Payless ShoeSource reported that same-store sales decreased 3.0% during the December reporting period, the five weeks ended January 1, 2005. Company sales totaled $284.2 million, a 5.8% decrease from $301.8 million during fiscal December of last year.

Total sales for the first eleven months of fiscal 2004 were $2.63 billion, compared with $2.65 billion during the similar period in fiscal 2003. Same- store sales decreased 0.8 percent during the first eleven months of the fiscal year.

Sales were as follows (unaudited):

                                                          Same-Store Sales**
                                           Percent             Percent
   Fiscal                 Fiscal           Increase/           Increase/
   2004*                   2003           (Decrease)          (Decrease)
  $284.2                  $301.8            (5.8)%              (3.0)%


                                                          Same-Store Sales**
                                           Percent             Percent
    Fiscal                 Fiscal          Increase/           Increase/
    2004*                   2003          (Decrease)          (Decrease)
   $2.63                   $2.65            (0.8)%              (0.8)%

Progress on Strategic Initiatives

In August the company announced a series of strategic initiatives as part of a plan designed to sharpen the company’s focus on its core business strategy, reduce expenses, accelerate decision-making, increase profitability, improve operating margin, and build value for shareowners over the long-term. The initiatives include exiting Parade, Peru and Chile; the closing of approximately 260 additional Payless ShoeSource stores; the reduction of wholesale businesses that provide no significant growth opportunity; and a reduction of the company’s expense structure.

The company estimates that the total costs relating to the strategic initiatives could be in the range of $70 million to $80 million, a reduction from previously disclosed estimates due to lower than expected costs for store closings.

Relative to the restructuring during December, the company closed 213 stores in North America. In addition, on December 17, 2004, the company entered into an agreement to transfer ownership of its Chilean entity, including all related operations and liabilities, to a group of Chilean entities. The transaction was completed on December 21, 2004.

The company expects to complete all of the strategic initiatives by the end of fiscal 2004, and to end the year with its inventory assortment appropriately positioned for Spring 2005.

The company also recently announced that it is reviewing its agency account relationship for North American advertising.