PAYLESS INC 
By TOPEKA, Kan., May 22, 2012 /PRNewswire/ -- Collective Brands, Inc. (NYSE:PSS) today reported financial results for its 2012 first quarter ended April 28, 2012. The first quarter 2012 net earnings attributable to Collective Brands, Inc. were $33.2 million, or $0.54 per share, compared to $26.4 million, or $0.42 per share, in the first quarter of 2011.
Collective Brands' first quarter 2012 net sales increased 5.0% to $912.1 million. This was driven by the Company's 8.1% comparable store sales(1)( )increase and sales growth of 8.3% in the Performance + Lifestyle Group ("PLG") Wholesale segment, offset in part by operating 365 fewer stores.
Adjusted earnings per share(2) were $0.68 compared to $0.42 in the first quarter of 2011. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")(2) were $88.4 million compared to $75.0 million the prior year, an increase of 17.9%.
The first quarter 2012 adjustments totaled $9.1 million on a pre-tax basis, or $0.14 per diluted share:
-- $6.4 million related to the review of strategic alternatives, and,
-- $2.7 million related to the store closing initiative for lease
termination and other exit costs.
"Our first quarter results show that the new Payless strategy is working domestically and the turnaround in that business has begun," said Michael J. Massey, Chief Executive Officer of Collective Brands, Inc. "At Payless we are employing a strategy that emphasizes re-connecting with our core budget-conscious consumer with more relevant price points and styles. We are now implementing these strategic changes across Payless internationally and seeing some positive results there as well. Similarly, the double-digit same store sales growth at Stride Rite retail stores demonstrates the progress we are making at the Stride Rite Children's Group, which helped offset a slightly more challenging wholesale environment at the Performance + Lifestyle Group."
Consolidated Quarterly Results - Selected unaudited financial data (dollars in millions, except per share data) for the 13 weeks ended April 28, 2012 and April 30, 2011:
1st Qtr Adjusted(2) 1st Qtr Change
2012 2012 2011
---- ---- ----
Net sales $912.1 $912.1 $869.0 $43.1
Gross margin 35.6% 35.8% 35.7% 10 bps
Selling, general &
administrative
(SG&A) expense
ratio 30.2% 29.4% 30.8% 140 bps
Net earnings
attributable to
Collective Brands,
Inc. $33.2 $41.7 $26.4 $15.3
Diluted earnings
per share $0.54 $0.68 $0.42 $0.26
-- Net sales for the quarter increased due to same store sales growth at
Payless in North America and growth at PLG. An improved merchandise mix
focused on increasing the percentage of our Incredible Value Every Day
program, sharper opening price points, and more basic fashions - along
with favorable weather - drove the Payless increase. PLG Wholesale and
retail stores also contributed to the overall net sales increase.
-- The flat gross margin rate reflected improved margins in our retail
businesses - driven by sales strength - offset by declines in PLG
Wholesale.
-- The SG&A ratio improved, driven by sales leverage in both Payless
Domestic and PLG.
Inventory at the end of the quarter was $571.4 million, down 0.8% versus year ago levels. Inventory was lower as the result of having fewer retail stores, higher sales, and better matching inventory levels to demand at PLG, while at the same time having greater depth, as planned, in Payless and Stride Rite retail stores.
During the first quarter, the Company added 7 new stores (5 Payless and 2 PLG), closed 27 stores (25 Payless and 2 PLG), and relocated 12 stores (11 Payless and 1 PLG).
Wholly-Owned and Joint Venture
Store Counts Apr. 28, 2012 Jan. 28, 2012 Apr. 30, 2011
------------------------------ ------------- ------------- -------------
Payless Domestic 3,480 3,499 3,788
Payless International 660 661 670
Performance + Lifestyle Group 336 336 383
--- --- ---
Total Stores 4,476 4,496 4,841
===== ===== =====
The Company also franchised stores in 24 countries and territories as of the end of the first quarter 2012.
Franchise Store Counts Apr. 28, 2012 Jan. 28, 2012 Apr. 30, 2011
---------------------- ------------- ------------- -------------
Payless International 160 143 79
Stride Rite 25 20 10
--- --- ---
Total Franchise Stores 185 163 89
=== === ===
Quarterly Segment Results (dollars in millions)
2012 Adjustments Adjusted(2) 2011 Adjusted %
2012 2012 vs. Change
2011
----
Net Sales
Payless Domestic $513.9 - $513.9 $498.4 $15.5 3.1%
Payless International 101.2 - 101.2 97.5 3.7 3.8%
PLG Wholesale 230.2 - 230.2 212.5 17.7 8.3%
PLG Retail 66.8 - 66.8 60.6 6.2 10.2%
---- --- --- ---- --- ---
Total $912.1 - $912.1 $869.0 $43.1 5.0%
====== === ====== ====== ===== ===
Operating Profit/(Loss)
Payless Domestic $23.3 $8.0 $31.3 $13.0 $18.3 140.8%
Payless International (1.4) 0.7 (0.7) 3.0 (3.7) (123.3%)
PLG Wholesale 22.9 0.3 23.2 25.3 (2.1) (8.3%)
PLG Retail 4.4 0.1 4.5 1.1 3.4 309.1%
--- --- --- --- --- ---
Total $49.2 $9.1 $58.3 $42.4 $15.9 37.5%
===== ==== ===== ===== ===== ====
2012 Adjusted(2) 2011 Adjusted
2012 2012 vs.
2011
----
Operating Margin
Payless Domestic 4.5% 6.1% 2.6% 350 bps
Payless International (1.4%) (0.7%) 3.1% (380) bps
PLG Wholesale 9.9% 10.1% 11.9% (180) bps
PLG Retail 6.6% 6.7% 1.8% 490 bps
---- --- --- ---
Total 5.4% 6.4% 4.9% 150 bps
=== === === =======
-- Payless Domestic - Net sales increased due to a same store sales
increase of 8.7% driven by the factors noted above. From a category
perspective, women's and kids' outperformed the overall comparable store
average. Adjusted operating profit(2) increased due principally to the
higher sales, reduced markdowns and sales leverage.
-- Payless International - Net sales increased from a combination of a 1%
same store sales increase and the opening of new, higher volume stores,
offset by a reduction in overall store count. Canada posted a
comparable store sales increase which was similar to Payless Domestic,
while Latin America experienced a decline. Adjusted operating profit(2)
decreased due to a slowing of same store sales growth and the resultant
margin decline in Latin America.
-- PLG Wholesale - Domestic net sales increased based upon the strength of
Sperry Top-Sider, Stride Rite Children's Group and International, offset
partially by declines in Saucony and Keds. Adjusted operating profit(2)
declined due to higher product costs and the resultant margin pressure,
offset by sales leverage.
-- PLG Retail - Net sales increased by 10.2% as the result of a 14.9%
increase in same store sales and the opening of 9 new Sperry Top-Sider
stores, offset in part by operating 56 fewer Stride Rite stores.
Adjusted operating profit(2) increased as a result of stronger sales
which improved gross margins and sales leverage.
Outlook for Collective Brands
-- The 2012 effective tax rate is expected to be 17% on a non-GAAP basis
excluding adjustments and discrete events.
-- Depreciation and amortization for 2012 is expected to total
approximately $125 million.
-- Capital expenditures are expected to total approximately $80 - $85
million in 2012.
-- As a result of its backlog of $211 million for delivery in second
quarter 2012, which increased 8% year-over-year, PLG Wholesale sales in
the second quarter of 2012 are expected to increase high single digits
over second quarter 2011.
Notes to Financial Data
(1) Comparable store sales include Payless
stores from all regions and PLG stores.
The calculation excludes franchised
stores.
(2)This release contains certain non-GAAP
financial measures. These measures are
included as a complement to results
provided in accordance with GAAP because
management believes these non-GAAP
financial measures better reflect the
underlying performance trends in
Collective Brands' business and provide
useful information to both management and
investors. These measures should be
considered in addition to results prepared
Adjusted net income attributable to
Collective Brands, Inc. - Defined
as net income attributable to
Collective Brands, Inc. excluding
adjustments related to strategic
review expenses, lease
terminations, other exit costs, and
their related tax adjustments.
Adjusted earnings per share -
Defined as diluted earnings per
share attributable to Collective
Brands, Inc. common shareholders
excluding adjustments related to
strategic review expenses, lease
terminations, other exit costs, and
their related tax adjustments.
Adjusted gross margin - Defined as
gross margin excluding adjustments
related to lease terminations.
Adjusted operating profit - Defined
as operating profit excluding
adjustments related to strategic
review expenses, lease terminations
and other exit costs.
Adjusted operating margin - Defined
as operating margin excluding
adjustments related to strategic
review expenses, lease terminations
and other exit costs.
Adjusted EBITDA - Defined as
earnings before adjustments,
interest (including loss on early
extinguishment of debt), taxes,
depreciation and amortization.
Adjusted EBITDA provides useful
information about the Company's
operations because it eliminates
the effect of invested capital on
the Company's operating profit.
About Collective Brands
Collective Brands, Inc. is a leader in bringing compelling lifestyle, fashion and performance brands for footwear and related accessories to consumers worldwide. The company operates three strategic units: Payless ShoeSource, Collective Brands Performance + Lifestyle Group (PLG) and Collective Licensing International. Payless ShoeSource is one of the largest footwear retailers in the western hemisphere. It is dedicated to providing incredible values of on-trend and validated styles of footwear and accessories. PLG markets footwear and related products for children and adults under well-known brand names including Stride Rite, Sperry Top-Sider, Saucony, and Keds. Collective Licensing International is a leading youth lifestyle marketing and global licensing business. Information about, and links for shopping on, each of Collective Brands' business units can be found at www.collectivebrands.com.
Cautionary Statement Regarding Forward-Looking Statements
This release contains assumptions, expectations, projections, intentions or beliefs about future events that are intended as "forward-looking statements". All statements included or incorporated by reference in this release, other than statements that are historical facts, are forward-looking statements. The words "believe", "expected", "should" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are estimates and projections reflecting management's reasonable judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. With respect to forward-looking statements, management has made assumptions regarding, among other things, customer spending patterns, weather, pricing, operating costs, the timing of various events and the economic and regulatory environment. A variety of factors could cause actual results and experience to differ materially from the anticipated results or expectations expressed in forward-looking statements. These risks and uncertainties that may affect the operations, performance and results of our business include, but are not limited to: (i) the impact of competition and pricing; (ii) changes in consumer preferences and spending patterns; (iii) general economic, business and social conditions in the countries where the Company sources products and/or supplies or has or intends to open stores; (iv) changes in weather patterns; (v) the inability to renew material leases, licenses or contracts upon their expiration; (vi) the ability to identify and negotiate leases for new locations on acceptable terms or to terminate unwanted leases on acceptable terms; (vii) the financial condition of suppliers; (viii) changes in existing or potential duties, tariffs or quotas, and the application thereof; (ix) changes in relationships between the U.S. and foreign countries as well as between foreign countries; (x) 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 does business; (xi) changes in trade, intellectual property, customs and/or tax laws; (xii) fluctuations in currency exchange rates (e.g. yuan, Canadian dollar, euro); (xiii) the ability to hire, train and retain associates; (xiv) performance of other parties in strategic alliances; (xv) outcomes of intellectual property or employment litigation, and class actions; (xvi) the ability to comply with local laws in foreign countries; (xvii) our ability to maintain and upgrade information systems; (xviii) threats or acts of terrorism or war; (xix) strikes, work stoppages and/or slowdowns by unions that play a significant role in the manufacture, distribution or sale of product; (xx) changes in commodity prices such as oil; (xxi) uncertainties associated with the proposed sale of the Company (the "Merger") to an entity ("Parent") controlled by Blum Strategic Partners IV, L.P., Golden Gate Capital Opportunity Fund, L.P. and Wolverine World Wide, Inc., including uncertainties relating to the anticipated timing of filings and approvals relating to the proposed Merger and the sale by Parent of the Company's Performance + Lifestyle Group business to a wholly owned subsidiary of Wolverine World Wide, Inc. (the "Carveout Transaction"), the expected timing of completion of the proposed Merger and the Carveout Transaction, the satisfaction of the conditions to the consummation of the proposed Merger and the Carveout Transaction, including financing conditions, the ability to complete the proposed Merger and the Carveout Transaction, and the impact of the pending transactions on our businesses, employees, customers and suppliers; and (xxii) other risks referenced from time to time in filings of ours with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended January 28, 2012 in Part I, Item 1A, "Risk Factors". The Company believes these forward-looking statements are reasonable; however, you should not place undue reliance on forward-looking statements, which are based on current expectations and speak only as of the date of this release. Any or all of our forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, many of which are beyond our control.
All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Collective Brands does not undertake any obligation to release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 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 Form 10-K for the fiscal year ended January 28, 2012, on file with the Securities and Exchange Commission, are subject to reclassification and adjustments and should be read in conjunction with the 2011 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.
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(dollars
and
shares
in
millions,
except
per
share
data) 13 Weeks Ended
--------------
April 28, April 30,
2012 2011
---- ----
Net
sales $912.1 $869.0
Cost
of
sales 587.0 559.1
----- -----
Gross
margin 325.1 309.9
Selling,
general
and
administrative
expenses 275.9 267.5
----- -----
Operating
profit 49.2 42.4
Interest
expense 8.3 10.9
Interest
income (0.1) (0.1)
---- ----
Net
earnings
before
income
taxes 41.0 31.6
Provision
for
income
taxes 7.0 3.4
--- ---
Net
earnings 34.0 28.2
Net
earnings
attributable
to
noncontrolling
interests (0.8) (1.8)
---- ----
Net
earnings
attributable
to
Collective
Brands,
Inc. $33.2 $26.4
===== =====
Earnings
per
share
attributable
to
Collective
Brands,
Inc.
common
shareholders:
Basic $0.55 $0.43
Diluted $0.54 $0.42
Weighted
average
shares
outstanding:
Basic 60.1 60.7
Diluted 60.8 61.7
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 28, April 30,
(dollars
in
millions) 2012 2011
---- ----
ASSETS:
Current
assets:
Cash and cash equivalents $193.1 $270.4
Accounts receivable, net 168.9 146.4
Inventories 571.4 575.9
Deferred income taxes 7.0 30.3
Prepaid expenses 62.2 61.1
Other current assets 21.6 20.1
Total
current
assets 1,024.2 1,104.2
Property
and
Equipment:
Land 5.9 6.7
Property, buildings and equipment 1,427.2 1,458.8
Accumulated depreciation and
amortization (1,071.2) (1,042.0)
Property and equipment, net 361.9 423.5
Intangible
assets,
net 381.9 425.0
Goodwill 269.8 279.8
Deferred
income
taxes 11.5 10.5
Other
assets 30.2 40.6
---- ----
TOTAL
ASSETS $2,079.5 $2,283.6
======== ========
LIABILITIES
AND
EQUITY:
Current
liabilities:
Current maturities of long-term
debt $5.1 $5.1
Accounts payable 283.0 295.2
Accrued expenses 152.1 158.2
Total
current
liabilities 440.2 458.5
Long-term
debt 603.6 658.2
Deferred
income
taxes 121.1 65.4
Other
liabilities 200.0 211.9
Equity:
Collective Brands, Inc.
shareowners' equity 685.7 859.0
Noncontrolling interests 28.9 30.6
Total
equity 714.6 889.6
----- -----
TOTAL
LIABILITIES
AND
EQUITY $2,079.5 $2,283.6
======== ========
COLLECTIVE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
13 Weeks Ended
--------------
April 28, April 30,
(dollars in
millions) 2012 2011
---- ----
OPERATING
ACTIVITIES:
Net earnings $34.0 $28.2
Adjustments for
non-cash items
included in net
earnings:
Loss on impairment and disposal of
assets 1.5 2.2
Depreciation and amortization 30.7 33.2
Provision for losses on accounts
receivable 0.4 0.2
Share-based compensation expense 2.4 3.5
Deferred income taxes (1.5) (0.7)
Changes in
working capital:
Accounts Receivable (23.4) (30.3)
Inventories (6.9) (41.2)
Prepaid expenses and other current
assets (0.5) (4.0)
Accounts payable (8.3) (3.4)
Accrued expenses 8.6 (25.4)
Changes in other
assets and
liabilities, net (0.8) (3.6)
---- ----
Cash flow
provided by
(used in)
operating
activities 36.2 (41.3)
---- -----
INVESTING
ACTIVITIES:
Capital
expenditures (22.0) (10.8)
----- -----
Cash flow used in
investing
activities (22.0) (10.8)
----- -----
FINANCING
ACTIVITIES:
Repayment of debt (1.3) (1.3)
Issuances of
common stock 1.0 1.7
Purchases of
common stock (1.3) (4.4)
Distribution to
noncontrolling
interests (1.2) (3.0)
---- ----
Cash flow used in
financing
activities (2.8) (7.0)
---- ----
Effect of
exchange rate
changes on cash 0.4 5.4
Increase
(decrease) in
cash and cash
equivalents 11.8 (53.7)
Cash and cash
equivalents,
beginning of
year 181.3 324.1
----- -----
Cash and cash
equivalents, end
of period $193.1 $270.4
====== ======
COLLECTIVE BRANDS, INC.
RECONCILIATION OF GAAP NET EARNINGS TO NON-GAAP ADJUSTED EBITDA
(UNAUDITED)
(dollars in
millions)
13 weeks ended 13 weeks ended
April 28, 2012 April 30, 2011
-------------- --------------
Net earnings $34.0 $28.2
Provision for
income taxes 7.0 3.4
Net interest
expense 8.2 10.8
Depreciation and
amortization 30.1 32.6
Strategic review
expenses 6.4 -
Lease
termination
costs 1.7 -
Other exit costs 1.0 -
--- ---
Adjusted EBITDA $88.4 $75.0
===== =====
COLLECTIVE BRANDS, INC.
SUMMARY OF PRE-TAX NON-GAAP ADJUSTMENTS
FOR THE THIRTEEN WEEKS ENDED APRIL 28, 2012
(UNAUDITED)
(in millions) Payless Payless PLG PLG Total
Domestic International Retail Wholesale
--- -------- ------------- ------ ---------
Strategic
review
expenses $6.1 $ - $ - $0.3 $6.4
---- ----------------- ------ ---- ----
Lease
termination
costs 1.0 0.7 - - 1.7
--- --- --- --- ---
Other exit
costs 0.9 - 0.1 - 1.0
--- --- --- --- ---
Total $8.0 $0.7 $0.1 $0.3 $9.1
----- ---- ---- ---- ---- ----
COLLECTIVE BRANDS, INC.
RECONCILIATION OF GAAP TO NON-GAAP CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
FOR THE THIRTEEN WEEKS ENDED JANUARY 28, 2012
(UNAUDITED)
RECONCILIATION OF GAAP TO NON-GAAP GROSS MARGIN
(dollars in millions)
--------------------
Gross margin: as reported (GAAP
basis) $325.1
Lease termination costs 1.7
Gross margin: non-GAAP basis $326.8
======
RECONCILIATION OF GAAP TO NON-GAAP
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(dollars in millions)
--------------------
Selling, general and administrative
expenses: as reported (GAAP basis) $275.9
Strategic review expenses (6.4)
Other exit costs (1.0)
Selling, general and administrative
expenses: non-GAAP basis $268.5
======
RECONCILIATION OF GAAP TO NON-GAAP OPERATING PROFIT
(dollars in millions)
--------------------
Operating profit: as reported (GAAP
basis) $49.2
Lease termination costs 1.7
Strategic review expenses 6.4
Other exit costs 1.0
Operating profit: non-GAAP basis $58.3
=====
RECONCILIATION OF GAAP TO NON-GAAP EARNINGS ATTRIBUTABLE TO COLLECTIVE
BRANDS, INC.
(dollars in millions)
--------------------
Net earnings attributable to
Collective Brands, Inc.: as
reported (GAAP basis) $33.2
Lease termination costs 1.7
Strategic review expenses 6.4
Other exit costs 1.0
Tax impact of adjustments (0.6)
Net earnings attributable to
Collective Brands, Inc.: non-GAAP
basis $41.7
=====
RECONCILIATION OF GAAP TO NON-GAAP DILUTED EARNINGS PER SHARE
ATTRIBUTABLE TO COLLECTIVE BRANDS, INC.
Diluted earnings per share
attributable to Collective Brands,
Inc.: as reported (GAAP basis) $0.54
Adjustment 0.14 (a)
Diluted earnings per share
attributable to Collective Brands,
Inc.: non-GAAP basis $0.68
=====
Note to adjustment:
(a) Represents the per share
impact of the lease termination
costs, strategic review
expenses and other exit costs
including the per share tax
impact of adjustments.
SOURCE Collective Brands, Inc.
