Aided by notably improved profitability at its Payless Domestic chain, Collective Brands Inc., in likely its last report as a public company, returned to profitability in the second quarter. In its wholesale segment, strong gains at Sperry Top-Sider and Stride Rite offset a rare decline at Saucony.

In May, Collective agreed to sell itself to Wolverine Worldwide and private investment firms Blum Capital Partners and Golden Gate Capital for $1.3 billion, or $21.75 per share. Wolverine will acquire the Performance + Lifestyle Group (PLG) unit, which includes Sperry, Saucony, Keds and Stride Rite. The PE firms will acquire Payless and Collective Licensing International. The sale is expected to close late in the third calendar quarter or early in the fourth.

Net earnings in the second quarter ended July 28 reached $9.7 million, or 16 cents per share, compared to a loss of $35.0 million, or 58 cents per share, in the second quarter of 2011. The profit came despite costs totaling $11.9 million on a pre-tax basis, or 18 cents per share after tax, to cover the review of strategic alternatives/pending sale of the company. On an adjusted basis in both periods, EPS nearly doubled to 34 cents a share from 16 cents a year ago. Adjusted EBITDA increased 14.2 percent to $61.3 million from $53.7 million in the prior year.

Companywide sales inched ahead 0.4 percent to $886.0 million, driven by the company's 2.9 percent comp increase and sales growth of 6.1 percent in the PLG Wholesale segment, offset in part by operating 375 fewer stores. According to its 10Q filing, footwear average selling price per unit grew 11.5 percent companywide, offsetting an 11.8 percent unit decline.

By segment, Payless Domestic’s revenues were down 3.5 percent to $477 million as a result of operating 319 fewer stores than in the comparable period last year. Same-store sales increased 2 percent as a result of an improved merchandise mix built on a higher percentage of Incredible Value Every Day product, sharper opening price points and more basic fashions. From a category perspective, women's posted a mid-single digit comp increase. Dress and casual shoes posted double digit gains while sandals had mid-to-high single digit gains.  Children's and men's categories were down single digits.

“The results reinforce the point that the new Payless strategy is working domestically as we are re-connecting with our core budget-conscious consumer,” said Michael Massey, CEO of Collective, in a statement.

Payless Domestic showed an operating loss of $7.7 million against a loss of $63.8 million in the year-ago quarter. On an adjusted basis, operating profits were $3.4 million against a $10.0 million loss a year ago. The bottom-line improvement reflected the comp gain, reduced markdowns and lower occupancy costs. At the end of the period, the segment operated
3.464 stores, down from 3,783 a year ago.

Payless International’s revenues grew 1.9 percent to $119.4 million. Latin America experienced an 11 percent comp increase, benefiting from the revised strategy and improved inventory levels, while Canada and Puerto Rico experienced mid and low single digit declines, respectively. Foreign exchange rate impacted Canada sales. Payless International earned $7.8 million on an operating basis, down from $8.6 million on a record basis and $11.1 million on an adjusted basis in the year-ago period. The profit decline was attributed to higher markdowns in Latin America due to the strategy shift and sales declines in Canada and Puerto Rico. As of July 28, the segment operated 663 stores along with 174 franchised locations.

PLG Wholesale’s revenues gained 6.1 percent to $231.0 million, led by a 20.0 percent gain at Sperry Top-Sider and high-single digit growth at the Stride Rite Children's Group. Saucony saw a mid-single digit decline as it awaited the launch of new franchise models for fall. PLG Wholesale’s operating profits reached $24.3 million against a $300,000 loss in the year ago period. On an adjusted basis, profits improved slightly, to $25.0 million from $23.9 million, helped by the higher sales and a 100 basis point improvement in gross margin. SG&A increased due to the annualization of prior year investments in infrastructure and talent.

PLG Retail’s sales jumped 10.6 percent to $58.6 million. A 12 percent increase in same store sales and the opening of 13 new Sperry Top-Sider stores offset 60 fewer Stride Rite stores. PLG Retail logged a loss of $3.2 million, down from a loss of $6.9 million a year earlier. On an adjusted basis, the loss was reduced to $3.1 million from $3.8 million, reflecting the sales growth and 50 basis point improvement in gross margin rate. At July 28, PLG Retail had 337 owned and 26 franchised stores.

Gross margins improved to 33.3 percent from 23.6 percent in the year-ago period. On an adjusted basis, the year-ago margin was 30.8 percent. The improvement reflects strong improvement in its retail businesses resulting from same store sales increases, fewer markdowns consistent with the revised strategy in Payless and lower occupancy costs as a percent of sales from closing under-performing stores over the last year.

SG&A increased to 30.9 percent of sales from 29.6 percent. On an adjusted basis, the rate was 29.6 percent against 28.4 percent, the result of additional marketing spend, primarily at Payless, and increased incentive compensation.

Inventory at the end of the quarter was $624.4 million, up 6.7 percent versus year ago levels. The gains reflect planned comp increases at Payless and Stride Rite retail stores.