Collective Brands, Inc. reported earnings rose 12.8% in the second quarter, to $21.1 million, or 32 cents per share, from $18.7 million, or 29 cents, a year ago. Sales increased 0.6% to $841.3 million, driven by sales growth of 26.9% from the Performance + Lifestyle Group Wholesale segment that offset by Collective Brands' 5.0% comp decline.
“Our earnings increased driven by strong performance in our wholesale and international businesses, but overall results were dampened by our Payless domestic business,” said Matthew E. Rubel, chairman, chief executive officer and president of Collective Brands. “We anticipate continued strength in wholesale and international; and we are focused on fixing Payless controllables related to trend-right offerings, use of brands, and our breadth of assortment.”
2nd Qtr 2nd Qtr
2010 2009 Change
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Net sales $ 841.3 $ 836.3 $ 5.0
Gross margin 34.4% 33.0% 140 bps
Operating margin 4.4% 3.9% 50 bps
Net earnings attributable to Collective
Brands, Inc. $ 21.1 $ 18.7 $ 2.4
Diluted earnings per share $ 0.32 $ 0.29 $ 0.03
The gross margin rate increased 140 basis points primarily due to lower product costs as well as lower occupancy costs.
Operating margin increased 50 basis points as a result of higher net sales and gross margin expansion offset in part by higher selling, general and administrative (SG&A) expenses.
Inventory at the end of the second quarter was $497.5 million, up 7.7% versus the second quarter last year while aged inventory declined. The increase in inventory was driven by a greater mix of higher-priced product at Payless and accelerated growth in PLG brands. During the second quarter, Collective Brands added 24 new stores (14 Payless and 10 PLG), closed 19 stores (18 Payless and 1 PLG), and relocated 7 stores (6 Payless and 1 PLG).
Jul. 31, May 1, Jan. 30, Aug. 1,
Retail Store Counts 2010 2010 2010 2009
---------- ---------- ---------- ----------
Payless ShoeSource 4,472 4,476 4,470 4,503
Performance + Lifestyle Group 385 376 363 360
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Total Stores 4,857 4,852 4,833 4,863
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As of July 31, 2010, the company also franchised 23 Payless stores internationally, which are not reflected in the above totals.
Net debt(2) at the end of the second quarter was $434.4 million, a decline of $161.6 million from the prior year period. The company used $4.2 million of cash during the second quarter to repurchase 250,000 shares of its stock. Capital expenditures were $46.8 million through the first half of 2010, virtually flat versus the same period last year. Free cash flow(2) through the first half of 2010 was $30.7 million, down $36.5 million from the prior year period. This was due largely to changes in working capital — primarily higher inventory from the introduction of fitness, a mix shift towards boots, and growth at PLG Wholesale.
Quarterly Segment Results (dollars in millions)
2010 2009 $ Change % Change
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NET SALES
Payless Domestic $ 508.0 $ 546.8 ($ 38.8) (7.1%)
Payless International 109.8 103.7 6.1 5.9%
PLG Wholesale 174.7 137.7 37.0 26.9%
PLG Retail 48.8 48.1 0.7 1.5%
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TOTAL $ 841.3 $ 836.3 $ 5.0 0.6%
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2010 2009 $ Change % Change
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OPERATING PROFIT
Payless Domestic $ 6.8 $ 24.1 ($ 17.3) (71.8%)
Payless International 11.6 4.4 7.2 163.6%
PLG Wholesale 22.9 7.3 15.6 213.7%
PLG Retail (4.6) (3.5) (1.1) (31.4%)
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TOTAL $ 36.7 $ 32.3 $ 4.4 13.6%
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2010 2009 Change
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OPERATING MARGIN
Payless Domestic 1.3% 4.4% (310)bps
Payless International 10.6% 4.2% 640 bps
PLG Wholesale 13.1% 5.3% 780 bps
PLG Retail (9.4%) (7.3%) (210)bps
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TOTAL 4.4% 3.9% 50 bps
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- Payless Domestic — Net sales decreased due to a 6.4% comparable store sales decline and 43 fewer stores. Lower store traffic, particularly in southwestern markets, contributed to lower sales as key footwear categories such as sandals, casuals, and canvas declined. The decline was partially offset by sales gains in accessories and fitness footwear. Operating margin decreased due primarily to the sales decline and expense deleverage.
- Payless International — Net sales were higher driven by a 3.3% comparable store sales increase as a result of both favorable foreign exchange rates in Canada and stronger business performance most notably in Ecuador. In addition, the company operated 12 more net new stores due to growth 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 at Sperry Top-Sider, Saucony, and Keds domestically and internationally. Operating profit increased due to the higher sales which leveraged both cost of sales and SG&A expenses. Amortization of intangible assets due to the acquisition of the Stride Rite Corporation was approximately $3 million, or $0.03 per share, in the quarter.
PLG Retail — Net sales increased due to 25 more stores, largely offset by a 5.7% comparable store sales decline. Operating profit declined due to the comparable store sales decline, higher markdowns, and increased marketing expense.
Outlook for Collective Brands
- 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
$187 million, and it currently 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
approximately $140 million. - Capital expenditures in 2010 are expected to total approximately
$100 million. - Year-end 2010 retail store count is expected to increase by
approximately 20 stores, net of store closings.
COLLECTIVE BRANDS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars and shares in
millions, except per share
data) 13 Weeks Ended 26 Weeks Ended
-------------------- --------------------
July 31, August 1, July 31, August 1,
2010 2009 2010 2009
--------- --------- --------- ---------
Net sales $ 841.3 $ 836.3 $ 1,720.1 $ 1,699.2
Cost of sales 552.2 560.6 1,094.3 1,113.7
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Gross margin 289.1 275.7 625.8 585.5
Selling, general and
administrative expenses 252.4 243.4 507.5 492.7
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Operating profit from
continuing operations 36.7 32.3 118.3 92.8
Interest expense 12.2 15.2 25.6 31.6
Interest income (0.1) (0.2) (0.3) (0.8)
Loss on early extinguishment of
debt - - 0.8 -
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Net earnings from continuing
operations before income taxes 24.6 17.3 92.2 62.0
Provision (benefit) for income
taxes 2.6 (1.5) 14.2 4.9
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Net earnings from continuing
operations 22.0 18.8 78.0 57.1
Loss from discontinued
operations, net of income
taxes - - - (0.1)
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Net earnings 22.0 18.8 78.0 57.0
Net earnings attributable to
noncontrolling interests (0.9) (0.1) (2.7) (0.3)
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Net earnings attributable to
Collective Brands, Inc. $ 21.1 $ 18.7 $ 75.3 $ 56.7
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Basic earnings per share
attributable to Collective
Brands, Inc. common
shareholders:
Earnings per share from
continuing operations $ 0.33 $ 0.29 $ 1.17 $ 0.89
Earnings per share from
discontinued operations - - - -
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Basic earnings per share
attributable to Collective
Brands, Inc. common
shareholders $ 0.33 $ 0.29 $ 1.17 $ 0.89
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