Payless Battle Wages on at Collective Brands

Payless Battle Wages on at Collective
A Payless location.

NEW YORK — Collective Brands Inc. is finding the Payless ShoeSource shopper wants to pay 
even less.

 

The firm’s interim CEO, Michael Massey, acknowledged last week efforts were under way to better serve the budget-conscious consumer domestically, where Payless’ net and same-store sales declined about 5 percent in the third quarter.

 

In a conference call with analysts, LuAnn Via, president and CEO of Payless, said, “In the third quarter, we met [our customer’s] needs on price-value with additional price reductions. In the fourth quarter, we’ll continue to address price with markdowns. Beginning in 2012, we will also address price on a more strategic level.”

 

The firm remains on track to shutter 475 Payless and Stride Rite doors by the end of 2013, and costs associated with the closures will total between $25 million and 
$30 million.

 

Massey said, “We are strategically incurring short-term margin loss to secure market share and unit scale to deliver long-term profitability and return on invested capital. While operating profit was clearly disappointing, Payless North America results [provided] early signs that we are headed in the right direction and making progress in our turnaround.”

 

PLG Wholesale, a traditional bright spot for the firm, continued to outperform, surging 27 percent to $180 million in the third quarter.

 

Sales were led by Sperry Top-Sider, which had an excellent back-to-school season at retail, said Gregg Ribatt, president and CEO of PLG, while Saucony also saw continued success in the minimalist and lightweight category and strong growth in international markets.

 

The firm also noted the search for a permanent CEO is ongoing, as is the review of strategic alternatives. Analysts said they continue to believe a likely outcome is the sale of one or more assets within the PLG group.

 

Collective recorded a loss of $114.3 million, or $1.91 a share, in the third quarter – versus a net income of $47.6 million, or 75 cents, in the same period a year ago. Net sales inched up 1.4 percent, to $894.4 million.

 

Christopher Svezia, analyst at Susquehanna Financial, said, “The magnitude of the miss was much more than expected and the pressure is expected to continue into the fourth quarter. Looking to fiscal 2012, the domestic turnaround will clearly be slower to develop than we had originally thought.”
Collective ended the quarter with $212.6 million in cash and $606 million in debt.

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