TOPEKA, Kan., Aug. 23 /PRNewswire-FirstCall/ -- Payless ShoeSource,
Inc. (NYSE: PSS) today reported that for the second quarter of fiscal 2006,
which ended July 29, 2006, diluted earnings per share increased to $0.48
from $0.29 during the second quarter of fiscal 2005. The Company recorded
net earnings of $32.5 million during the second quarter 2006 compared with
$19.9 million during the second quarter 2005.
Second quarter and year-to-date results include expenses relating to
the Company's adoption of SFAS 123(R), "Share Based Payment," effective at
the beginning of fiscal 2006. The incremental impact of SFAS 123(R) on net
earnings for the second quarter 2006 was approximately $2 million pre-tax,
or ($0.02) per diluted share. For the first six months of fiscal 2006, the
incremental impact of SFAS 123(R) was approximately $4 million pre-tax, or
($0.04) per diluted share. The Company currently estimates that the
incremental impact of SFAS 123(R) on full year results for fiscal 2006 will
be approximately $8 million pre-tax, or ($0.08) per diluted share.
During the first six months of 2006, net earnings were $68.5 million
and diluted earnings per share were $1.01. This compares with net earnings
of $50.1 million and diluted earnings per share of $0.74, in the first six
months of 2005, a 36 percent increase in diluted earnings per share
year-to-date.
Same-store sales increased 2.2 percent during the second quarter 2006.
Company sales during the second quarter 2006 totaled $706.4 million, a 1.8
percent increase from $693.9 million during the second quarter 2005.
Average unit retail for footwear increased by 12.3 percent, and footwear
unit sales decreased by 8.3 percent relative to the same period last year.
Sales during the first six months of 2006 totaled $1.40 billion, a 0.9
percent increase over the first six months of 2005. During the first six
months of 2006, same-store sales increased 1.3 percent.
Gross margin was 34.5 percent of sales in the second quarter 2006
versus 33.9 percent in the second quarter 2005. Merchandise margin improved
1.5 percent as a percent of sales, compared to second quarter 2005, driven
primarily by favorable initial mark-on relative to last year, but partially
offset by increases in markdowns in the quarter. The improvement in
merchandise margin was also partially offset by increases in occupancy
costs compared to last year. Gross margin as a percent of sales was also
benefited 0.3 percent by a gain from insurance recoveries due to
hurricanes. During the first six months of 2006, gross margin was 35.7
percent of sales versus 34.5 percent in the first six months of 2005.
Selling, general and administrative expenses were 27.5 percent of sales
in the second quarter 2006 versus 29.0 percent in the second quarter 2005.
The decrease was driven primarily by the $7.9 million in management
transition costs incurred last year, or 1.1 percent of sales in 2005, and
the receipt of Visa Check/Mastermoney Antitrust settlement proceeds of $2.3
million, or 0.3 percent of sales in 2006, partially offset by increased
advertising expenses during the second quarter. During the first six months
of 2006, selling, general and administrative expenses were 28.1 percent of
sales versus 28.6 percent in the first six months of 2005.
The Company's effective income tax rate was 34.7 percent during the
second quarter 2006. For the full fiscal year 2006, the effective income
tax rate is expected to be approximately 35 percent, excluding discrete
events.
CEO's Comments
"We are pleased with our earnings growth in the second quarter," said
Matthew E. Rubel, Chief Executive Officer and President of Payless
ShoeSource, Inc. "The combination of low single digit same-store sales
growth, gross margin expansion and prudent expense control demonstrates
that these factors working in concert can drive earnings improvements in
the future. Our new product, store format and service initiatives are
resonating with our consumer."
International
The Company is committed to refining its international business
strategy, and is very pleased with its growth and operating performance in
Latin America. In order to focus on additional opportunities for expansion
in this region, the Company will exit retail operations in Japan, closing
its one test location. The exit of operations is planned to be
substantially completed by the end of the third quarter of 2006. Total exit
costs are estimated to be between $2 and $3 million, with virtually all
costs incurred in the third quarter of 2006. Results of Japan retail
operations for all periods will be reported as discontinued operations
beginning with the third quarter of 2006.
Balance Sheet
The Company ended the second quarter 2006 with cash, cash equivalents
and short-term investments of $443 million, an increase of $5 million over
the cash, cash equivalents and short-term investment balance as of the end
of fiscal 2005.
Total inventories at the end of the second quarter 2006 were $351
million, compared to $362 million at the end of second quarter 2005.
Inventory per store at the end of the second quarter decreased by 2.2
percent compared to the same period last year. The Company's inventory is
well positioned, with a low level of aged merchandise.
Capital Expenditures
Cash used for capital expenditures was $29.8 million during the second
quarter 2006. During fiscal year 2006, Payless expects capital expenditures
to be approximately $120 million.
Store Count
In the second quarter 2006, the Company opened 10 new stores and closed
28, for a net decrease of 18 stores. The Company also relocated 28 stores.
The store count as of the end of the second quarter 2006 was 4,584. During
fiscal year 2006, the Company intends to open approximately 70 new stores
and close approximately 70, for no change in store count. The Company also
intends to relocate approximately 120 stores.
Share Repurchase
The Company's capital allocation strategy is designed to fund both the
necessary investments to improve the business and, when cash reserves are
adequate, to use free cash flow to return more immediate value to
shareowners.
During the second quarter of 2006, the Company repurchased $30 million,
or approximately 1.2 million shares of common stock under its stock
repurchase program. Under the indenture governing the Company's 8.25%
Senior Subordinated Notes, the Company may repurchase approximately an
additional $36 million of common stock. This limit will continue to adjust
quarterly based on the Company's net earnings.
Fiscal 2006 Outlook
Payless ShoeSource remains committed to its long-standing goal to
achieve low single-digit positive same-store sales on a consistent basis,
through successful execution of its merchandising strategies. The Company
does not provide guidance for sales, earnings or margins. However, the
Company's business model and strategy is designed to leverage its sales
performance, and the goal is to achieve earnings per share growth in the
mid-teens over time.
Additional financial metrics for fiscal 2006 are expected to include:
-- Depreciation and amortization of approximately $90 - $95 million;
-- Cash used for capital expenditures are planned at $120 million; and,
-- Working capital should be approximately neutral, subject to normal
seasonal fluctuations.
Payless ShoeSource, Inc. is the largest specialty family footwear
retailer in the Western Hemisphere, dedicated to democratizing fashion and
design in footwear and accessories and inspiring fun, fashion possibilities
for the family at a great value. As of the end of the second quarter 2006,
the Company operated a total of 4,584 stores. In addition, customers can
buy shoes over the Internet through Payless.com(R), at
http://www.payless.com .
This release contains forward-looking statements relating to such
matters as anticipated financial performance, expansion opportunities,
consumer spending patterns, capital expenditure plans, business prospects,
products, future store openings and closings, possible strategic
initiatives and similar matters. Forward-looking statements are identified
by words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," or variations of such words. A variety of known and unknown risks
and uncertainties and other factors could cause actual results and
expectations to differ materially from the anticipated results or
expectations which include, but are not limited to: changes in consumer
spending patterns; changes in consumer preferences and overall economic
conditions; the impact of competition and pricing; changes in weather
patterns; the financial condition of the Company's suppliers and
manufacturers; changes in existing or potential duties, tariffs or quotas
and application thereof; changes in relationships between the United States
and foreign countries, changes in relationships between Canada and foreign
countries; economic and political instability in foreign countries, or
restrictive actions by the governments of foreign countries in which
suppliers and manufacturers from whom the Company sources are located or in
which the Company has retail locations or otherwise does business; changes
in trade, intellectual property, customs and/or tax laws; fluctuations in
currency exchange rates; litigation, including intellectual property and
employment litigation; availability of suitable store locations on
acceptable terms; the ability to terminate leases on acceptable terms; the
ability to hire and retain associates; performance of other parties in
strategic alliances; general economic, business and social conditions in
the countries from which we source products, supplies or have or intend to
open stores; performance of partners in joint ventures; the ability to
comply with local laws in foreign countries; threats or acts of terrorism;
strikes, work stoppages and/or slow downs by unions that play a significant
role in the manufacture, distribution or sale of product; congestion at
major ocean ports; changes in the value of the dollar relative to the
Chinese Yuan and other currencies. Please refer to the Company's 2005
Annual Report on Form 10-K for the fiscal year ended January 28, 2006, or
the Company's Form 10-Q for the period ending April 29, 2006, for more
information on these and other risk factors that could cause actual results
to differ. The Company does not undertake any obligation to release
publicly any revisions to such forward- looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
[Unaudited Condensed Consolidated Statements of Earnings, Balance
Sheets and Statements of Cash Flows Attached]
NOTE REGARDING ATTACHMENTS:
-- The unaudited condensed consolidated statements of earnings, balance
sheets and statements of cash flows have been prepared in accordance
with the Company's accounting policies as described in the Company's
2005 Form 10-K, on file with the Securities and Exchange Commission,
are subject to reclassification, and should be read in conjunction with
the 2005 Annual Report to Shareowners. In the opinion of management,
this information is fairly presented, and all adjustments (consisting
only of normal recurring adjustments) necessary for a fair statement of
the results for the interim periods have been included.
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Millions, except per share data)
13 Weeks Ended 26 Weeks Ended
July 29, July 30, July 29, July 30,
2006 2005 2006 2005
Net sales $706.4 $693.9 $1,401.2 $1,389.1
Cost of sales 462.5 458.8 901.6 909.6
Gross margin 243.9 235.1 499.6 479.5
Selling, general and administrative
expenses 194.4 200.9 394.1 397.6
Restructuring charges 0.3 - 0.3 0.7
Operating profit from continuing
operations 49.2 34.2 105.2 81.2
Interest expense 4.5 5.0 9.4 9.9
Interest income (5.2) (2.6) (10.0) (4.3)
Earnings from continuing operations
before income taxes and minority
interest 49.9 31.8 105.8 75.6
Provision for income taxes 17.3 10.1 36.8 22.6
Earnings from continuing operations
before minority interest 32.6 21.7 69.0 53.0
Minority interest, net of income taxes (0.2) 0.1 (0.2) 0.5
Net earnings from continuing
operations 32.4 21.8 68.8 53.5
Gain (loss) from discontinued
operations, net of income taxes and
minority interest 0.1 (1.9) (0.3) (3.4)
Net earnings $32.5 $19.9 $68.5 $50.1
Basic earnings per share:
Earnings from continuing
operations $0.49 $0.32 $1.03 $0.79
Loss from discontinued operations - (0.03) - (0.05)
Basic earnings per share: $0.49 $0.29 $1.03 $0.74
Diluted earnings per share
Earnings from continuing
operations $0.48 $0.32 $1.02 $0.79
Loss from discontinued operations - (0.03) (0.01) (0.05)
Diluted earnings per share $0.48 $0.29 $1.01 $0.74
Basic weighted average shares
outstanding 66.5 67.5 66.5 67.3
Diluted weighted average shares
outstanding 67.6 68.0 67.6 67.4
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JULY 29, JULY 30, JANUARY 28,
(dollars in millions) 2006 2005 2006
ASSETS:
Current assets:
Cash and cash equivalents $403.6 $307.8 $378.9
Short-term investments 39.0 53.2 59.0
Restricted cash 2.0 2.0 2.0
Inventories 350.9 361.9 333.0
Current deferred income taxes 20.1 22.4 20.2
Other current assets 65.0 56.8 59.8
Current assets of discontinued
operations 1.1 2.9 1.6
Total current assets 881.7 807.0 854.5
Property and Equipment:
Land 7.7 7.7 7.7
Property, buildings and equipment 1,218.0 1,189.2 1,186.3
Accumulated depreciation and
amortization (833.7) (797.9) (807.9)
Property and equipment, net 392.0 399.0 386.1
Favorable leases, net 15.7 19.9 18.2
Deferred income taxes 29.4 35.1 27.5
Goodwill, net 5.9 5.9 5.9
Other assets 46.1 22.5 22.3
TOTAL ASSETS $1,370.8 $1,289.4 $1,314.5
LIABILITIES AND SHAREOWNERS' EQUITY:
Current liabilities:
Current maturities of debt $0.9 $1.6 $0.4
Notes payable 2.0 2.0 2.0
Accounts payable 154.8 147.9 168.9
Accrued expenses 180.9 163.8 163.8
Current liabilities of
discontinued operations 2.4 6.2 3.4
Total current liabilities 341.0 321.5 338.5
Long-term debt 201.7 204.3 204.2
Other liabilities 117.9 98.0 109.3
Minority interest 10.8 8.4 10.5
Shareowners' equity 699.4 657.2 652.0
TOTAL LIABILITIES AND SHAREOWNERS'
EQUITY $1,370.8 $1,289.4 $1,314.5
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Year-to-date Year ended
July 29, July 30, January 28,
(dollars in millions) 2006 2005 2006
OPERATING ACTIVITIES:
Net earnings $68.5 $50.1 $66.4
Loss from discontinued operations,
net of income taxes and minority
interest 0.3 3.4 3.7
Adjustments for non-cash items
included in net earnings:
Cumulative effect of change in
accounting principle, net of
income taxes and minority
interest - - 4.1
Loss on impairment and
disposal of assets 4.8 5.2 9.8
Depreciation and amortization 44.9 46.0 90.5
Amortization of deferred
financing costs 0.5 0.6 1.2
Share-based compensation
expense 5.5 0.3 1.3
Deferred income taxes 1.1 0.9 13.7
Minority interest, net of
income taxes 0.2 (0.5) 1.4
Income tax benefit from share-
based compensation 0.4 0.8 6.5
Accretion of investments (1.6) (0.4) (1.3)
Changes in working capital:
Inventories (17.6) (16.6) 13.4
Other current assets (8.6) (0.1) (1.2)
Accounts payable (15.1) (11.4) 7.9
Accrued expenses 15.9 10.5 9.6
Other assets and liabilities, net (1.2) 4.7 6.6
Net cash used in discontinued
operations (0.8) (6.5) (8.3)
Cash flow provided by operating
activities 97.2 87.0 225.3
INVESTING ACTIVITIES:
Payments for capital expenditures (52.8) (35.3) (64.4)
Proceeds from the sale of property
and equipment 3.2 0.8 1.2
Restricted cash - 1.0 1.0
Acquisition of intangible assets (15.1) - -
Purchases of investments (89.9) (71.5) (146.4)
Sales and maturities of investments 111.5 40.0 110.0
Cash flow used in investing
activities (43.1) (65.0) (98.6)
FINANCING ACTIVITIES:
Repayment of notes payable - (1.0) (1.0)
Issuance of debt - 1.3 1.2
Repayment of debt (2.1) - (1.5)
Payment of deferred financing costs (0.2) - -
Issuances of common stock 25.1 12.3 49.6
Purchases of common stock (56.5) (2.4) (71.2)
Excess tax benefits from share-
based compensation 4.0 - -
Contributions by minority owners 1.2 0.5 0.9
Distributions to minority owners (1.0) - -
Cash flow (used in) provided by
financing activities (29.5) 10.7 (22.0)
Effect of exchange rate changes on
cash 0.1 1.8 0.9
Increase in cash and cash
equivalents 24.7 34.5 105.6
Cash and cash equivalents,
beginning of period 378.9 273.3 273.3
Cash and cash equivalents, end of
period $403.6 $307.8 $378.9
SOURCE Payless ShoeSource, Inc.
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Related links:
http://www.paylessinfo.com
http://www.prnewswire.com/comp/136152.html/
CONTACT:
Ron Cooperman of Payless ShoeSource,
+1-785-295-6026
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