Results Reflect Reporting Period Prior to Acquisition of Stride Rite
TOPEKA, Kan., Aug. 29 /PRNewswire-FirstCall/ -- Collective Brands, Inc.
(NYSE: PSS) today reported financial results for the second quarter ended
August 4, 2007, a period prior to the close of the acquisition of the
Stride Rite Corporation. Second quarter 2007 net earnings were $24.9
million, or $0.38 per diluted share, down 23% versus second quarter 2006
net earnings of $32.5 million, or $0.48 per diluted share. Results include
the following:
-- Second quarter 2007 expenses related to the company's distribution
center initiative, including the exit from one facility and temporary
redundancies between facilities. Those expenses totaled $3.6 million
pre-tax or $0.04 per diluted share.
-- Second quarter 2007 expenses related to the integration planning of
Stride Rite. Those expenses totaled $1.8 million pre-tax or $0.02 per
diluted share.
-- Second quarter 2006 income related to Payless's receipt of Visa
Check/Mastermoney Antitrust settlement proceeds. The income totaled
$2.3 million pre-tax or $0.02 per diluted share.
-- Second quarter 2006 income related to Payless's insurance recoveries
due to hurricanes. The net incremental income over 2007 totaled
$1.6 million pre-tax or $0.02 per diluted share.
Total sales were $699 million, down 1.0% compared to the second quarter
of 2006. Second quarter 2007 same store sales were down 1.4%. Sales
declined due to weak sandals results and the later timing of the
back-to-school season in certain key markets. These factors were partially
offset by higher customer conversion, strength in athletic and casual
footwear, and growth in average unit retails of 1%.
"Although Payless's second quarter sales and earnings under performed
our expectations, we continued to pick up market share in a challenging
industry environment," said Matthew E. Rubel, chief executive officer and
president. "In spite of short-term conditions, we believe Payless is firmly
in a position of long-term strength due to our ability to consistently
offer on-trend targeted product, our compelling brands, our highly
efficient supply chain, and other initiatives that are key to serving our
customers."
Gross margin rate was 34.4% in the second quarter of 2007 versus 34.6%
in the second quarter of 2006, a decrease of 20 basis points. The decrease
in gross margin rate was driven by costs related to the company's
distribution center initiative (50 basis points) and last year's hurricane
insurance recoveries (23 basis points). Second quarter 2007 gross margin
rate was favorably impacted by higher initial mark-on and more direct
sourcing offset in part by higher markdowns on sandals.
Selling, general and administrative (SG&A) expenses were 28.7% of sales
in the second quarter of 2007 versus 27.4% in the prior year period, an
increase of 130 basis points. The rate increase was driven by lower than
expected sales during the 2007 second quarter. SG&A expenses were $201
million in the second quarter of 2007, up 3.9% versus the prior year due
primarily to higher payroll, last year's Visa Check/Mastermoney antitrust
settlement (33 basis points), and acquisition integration costs (26 basis
points).
During the second quarter of 2007, the company repurchased 141,000
shares of common stock for $4.6 million under its stock repurchase program.
In accordance with its debt covenants, the company may repurchase
approximately $32 million more of its stock in the open market at this
time. This limit will continue to adjust quarterly based on the company's
net earnings.
The company ended the second quarter of 2007 with $327 million in cash
and short-term investments compared to $441 million at the end of the
second quarter of 2006. The decrease was due primarily to the first quarter
2007 acquisition of Collective Licensing International.
Total inventory was $370 million at the end of the second quarter of
2007, up 5.5% compared to the second quarter of 2006. Inventory quality at
quarter-end was better because aged units as a percent of total inventory
was lower. The increase in inventory was driven primarily by greater
investments in strong performing product categories for fall; a merchandise
mix shift towards more footwear at higher average costs linked to higher
average retail and initial mark-on; and an increase in raw material
commitments associated with a higher percentage of products sourced
directly by Payless.
Year-to-date capital expenditures at the end of the second quarter of
2007 totaled $93 million versus $53 million in the prior year period. The
increase was due primarily to greater investments in the company's supply
chain and Payless stores. During second quarter 2007, the company opened 15
new Payless stores, closed 19, and relocated 20. Collective Brands ended
the period with 4,560 Payless stores down 24 compared to second quarter
2006. As of today, Collective Brands also has 327 stores through its Stride
Rite business unit.
In 2007, capital expenditures for Collective Brands are expected to
total approximately $175 million. The increase over 2006 will be primarily
driven by investing in the company's supply chain. In 2007, the company has
and will continue to invest in stores, brands, and technology which support
its strategic imperatives.
As previously communicated, the company financed a portion of its
acquisition of Stride Rite with a $725 million term loan B at a variable
rate of 8.3% over 7 years. On August 24, 2007 the company entered into an
interest rate swap arrangement for $540 million which provides for a fixed
interest rate of approximately 7.75%, portions of which mature on a series
of dates over the next five years.
Outlook for Collective Brands
Collective Brands is expected to have strong pro-forma financials:
-- Excluding the impact of purchase accounting, the acquisition is
expected to be accretive to earnings per share in 2008 as the Stride
Rite unit's earnings contribution is expected to exceed the incremental
interest expense. Due to the impact of purchase accounting, the Stride
Rite acquisition is not expected to be earnings per share accretive in
2008 on a GAAP basis.
-- Excluding purchase accounting, the 2006 - 2009 compound annual growth
rate in operating profit is expected to be in the mid-to-upper teens.
Including purchase accounting, the 2006 - 2009 compound annual growth
rate in operating profit is expected to be in the low-teens on a GAAP
basis.
About Collective Brands and Forward Looking Statements
Collective Brands, Inc. is a consumer-centric global footwear,
accessories and lifestyle brand company, reaching customers through
multiple price points and selling channels. Collective Brands, Inc. is the
holding company of Payless ShoeSource, Stride Rite, and Collective
Licensing International. At this time, Collective Brands, Inc. continues to
trade under the symbol (PSS). Payless ShoeSource is the largest specialty
family footwear retailer in the western hemisphere. It is dedicated to
democratizing fashion and design in footwear and accessories and inspiring
fun, fashion possibilities for the family at a great value. Stride Rite
markets the leading brand of high-quality children's shoes in the United
States. Stride Rite also markets products for children and adults under
well-known brand names, including Keds, Sperry Top-Sider, Saucony, Tommy
Hilfiger Footwear, and Robeez. Collective Licensing International is a
leading youth lifestyle marketing and global licensing business.
Information about, and links for shopping on, each of Collective Brands'
units can be found at http://www.collectivebrands.com.
This release contains one or more forward-looking statements.
Forward-looking statements are identified by words such as "will,"
"expected," and other similar words. A variety of known and unknown risks
and uncertainties could cause actual results to differ materially from the
anticipated results which include, but are not limited to: the risk that
the businesses will not be integrated successfully or will take longer than
anticipated; the risk that the expected cost savings will not be achieved
or unexpected costs will be incurred; the risk that customers will not be
retained or that disruptions from the transaction will harm relationships
with customers, employees and suppliers; costs and other expenditures in
excess of those projected for environmental investigation and remediation
or other legal proceedings; changes in accounting treatment of any
financings; changes in consumer spending patterns; changes in intellectual
property, customs and/or tax laws; litigation, including intellectual
property and employment litigation; and the ability to hire and retain
associates. In addition, other risks and uncertainties not presently known
to us or that we consider immaterial could affect the accuracy of our
forward-looking statements. Please refer to the Collective Brand's 2006
Annual Reports on Form 10-K for the fiscal year ended 2006 for more
information on these and other risk factors that could cause actual results
to differ. Collective Brands 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.
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Dollars and shares in millions,
except per share data) 13 Weeks Ended 26 Weeks Ended
August 4, July 29, August 4, July 29,
2007 2006 2007 2006
Net sales $699.3 $706.1 $1,427.9 $1,400.6
Cost of sales 458.7 462.1 918.4 900.8
Gross margin 240.6 244.0 509.5 499.8
Selling, general and administrative
expenses 201.0 193.5 410.9 392.6
Restructuring charges 0.1 0.3 0.3 0.3
Operating profit from continuing
operations 39.5 50.2 98.3 106.9
Interest expense 4.8 4.5 9.6 9.4
Interest income (4.0) (5.2) (8.7) (10.0)
Earnings from continuing operations
before income taxes and
minority interest 38.7 50.9 97.4 107.5
Provision for income taxes 12.7 17.3 31.5 36.8
Earnings from continuing operations
before minority interest 26.0 33.6 65.9 70.7
Minority interest, net of income taxes (1.3) (0.6) (2.2) (0.9)
Net earnings from continuing
operations 24.7 33.0 63.7 69.8
Earnings (loss) from discontinued
operations, net of income taxes
and minority interest 0.2 (0.5) 0.1 (1.3)
Net earnings $24.9 $32.5 $63.8 $68.5
Basic earnings per share:
Earnings from continuing
operations $0.38 $0.50 $0.98 $1.05
Earnings (loss) from discontinued
operations 0.01 (0.01) 0.01 (0.02)
Basic earnings per share: $0.39 $0.49 $0.99 $1.03
Diluted earnings per share
Earnings from continuing
operations $0.37 $0.49 $0.96 $1.03
Earnings (loss) from discontinued
operations 0.01 (0.01) 0.01 (0.02)
Diluted earnings per share $0.38 $0.48 $0.97 $1.01
Basic weighted average shares
outstanding 64.5 66.5 64.6 66.5
Diluted weighted average shares
outstanding 65.7 67.6 65.9 67.6
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
August 4, July 29, February 3,
(dollars in millions) 2007 2006 2007
ASSETS:
Current assets:
Cash and cash equivalents $327.4 $401.9 $371.4
Short-term investments -- 39.0 90.0
Restricted cash 2.0 2.0 2.0
Inventories 370.0 350.7 361.9
Current deferred income taxes 16.8 20.1 15.6
Prepaid expenses 46.5 44.1 46.5
Other current assets 24.9 20.5 18.1
Current assets of discontinued
operations 0.8 3.4 1.1
Total current assets 788.4 881.7 906.6
Property and Equipment:
Land 5.7 7.7 6.6
Property, buildings and equipment 1,323.0 1,216.9 1,245.1
Accumulated depreciation and
amortization (868.6) (833.5) (830.5)
Property and equipment, net 460.1 391.1 421.2
Intangible assets, net 94.7 42.0 39.6
Deferred income taxes 47.0 29.4 37.7
Goodwill 40.2 5.9 5.9
Other assets 26.0 19.4 16.4
Noncurrent assets of discontinued
operations -- 1.3 --
TOTAL ASSETS $1,456.4 $1,370.8 $1,427.4
LIABILITIES AND EQUITY:
Current liabilities:
Current maturities of long-term
debt $0.3 $0.9 $0.4
Notes payable 2.0 2.0 2.0
Accounts payable 164.3 154.6 185.6
Accrued expenses 137.9 180.7 190.2
Current liabilities of
discontinued operations 1.5 2.8 2.1
Total current liabilities 306.0 341.0 380.3
Long-term debt 200.9 201.7 201.7
Other liabilities 179.8 117.9 132.6
Minority interest 11.5 10.8 12.7
Total shareowners' equity 758.2 699.4 700.1
TOTAL LIABILITIES AND SHAREOWNERS'
EQUITY $1,456.4 $1,370.8 $1,427.4
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Year-to-date Year ended
August 4, July 29, February 3,
(dollars in millions) 2007 2006 2007
OPERATING ACTIVITIES:
Net earnings $ 63.8 $ 68.5 $ 122.0
(Earnings) loss from discontinued
operations, net of income taxes
and minority interest (0.1) 1.3 3.4
Net earnings from continuing
operations 63.7 69.8 125.4
Adjustments for non-cash items
included in net earnings:
Loss on impairment and
disposal of assets 4.3 4.8 10.3
Depreciation and amortization 49.2 44.9 88.5
Amortization of deferred
financing costs 0.6 0.5 1.1
Share-based compensation
expense 6.2 5.5 12.2
Deferred income taxes (3.9) 1.1 9.1
Minority interest, net of
income taxes 2.2 0.9 4.6
Income tax benefit from share-
based compensation 0.1 0.4 0.6
Accretion of investments (0.6) (1.6) (3.6)
Changes in working capital:
Inventories (6.0) (17.8) (29.8)
Prepaid expenses and other
current assets (1.5) (8.4) (9.0)
Accounts payable (20.3) (15.0) 15.6
Accrued expenses (38.7) 16.0 5.7
Other assets and liabilities, net 7.3 (1.4) 3.0
Net cash used in discontinued
operations (0.2) (3.5) (4.0)
Cash flow provided by operating
activities 62.4 96.2 229.7
INVESTING ACTIVITIES:
Capital expenditures (93.0) (52.8) (118.6)
Proceeds from the sale of property
and equipment 1.6 3.2 4.6
Intangible asset additions -- (15.1) (15.5)
Purchases of investments (6.1) (89.9) (215.6)
Sales and maturities of investments 96.7 111.5 188.2
Acquisition of businesses, net of
cash acquired (93.2) -- --
Cash flow used in investing
activities (94.0) (43.1) (156.9)
FINANCING ACTIVITIES:
Repayment of debt (5.3) (2.1) (2.8)
Payment of deferred financing costs -- (0.2) (0.2)
Issuances of common stock 7.8 25.1 47.1
Purchases of common stock (20.7) (56.5) (129.3)
Excess tax benefits from share-
based compensation 2.4 4.0 8.0
Distribution to minority owners (2.4) (1.0) (1.5)
Net cash provided by discontinued
operations -- 1.2 1.2
Cash flow used in financing
activities (18.2) (29.5) (77.5)
Effect of exchange rate changes on
cash 5.8 0.1 (2.1)
(Decrease) increase in cash and
cash equivalents (44.0) 23.7 (6.8)
Cash and cash equivalents,
beginning of year 371.4 378.2 378.2
Cash and cash equivalents, end of
period $ 327.4 $ 401.9 $ 371.4
Collective Brands, Inc.: http://www.collectivebrands.com
SOURCE Collective Brands, Inc.
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Related links:
http://www.paylessinfo.com/
http://www.prnewswire.com/comp/136152.html/
CONTACT:
James Grant of Collective Brands, Inc.,
+1-785-559-5321
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