Collective Brands Sees Higher Input Costs Impact Fourth Quarter Profitability

The net loss in the period was slightly trimmed to $10.1 million, or 16 cents per share, from $10.9 million, or 17 cents, a year ago. The bottom-line improvement was due to sales and comps increases, SG&A leverage, and lower interest expense due to debt reduction. Revenues increased 4.3% to $773.8 million, driven by sales growth of 19.8% from the PLG Wholesale segment and an overall comp increase for its retail stores.

Payless Domestic segment sales dipped 0.4% to $455.8 million due to comp decrease of 0.4% as well as a reduction of 33 stores versus the prior year.  Payless domestic's operating loss widened to $16.2 million from $12.7 million due principally to more markdowns and marketing investments. Gains in boots, accessories, flats and moccasins drove higher average selling prices, units per transaction and customer conversion, according to comments from Matt Rubel, CEO, president and chairman, in a conference call with analysts. However, the favorable results were offset by lower customer traffic, which led to lower sales, particularly in children's and dress footwear.

Athletics had mixed results at Payless Domestic, despite strength in fitness. But Rubel noted that the addition of Above The Rim and Spot-Bilt are designed to drive results among male customers in basketball and crosstraining categories, respectively. The two new brands will complement its existing athletic lineup consisting of Champion and Airwalk. Champion minimalist running shoes will be introduced this year.
At Payless International, revenues climbed 6.5% in the quarter to $132.0 million, driven in part by comp growth of 3.3%. Operating earnings advanced 6.6% to $17.8 million due to profit growth in Latin America and in the franchise channel.

 

The top-line gains were driven by comp increases in Latin America and Canada, new stores in Colombia and the favorable impact of exchange rates. The retailer’s first four stores in Jamaica opened in the fourth quarter and the region is “off to a spectacular start,” said Rubel. The first quarter will mark Payless' entry into Turkey, Israel and Indonesia.

PLG Wholesale segment revenues grew 19.8% to $138.7 million led by Sperry Top-Sider and Saucony as well as higher sales of all brands internationally. Operating profits eased 1.2% to $8.2 million as increased sales were offset by higher product costs. As a result of its backlog of $191 million for delivery in first quarter, which increased 49%, PLG Wholesale sales in the first quarter are expected to increase in the high-teens percentage over first quarter 2010.

At Sperry Top-Sider, sales increased significantly across all genders. Said Rubel, “While our men's business grew substantially, our women's business has grown even more, now representing just over half our sales. In addition, younger consumers and the premium channels in which they shop help drive results.”

A strong response was seen for its Sonar performance water shoes for boating. Dress and dress casual shoes featuring Sperry's anti-shock and vibration technology will launch this fall. Significant growth for Sperry was also seen online, international and at its retail stores.

Sperry's first seven stores opened last year are exceeding plans.
Saucony had “another great quarter of sales,” led by its success with minimalism styles, said Rubel. Kinvara continues to be the centerpiece of the platform. Mirage, a lightweight though with more structured model than the Kinvara, is also finding success. Saucony is also gaining traction targeting the sprinting market. Apparel “continues to accelerate,” led by the Vizi-Pro high-visibility collection. Also driving apparel were its Epic jacket and Amp Pro recovery wear. Saucony also had “significant” quarterly sales growth internationally, led by Europe and through its e-commerce channel.

While up for the year, Keds sales declined slightly in Q4 due to changes in product mix. Keds had “strong” Q4 international sales, and continued to build new business accounts across channels globally with accelerated growth in top-tier accounts.

For 2011, Keds is launching an online and offline marketing campaign, entitled, How Do You Do? to create buzz, and is also adding more fall and holiday products to better establish Keds as a year-round brand. A licensing arrangement with Li & Fung was also just signed to develop a line of Keds men's and women's apparel.

PLG Retail segment sales grew 6.3% in the quarter to $47.3 million, driven by 0.4% same-store growth and an additional 20 stores. The segment's loss shrunk slightly to $7.2 million from $7.6 million. due to the sales increases, SG&A improvement initiatives, and fewer markdowns. Programs such as Slingshot, Glitzy Pets and Star Wars complemented by marketing messages targeting moms and kids in appropriate channels drove top-line growth.

Collective's overall gross margin rate decreased 110 basis points due principally to more markdown activity this year versus lower-than-normal markdown activity last year; higher product and freight costs; and a greater mix of wholesale sales which generate lower gross margins than retail. SG&A ratio improved by 70 basis points.
In the first quarter, Collective expects product costs to increase in the mid- to high-single-digit range and that rate could increase to a high-single-digit percentage rate in the second quarter.