Payless ShoeSource, Inc. reported that for the fourth quarter of fiscal 2002, which ended February 1, 2003, diluted earnings per share were $0.22, including a non-recurring benefit of $0.07 cents per diluted share resulting from lower than anticipated net costs associated with the company’s restructuring recorded in the fourth quarter 2001. This compares with a loss of $1.53 per diluted share during the fourth quarter of fiscal 2001, including non-recurring charges of $1.94 per diluted share associated with the company’s 2001 restructuring actions. Excluding the non-recurring items, diluted earnings per share were $0.15 in the fourth quarter 2002 and $0.41 in the fourth quarter 2001.
Diluted earnings per share for the fiscal year 2002 were $4.64, compared with diluted earnings per share of $2.01 for the fiscal year 2001. Diluted earnings per share in the fiscal year 2002 were benefited by $0.13 due to lower than anticipated restructuring costs, including $0.06 from the second and third quarters as previously announced. Excluding the non-recurring items, the company’s diluted earnings per share in the fiscal year 2002 were $4.51, a 15 percent increase from diluted earnings per share of $3.91 in the fiscal year 2001.
The company recorded net earnings of $5.1 million during the fourth quarter 2002 compared with a net loss of $34.0 million during the fourth quarter 2001. Excluding the non-recurring items, net earnings were $3.4 million in the fourth quarter 2002 and $9.1 million in the fourth quarter 2001. In the fiscal year 2002, net earnings were $105.8 million compared to $45.4 million during the fiscal year 2001. Excluding the non-recurring items, net earnings were $102.8 million in the fiscal year 2002 and $88.5 million in the fiscal year 2001.
Company sales for the fourth quarter 2002 totaled $650.5 million, a 1.3 percent increase from $642.3 million during the fourth quarter 2001. In the fourth quarter 2002, same-store sales decreased 0.5 percent from the fourth quarter 2001. Company sales for the fiscal year 2002 totaled $2.88 billion, a 1.2 percent decrease from $2.91 billion in the fiscal year 2001. During the fiscal year 2002, same-store sales decreased 3.2 percent.
Gross margin was 25.9 percent of sales in the fourth quarter 2002 versus 28.4 percent in the fourth quarter 2001. The decline resulted from additional freight costs associated with the work stoppage at the West Coast ports. In addition, delayed receipts compressed the selling period for some merchandise resulting in a higher than anticipated level of markdowns. All merchandise that was affected by the work stoppage was received by fiscal year-end. For the full fiscal year 2002, gross margin was 30.3 percent of sales, compared with 30.3 percent in the fiscal year 2001.
Selling, general and administrative expenses decreased during the fourth quarter 2002 by $4.3 million from the fourth quarter 2001. The decline resulted primarily from the reversal of accruals for employee incentive programs. As a percent of sales, SG&A expenses were 24.9 percent in the fourth quarter 2002 versus 25.9 percent in the fourth quarter 2001. In the fiscal year 2002, SG&A expenses declined by $19.3 million versus last year and were 24.2 percent of sales versus 24.6 percent in the fiscal year 2001. The reduction reflects the benefits of the company’s restructuring actions. The company previously announced that the annualized benefit of the restructuring would be in the range of $25 million to $30 million, including cost of sales and SG&A. Performance in 2002 was consistent with that estimate.
As of the end of the fiscal year 2002, the company had closed 93 under- performing stores of the 104 stores originally identified as part of the restructuring. Based on further analysis, the company determined not to close seven of the 104 stores. The remaining four stores will be closed in 2003. At the end of the fourth quarter 2002, a $3.8 million reserve remained, from the original $41.4 million cash charge, to complete the restructuring.
The company ended the fiscal year 2002 with a cash balance of $74 million.
Total company inventories at the end of fiscal year 2002 were $452 million
compared to $340 million at the end of fiscal year 2001. In the second
quarter 2002, the company began to recognize beneficial ownership of certain
raw material inventory as part of a restructuring of its supply chain
organization. Year-end 2002 inventory includes $15 million of these raw
materials. Average total inventory per store increased 32.5 percent compared
with the end of last year. This increase is consistent with the company’s
expectations, as announced at the end of the third quarter 2002. It reflects
the company’s implementation of its repositioning strategy, assuring customers
of greater availability and a broader selection of merchandise.
Long-term debt, including current maturities, declined by $87 million in
the fiscal year 2002. The company’s debt to capital ratio was 30 percent at
the end of the fiscal year 2002, compared with 41 percent at the end of the
fiscal year 2001.
“During 2002, Payless ShoeSource achieved earnings growth in a challenging retail environment. In addition, the company generated sufficient cash flow to increase working capital, reduce debt and maintain a strong cash position at year-end,” said Steven J. Douglass, Chairman and Chief Executive Officer of Payless. “We have the flexibility to manage inventory to meet our customers demands for greater availability and a broader selection of merchandise, consistent with our repositioning strategy. Current inventory is fresh and response from customers has been positive.”
Total capital expenditures for the fiscal year 2002 were $98.8 million, including a $9.1 million contribution from the company’s joint venture partners, for a net of $89.7 million. Payless expects total capital expenditures for fiscal 2003 to be approximately $130 million, including a $7 million contribution from the company’s joint venture partners in Latin America, for a net of $123 million. The increase will support a larger number of store remodels to enhance the shopping environment for customers as part of the repositioning strategy, and systems development.
In the fourth quarter 2002, the company opened 72 new stores and closed 42, bringing the total store count to 4,992. During the fiscal year 2002, the company opened 232 stores and closed 204, for a net increase of 28. For the fiscal year 2003, the store count is expected to increase by 50 – 60 net new stores.
Payless continues to drive its merchandising message to the marketplace by leveraging the credibility, popularity and style expertise of two celebrities: Star Jones and Ana Maria Conseco. These celebrities are important components in Payless integrated customer communications campaigns, which include print and television advertising, in-store signage and public relations. The campaigns are designed to accelerate consumer understanding of Payless as the smart shopper’s choice for fashion-right, value-priced footwear and accessories.
During the fourth quarter 2002, the company opened 20 new stores in the Central American and Caribbean region, ending the year with 121 stores in 8 countries in this region. The company intends to open 25 – 30 stores in this region during the fiscal year 2003. The company believes the Central American and Caribbean region represents a 150 to 200 store opportunity.
In addition, during the fourth quarter 2002 Payless opened 13 new stores in South America. The company now operates 42 stores in this region, in the countries of Ecuador, Peru and Chile. The company intends to open 10 – 15 stores in this region during the fiscal year 2003, and believes the Andean region of South America to be approximately a 300-store opportunity.
The company is currently operating 274 stores in Canada and expects to open approximately 10 net new Canadian stores during the fiscal year 2003.
Payless continues to explore additional opportunities to expand its core business in new International markets.
The company also announced that its Board of Directors has authorized a 3:1 split of the company’s common stock in the form of a stock dividend payable on March 27, 2003 to shareowners of record as of March 13, 2003. This action is intended to increase the liquidity of the company’s stock and provide a more attractive entry price for shareowners, affording the company the potential to broaden its shareowner base. All of the share and per-share numbers presented in this press release are calculated on a pre-split basis.
Outlook for First Quarter and Full Year 2003
For the first quarter 2003 Payless ShoeSource anticipates low single-digit positive same-store sales, and diluted earnings per share in the range of $1.15 – $1.25, calculated on a pre-split basis. The company recorded earnings per diluted share of $1.05 in the first quarter 2002. For the fiscal year 2003, the company expects low single-digit positive same-store sales and diluted earnings per share in the range of $4.65 – $5.25, calculated on a pre- split basis. The company intends to begin reporting share and per share data on a post-split basis after March 27, 2003.
PAYLESS SHOESOURCE, INC.
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(Millions, except per share data)
13 Weeks 52 Weeks
Ended Ended Ended Ended
Feb. 1, Feb. 2, Feb. 1, Feb. 2,
2003 2002 2003 2002
Net retail sales $650.5 $642.3 $2,878.0 $2,913.7
Cost of sales 482.2 460.1 2,006.1 2,032.3
Gross Margin 168.3 182.2 871.9 881.4
Selling, General and Administrative
Expenses 162.2 166.5 696.6 715.9
Non-recurring (benefit) charge (2.2) 65.6 (2.8) 65.6
Operating Profit 8.3 (49.9) 178.1 99.9
Interest expense, net 3.9 6.2 19.2 28.1
Earnings (Loss) Before Income Taxes, 4.4 (56.1) 158.9 71.8
and Minority Interest
Provisions (Benefits) for income taxes 1.6 (21.4) 58.0 27.6
Net Earnings (Loss) Before Minority
Interest 2.8 (34.7) 100.9 44.2
Minority Interest 2.3 0.7 4.9 1.2
Net Earnings (Loss) $5.1 $(34.0) $105.8 $45.4
