Collective Beats Street, Still Cautious

BOSTON — Though Collective Brands Inc. posted a better-than-expected rise in adjusted third-quarter earnings, the firm last week sounded a note of caution about the health of the macro environment.

“This is not a recovering economy. It may not be a sinking one, but it’s not a recovering one yet,” Matt Rubel, the company’s chairman, president and CEO, said on a post-earnings conference call with analysts.

Citing, in part, the high unemployment rate, Rubel said he does not believe “we are in a growth-driven consumer economy right now. … It’s a tough marketplace out there. It’s highly inconsistent. It’s event driven. It’s weather driven. There are all sorts of things that will kind of tick it up or tick it down.”

Collective posted last Wednesday at the close of the stock market a 47 percent drop in third-quarter net earnings, including certain expenses, to $36.9 million, or 57 cents a diluted share, compared with $47.5 million, or 74 cents, the prior year.

But excluding items, Collective said adjusted earnings were $39.4 million, or 61 cents, up from $26 million, or 41 cents, a year ago. The firm said adjustments in the latest quarter were related to the settlement of certain litigation and severance; on this basis, analysts were calling for earnings per share of 49 cents.

Shares of Collective popped in trading last Thursday, closing up 8 percent at $21.71, a 26-month closing high.

Net sales dipped 5 percent to $867 million, yet still ahead of analysts’ forecasts for $847.6 million. Consolidated comparable-store sales rose 3.1 percent, with comps from the Payless ShoeSource division’s domestic business up 5.4 percent.

The company said a 3 percent comp increase at Payless was driven by guest designer Christian Siriano’s appearance on “The Oprah Winfrey Show” on Oct. 29. Winfrey herself announced a half-off coupon promotion in Payless stores for a day, which pumped up traffic and sales, Rubel said.

In one day, Payless sold “well over a million pairs of shoes,” Rubel noted of the event. “It was our biggest unit day in the history of the company.”

Said Rubel: “The event made it possible to connect with hundreds of thousands of new customers and validate Payless as a store for fashionable and affordable footwear and accessories. In establishing these connections, we collected information on many new customers that should produce long-term benefits.”

Further, regarding its flagship division, Rubel added, “Payless had strong sales growth in children’s footwear, contributing to a successful back-to-school season.”

He went on to say, “Several related factors drove the higher results, such as great price-value offerings, extended sizes in all stores, targeted marketing and promotions, strength in girls’ and canvas, and increased breadth of assortment in in-stock positions. … Payless also recorded very strong growth in boots for the quarter, as our merchandising emphasis on cozy and comfort styles was well received by consumers and we benefited from a cool October.”

On the wholesale side, the Saucony and Sperry Top-Sider brands performed well during the quarter. Saucony had “broad-based strength and sales growth across all its selling channels domestically and in Europe and Canada,” said the CEO.

Sperry Top-Sider had “great” back-to-school sales, Rubel said. “The women’s segment showed strength in the quarter and is becoming an increasingly larger percentage of the total business, consistent with our stated strategy.”

And at Keds, the company said profitability is improving via a better merchandise mix and that the brand is “building a core program around the sport category.” Rubel added that Keds launched a redesigned Website during the quarter, allowing shoppers to design custom sneakers.

He also said that Collective has its eyes set on “democratizing” the wellness category. “We’ve got some things we’re working on,” he said on the call.

The firm, meanwhile, has also focused on international expansion for Payless. It is rolling out new stores in Colombia and now has six franchise locations in the Middle East.

In addition, it is prepping for franchise openings in Russia next year. And the first Payless store in the Philippines should debut by mid-2010 through an agreement with franchise partner Stores Specialists Inc. The Philippines market could eventually hold about 75 stores, Collective said last week.

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