Loss Widens at Collective

NEW YORK — While Collective Brands Inc. fell deeper into the red during the fourth quarter, the company expected its refocused strategy to help it recover in 2009.

“We are aggressively lowering our cost structure and actively building liquidity. … We are confident we will deliver strong free-cash flow and operating profit in 2009 and thereby deliver shareholder value,” Matthew Rubel, chairman, president and CEO, said on a conference call with analysts last week.

While the company was able to consolidate several aspects of its manufacturing last year, price hikes in China and the macroeconomic environment “more than offset” any savings, according to EVP and Chief Administrative Officer Douglas Treff.

But even in the face of a disappointing loss, analysts expressed confidence in the company’s potential.

“Should macro trends improve, the company could have meaningful upside potential moving into the second half, given the reduced overhead and favorable product costs,” Chris Svezia of Susquehanna Financial wrote in a research report.

Fourth-quarter bright spots for the company included an uptick in average unit retail prices at Payless ShoeSource stores and higher retail sales in Latin America. Sales performance was mixed in the Stride Rite division, where Sperry Top-Sider, Saucony and Stride Rite Group International were strong segments.

“Stride Rite kids’ could have done a better job on opening price points because there is an opening there,” Rubel said.

He was more positive on the Keds business, which has struggled to find its footing in the marketplace. “We’re quite optimistic that we’ve come up with a strategy that’s going to build Keds back. It will be slow, but I think we’ve hit bottom,” said Rubel, naming Jeffrey New York and Colette in Paris as some of the top-tier retailers picking up the brand.

At Payless, Rubel said the chain will emphasize women’s casual and children’s footwear, particularly at opening price points. The CEO noted that children’s business is categorically more resilient, with holiday and seasonal replenishments driving sales.

For the three months ended Jan. 31, the company’s net loss was $144 million, or $2.28 a diluted share, from a loss of $46.6 million, or 73 cents, in the year-ago quarter. The loss included $130.2 million in pre-tax noncash tradename and goodwill impairment charges related to weakening economic conditions.

Sales in the quarter fell 5.4 percent to $735.2 million from $776.8 million, as comparable-store sales fell 6.6 percent. By brand, sales for Payless were $573.1 million and for Stride Rite $162.1 million.

During the fourth quarter of 2008, the company added 16 stores, which included 11 Payless stores in Latin America and five Stride Rite stores. It also closed 29 stores, which included 26 Payless sites and three Stride Rite locations.

For the year, the net loss was $68.7 million, or $1.09 a diluted share, against income of $42.7 million, or 65 cents, in 2007. Sales gained 13.4 percent to $3.44 billion from $3.04 billion.

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