Collective Brands Inc. reported that its loss in the fourth quarter swelled to $41.6 million, or 69 cents a share from a loss of $10.1 million, or 16 cents, a year ago. Net sales for the quarter were $815.9 million and
adjusted net sales (which exclude the impact of third-party store
liquidations) were $802.0 million, up 3.6 percent compared to fourth
quarter 2010. The sales growth was driven principally by the strong
performance of the Performance + Lifestyle Group (PLG) and the same
store sales growth at Payless Domestic.
Fourth quarter 2011 comparable store sales increased 1.7 percent, including a 1.6 percent gain at Payless Domestic due to progress in transforming the Payless business model. This represents the strongest same store sales increase since third quarter 2009.
The adjusted net loss was $36.6 million, or 61 cents per diluted share, compared to a net loss of $10.1 million, or 16 cents, in fourth quarter 2010.
The fourth quarter 2011 adjustments, which totaled $13.2 million on a pre-tax basis, or $0.08 per diluted share, were as follows:
- $11.5 million related to the store closure initiative — $7.4 million of lease termination costs, $2.4 million of severance, and $1.7 million from third-party store liquidations.
- $1.7 million related to the review of strategic alternatives.
Collective Brands' fourth quarter 2011 operating loss was $22.2 million, or $9.0 million on an adjusted basis, compared to operating profit of $2.6 million in the fourth quarter of 2010. Adjusted earnings before interest, taxes, depreciation, and amortization was $23.4 million in the fourth quarter of 2011 compared to $36.2 million in the prior year period.
“Our results reflect how the Payless Domestic strategy is connecting with our customers,” said Michael J. Massey, Chief Executive Officer of Collective Brands, Inc. “Our early stage efforts to engage budget-conscious consumers, with more value-focused assortments and messaging, began to take hold during the quarter. Our actions at Payless held traffic in the U.S. nearly flat for the best result in six years. When they came in, customers bought more, and bought more often. We believe our Payless team's initiatives are gaining traction and driving results, which gives us confidence as we move forward.”
Massey continued, “Importantly, consumer feedback along with our results show that our strategic re-direction for the Payless business is correct. We look forward to this year when our consumers will see an even greater change in the value and experience Payless offers.”
Massey added, “Our Performance + Lifestyle Group again delivered outstanding results, its eighth consecutive quarter of sales growth. The performance was led by Sperry Top-Sider and we also saw strong improvement in our Stride Rite retail and wholesale businesses.”
Quarterly Operating Segment Sales
Payless Domestic net sales increased 0.7 percent and same store sales increased 1.6 percent. Compelling price points drove increases in conversion, units, and units per transaction. Categories which sold well included Incredible Value Every Day products across departments, pumps, the Brash junior collection, and slip-resistant footwear. In addition, the e-commerce business was particularly strong.
Payless International net sales increased 2.3 percent and same store sales decreased 0.8 percent. Net sales growth was driven by new stores in Jamaica, the franchise channel, and Canada. The same store sales decline was driven by Puerto Rico and Latin America.
PLG Wholesale sales increased 21.2 percent led by Sperry Top-Sider growth across virtually all product categories and distribution channels. Saucony and Stride Rite also delivered higher sales.
PLG Retail net sales increased 13.5 percent and same store sales increased 9.6 percent. The increases were driven by the successful execution of the Stride Rite strategy which included greater inventory breadth on key ideas, focus on younger children, and effective use of licensed and third-party products. Sperry retail stores, both new and existing, also contributed to the sales gains.
Other Financial and Store Metrics
The gross margin rate in the quarter was 27.9 percent. On an adjusted basis(2), the gross margin rate was 29.5 percent, a decrease compared to last year of 230 basis points, due primarily to more aggressive pricing on product no longer aligned to the strategy, as well as higher product costs. This compares to the third quarter gross margin decline of 530 basis points.
Fourth quarter selling, general & administrative expenses as a percent of sales improved by 90 basis points due primarily to lower variable compensation and sales leverage.
Inventory at the end of the quarter was $563.4 million, up 6.0 percent. The higher inventory level was driven principally by higher product costs, additional unit growth at PLG and Payless, and moderated by store closings.
During the fourth quarter the Company opened 13 new stores (11 Payless and two PLG), closed 323 stores (279 Payless and 44 PLG), and relocated eight stores (seven Payless and one PLG). During the year the Company opened 55 new stores (44 Payless and 11 PLG), closed 403 stores (345 Payless and 58 PLG), and relocated 36 stores (32 Payless and 4 PLG).
Wholly-Owned and Joint Venture
Store Counts Jan. 28, 2012 Oct. 29, 2011 Jan. 29, 2011
------------- ------------- -------------
Payless Domestic 3,499 3,759 3,794
Payless International 661 669 667
Performance + Lifestyle Group 336 378 383
------------- ------------- -------------
Total Stores 4,496 4,806 4,844
============= ============= =============
The Company had franchised stores in 21 countries and territories as of the end of fourth quarter 2011.
Franchise Store Counts Jan. 28, 2012 Oct. 29, 2011 Jan. 29, 2011
------------- ------------- -------------
Payless International 143 115 62
Stride Rite 20 14 8
------------- ------------- -------------
Total Stores 163 129 70
============= ============= =============
Quarterly Segment Results (dollars in millions)
Adjusted
Adjusted 2011 vs. %
2011 Adjustments (1) 2011 2010 2010 Change
------ ----------- --------- ------ --------- ------
Net Sales
Payless
Domestic $459.1 $ (12.9) $ 446.2 $455.8 $ (9.6) (2.1%)
Payless
International 135.0 $ (1.0) 134.0 132.0 2.0 1.5%
PLG Wholesale 168.1 - 168.1 138.7 29.4 21.2%
PLG Retail 53.7 - 53.7 47.3 6.4 13.5%
------ ----------- --------- ------ --------- ------
Total $815.9 $ (13.9) $ 802.0 $773.8 $ 28.2 3.6%
====== =========== ========= ====== ========= ======
Operating
Profit/(Loss)
Payless
Domestic $(36.3) $ 11.5 $ (24.8) $(16.2) $ (8.6) (53.1%)
Payless
International 12.8 0.4 13.2 17.8 (4.6) (25.8%)
PLG Wholesale 9.4 - 9.4 8.2 1.2 14.6%
PLG Retail (8.1) 1.3 (6.8) (7.2) 0.4 5.6%
------ ----------- --------- ------ --------- ------
Total $(22.2) $ 13.2 $ (9.0) $ 2.6 $ (11.6) NM
====== =========== ========= ====== ========= ======
Adjusted
Adjusted(1) 2011 vs.
2011 2011 2010 2010
----- ------------ ----- ------------
Operating Margin
Payless Domestic (7.9%) (5.6%) (3.6%) (200 bps)
Payless International 9.5% 9.9% 13.5% (360 bps)
PLG Wholesale 5.6% 5.6% 5.9% (30 bps)
PLG Retail (15.1%) (12.7%) (15.2%) 250 bps
----- ------------ ----- ------------
Total (2.7%) (1.1%) 0.3% (140 bps)
===== ============ ===== ============
Store Closings
The Company moved forward on its stated plan to close approximately 475 underperforming and low volume, non-strategic stores by year-end 2013. Approximately 400 of the stores slated to close are Payless stores in the U.S., Canada, and Puerto Rico and about 75 are Stride Rite Children's locations in the U.S. In 2011, the Company closed 352 of the 475 stores — 298 Payless and 54 Stride Rite.
Lease termination, severance, and other exit costs for the entire closing period is expected to total $20 million to $25 million of which $13.0 million was recorded during 2011. Collective Brands still anticipates an annual improvement in operating profit of $18 million to $22 million from the closures driven primarily by estimated sales transfer to remaining locations from closed stores. Most of the benefit should be realized in 2012.
Strategic Review is Progressing
The review of strategic alternatives to enhance shareholder value, currently being undertaken by the Company's Board of Directors and management, continues to progress.
Outlook for Collective Brands
- PLG Wholesale sales in the first quarter are expected to grow at a high-single-digit percentage. First quarter backlog is up 1 percent with a greater mix of reorders versus future orders and a lower level of cancellations expected in the first quarter.
- The effective tax rate for 2012 is expected to be approximately 16 percent excluding discrete events.
- Capital expenditures are expected to total approximately $80 million – $85 million in 2012.
- Depreciation and amortization for 2012 is expected to total approximately $125 million.
- Year-end 2012 retail net store count is expected to decrease by approximately 50 stores from the prior year.
