period. During the third quarter, the Company repurchased 2.0 million shares for $28.0 million and paid down $62.6 million of debt. Capital expenditures through the first three quarters of 2010 were $67.3 million. Free cash flow(2) through the first three quarters of 2010 was $146.1 million.
Quarterly Segment Results (dollars in millions)
2010 2009 $ Change % Change
--------- --------- --------- ---------
NET SALES
Payless Domestic $ 548.9 $ 578.1 $ (29.2) (5.1%)
Payless International 118.5 110.0 8.5 7.7%
PLG Wholesale 141.6 111.6 30.0 26.9%
PLG Retail 72.8 67.3 5.5 8.2%
--------- --------- --------- ---------
TOTAL $ 881.8 $ 867.0 $ 14.8 1.7%
========= ========= ========= =========
2010 2009 $ Change % Change
--------- --------- --------- ---------
OPERATING PROFIT
Payless Domestic $ 35.3 $ 44.5 $ (9.2) (20.7%)
Payless International 19.1 11.2 7.9 70.5%
PLG Wholesale 7.3 0.1 7.2 N.A.
PLG Retail 7.1 5.2 1.9 36.5%
--------- --------- --------- ---------
TOTAL $ 68.8 $ 61.0 $ 7.8 12.8%
========= ========= ========= =========
2010 2009 Change
--------- --------- ---------
OPERATING MARGIN
Payless Domestic 6.4% 7.7% (130) bps
Payless International 16.1% 10.2% 590 bps
PLG Wholesale 5.2% 0.1% 510 bps
PLG Retail 9.8% 7.7% 210 bps
--------- --------- ---------
TOTAL 7.8% 7.0% 80 bps
— Payless Domestic — Net sales decreased due to a 4.6% comparable store sales decline and 31 fewer stores. The anniversary of the Oprah promotion unfavorably impacted the segment's comparable store sales by three percentage points. Gains in boots, accessories, and fitness footwear were more than offset by declines in select children's and women's departments. Operating profit decreased due primarily to the sales decline offset in part by gross margin improvement.
— Payless International — Net sales increased driven by comparable store sales growth of 4.9% led by Latin America, favorable foreign exchange rates in Canada, and 25 more net new stores primarily in Latin America. Operating profit increased due to sales growth combined with gross margin expansion in every region.
— PLG Wholesale — Net sales increased 26.9% due to higher sales in all brands — Sperry Top-Sider, Saucony, Keds, and Stride Rite. Operating profit increased due to higher sales offset in part by higher marketing costs. Amortization of intangible assets due to the acquisition of PLG was $2.8 million, or $0.03 per share, in the quarter.
— PLG Retail — Net sales increased driven by 1.6% comparable store sales growth and 17 more stores. Operating profit increased due to the sales increases, fewer markdowns, and cost improvement initiatives.
Outlook for Collective Brands
— Over the long term, the Company has set a target to grow earnings per share approximately 12% to 16% annually. This would be driven by 3% to 5% net sales growth and 9% to 12% operating profit growth.
— The Company intends to reduce its leverage ratio of Net Debt to EBITDA(2) to near 1x by the end of fiscal 2010.
— Currently, the Company has a share repurchase authorization of $159 million and intends to repurchase shares to the extent permitted by its debt covenants.
— The 2010 effective tax rate is expected to be approximately 18% excluding discrete events.
— Depreciation and amortization for 2010 is expected to total nearly $140 million.
— Capital expenditures are expected to total nearly $100 million in 2010 and increase to $110 million in 2011.
— Year-end 2010 retail store count is expected to increase by approximately 20 stores, net of store closings.
——- ——- ——
Payless
Payless Domestic 55 80 (25)
Payless International 40 15 25
——- ——- ——
Payless Total 95 95 0
PLG Total 25 5 20
——- ——- ——
Collective Brands Tota 120 100 20
======= ======= ======
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 30, October 31, October 30, October 31,
2010 2009 2010 2009
---------- ---------- ---------- ----------
Net sales $ 881.8 $ 867.0 $ 2,601.9 $ 2,566.2
Cost of sales 552.6 555.2 1,646.9 1,668.9
---------- ---------- ---------- ----------
Gross margin 329.2 311.8 955.0 897.3
Selling, general and
administrative expenses 260.4 250.8 767.9 743.5
---------- ---------- ---------- ----------
Operating profit from
continuing operations 68.8 61.0 187.1 153.8
Interest expense 12.0 14.8 37.6 46.4
Interest income (0.3) (0.2) (0.6) (1.0)
Loss on early
extinguishment of debt 0.5 - 1.3 -
---------- ---------- ---------- ----------
Net earnings from
continuing operations
before income taxes 56.6 46.4 148.8 108.4
Provision for income taxes 6.4 8.2 20.6 13.1
---------- ---------- ---------- ----------
Net earnings from
continuing operations 50.2 38.2 128.2 95.3
Loss from discontinued
operations, net of income
taxes - (0.1) - (0.2)
---------- ---------- ---------- ----------
Net earnings 50.2 38.1 128.2 95.1
Net earnings attributable
to noncontrolling
interests (2.6) (1.2) (5.3) (1.5)
---------- ---------- ---------- ----------
Net earnings attributable
to Collective Brands, Inc. $ 47.6 $ 36.9 $ 122.9 $ 93.6
========== ========== ========== ==========
Basic earnings per share
attributable to Collective
Brands, Inc. common
shareholders:
Earnings per share
from continuing
operations $ 0.75 $ 0.58 $ 1.92 $ 1.47
Earnings per share
from discontinued
operations - - - -
---------- ---------- ---------- ----------
Basic earnings per share
attributable to Collective
Brands, Inc. common
shareholders: $ 0.75 $ 0.58 $ 1.92 $ 1.47
========== ========== ========== ==========
Diluted earnings per share
attributable to Collective
Brands, Inc. common
shareholders:
Earnings per share
from continuing
operations $ 0.75 $ 0.57 $ 1.90 $ 1.46
Loss per share from
discontinued
operations - - - -
---------- ---------- ---------- ----------
Diluted earnings per share
attributable to Collective
Brands, Inc. common
shareholders: $ 0.75 $ 0.57 $ 1.90 $ 1.46
========== ========== ========== ==========
