And though analysts said top-line growth was weak, at 2 percent, the company’s 130-basis-point improvement in gross margins was a bright spot.
“They consolidated distribution, diversified sourcing and sold more high-end stuff at higher prices, which offset the weakness at domestic Payless,” said Paul Swinand, analyst at Morningstar Inc.
Collective Brands’ biggest strength was in its wholesale Performance & Lifestyle Group. The division’s sales increased 27 percent in the third quarter, driven by gains for all four major brands, though Sperry Top-sider and Saucony were leaders, thanks to an increased number of doors and new innovative products, Douglas Treff, EVP and chief administrative officer for Collective Brands, said in a call with analysts last Thursday.
PLG retail sales rose 8 percent, resulting from higher comparable-store sales and a strong back-to-school season, the firm said.
Payless’ international sales increased 8 percent, while the chain’s domestic revenue fell 5 percent — less than the second quarter’s 7 percent. This was due to strong sell-throughs of trend-right women’s boots and flats, as well as the announcement of a multiyear collaboration with designer Christian Siriano “to deliver a wider and fiercer seasonal collection at more moderate prices” starting next fall, said Matt Rubel, chairman, president and CEO of Collective Brands.
“We remain well positioned for the fourth quarter in boots, which are historically a mid-teens percentage of the fall Payless sales and likely are to be higher than that this year,” added Rubel. “[We are] also having more athletics with fitness being a driver, [as they are] more expensive products.”
But Rubel noted that while U.S. employment figures are improving, “there are still a lot of people not working in certain areas, and that does impact us.”
However, explained Swinand, “as long as the positives continue to offset the negatives, at some point the economy will get better, middle-income spending will improve and Payless will be well-positioned to benefit then.” He added, “The success in Payless’ international division and especially Collective’s wholesale business is overwhelming any negative issues. Payless is not a horrible money-losing business.”
For the period ended Oct. 30, the Topeka, Kan.-based firm earned a net income of $47.6 million, or 75 cents a share, up almost a third from $36.9 million, or 57 cents, in the third quarter of 2009. Net sales were $881.8 million.
The firm beat the expectations of analysts, who were looking for earnings of 51 cents on revenue of $856.9 million, as polled by Yahoo Finance, and its shares soared 14 percent on Thursday morning. Collective Brands also maintained a strong cash flow during the quarter, repurchasing 3 percent of its stock. The firm ended the quarter with cash and cash equivalents of $358.3 million and long-term debt of $700.2 million.