At its annual investor meeting last week held in Topeka, KS, Collective Brands provided long-term growth targets for the company, including sales growth of 3-5%, operating profit growth of 9-12%, and EPS growth of 12-16%. The highest growth rate is expected to come from the company’s wholesale brands, led by Saucony and Sperry Top-Sider, and Payless International.
The overall Payless business is expected to see flat to low-single-digit sales increases annually over the next three years. Payless' Latin America sales are expected to grow in the mid- to high-single-digits through store expansion and comp store sales increases. At least 80 franchise stores in nine countries will open in 2011, with opportunities to expand to 700 stores within five years and 1,400 stores long-term. Significant franchising opportunities are seen in Mexico and other emerging markets.
LuAnn Via, president and CEO of Payless ShoeSource, said Payless Domestic is targeting flat net sales growth over the next few years and is focusing on leveraging and expanding its “House of Brands” strategy. Payless' biggest brands are American Eagle for Payless, the SmartFit children's brand, Airwalk and Champion. Champion toning product has been a big seller and the overall fitness category will represent about 3.5% of Payless' total business this year. Champion minimalist running shoes are being launched for the fourth quarter. The Spot Bilt brand, leveraging Saucony technologies, is being re-launched at Payless as a crosstrainer. Accessories, beauty and children's and extended sizes are being expanded at the chain although officials said the mass channel in general for footwear remains challenging.
Globally, Payless currently does about $2.5 billion in net sales annually. Within retail currently, 76% of Collective's business is Payless Domestic; 8% is PLG (Performance + Lifestyle Group) retail, largely Stride Rite; and Payless International is 16% of the total. Within three years, Payless Domestic is expected to be reduced to 66% of Collective's business.
On the wholesale side, the Performance Lifestyle Group (PLG) has grown from $730 million in 2008 to $732 million in 2009 and is at $795 million for the trailing twelve months. PLG domestic wholesale is expected to see low- to mid-teen growth over the next three years. PLG International wholesale is expected to grow at a higher-rate, increasing to 23% of PLG's sales by 2013 from 21% currently.
Saucony has seen its sales grow from $168 million in 2008 to $192 million in 2009 and $227 million for the trailing twelve months representing a CAGR of 22.5%. Including children's sales that are included in the Stride Rite Children's Group, Saucony's sales were $257 million over the last twelve months. Management said Saucony has seen growth across channels and is evolving to a performance lifestyle brand dedicated to runners and performance athletes.
“We're going to continue to go after balanced growth,” said Richie Woodworth, Saucony's president. “We're going to continue to look to drive specialty. We're going to continue to look to drive sporting goods. And that's going to be critical for us in terms of our long-term success because the halo of that helps ride, you know, the tide around other distribution channels.”
Saucony has also capitalized by moving into new categories, including trail running and minimalism/natural movement shoes. Apparel remains a sizeable opportunity. Woodworth said Saucony has grown to become the number four apparel brand in run specialty after only entering the channel with apparel two years ago. Internationally, Saucony's sales are expected to grow to 32% by 2013 from 30% of the brand's sales currently.
Sperry has grown from $150 million in 2008 to $155 million in 2009 and stands at $179 million for the trailing twelve months. That represents a CAGR of 12.5%. Craig Reingold , president of Sperry, said the brand is successfully expanding beyond its core boat shoe business into more fashion and trend-driven product, driving substantial growth in women's business and men's casual. The women's business has grown from 15% to 20% of the total business three years ago to over half this fall. Sperry’s fall business will represent 45% to 48% of its sales, up from 30% traditionally. Non-boat shoes represent over 50% of its mix now. The brand has particularly benefited from landing in accounts such as Bergdorf, J. Crew and West Marine.
Sperry is also focusing on more innovative performance product through its Advanced Water Technology platform.
Five U.S.-based Sperry Top-Sider stores opened to date are exceeding expectations. Sperry is looking for international to expand from 4% of its business currently to 9% by 2013.
Keds' sales fell from $87 million in 2008 to $69 million in 2009 as product and distribution were eliminated that was inconsistent with its brand positioning. Revenues somewhat recovered to $76 million for the trailing twelve months.
Kristin Kohler Burrows, president of Keds Group, said the brand has benefited from repositioning around its Champion silhouette, focusing more on the Millennials, and gaining access to premium accounts such as Barneys, Neiman Marcus and Saks through collaborations. Keds is also in 200 Gap stores. The brand will look to extend Keds sports collections by contemporizing its core models and introducing toning. International growth is projected to expand from 19% of the brand's sales to 23% by 2013.
The Stride Rite's Children's Group has seen sales slide from $333 million in 2008 to $322 million in 2009 and to $319 million for the trailing twelve months. Sharon John, president of The Stride Rite Children's Group, said the division is focused on stabilizing the business.
Overall, Collective is 17% wholesale currently and 83% retail as a corporation. By 2013, it expects to be 24% wholesale and 76% retail.
