Wholesale Lifts Collective Brands

NEW YORK — Collective Brands Inc.’s wholesale business is a reason for cheer at the firm, despite lackluster performance at its Payless ShoeSource division, analysts said.

“Their wholesale business sounds like it’s getting a lot of traction,” said Morningstar analyst Paul Swinand. “They’re getting more accounts, higher-quality and bigger accounts, and that’s positive because the good stores are essentially saying, ‘Hey, you have good stuff, let’s increase our exposure to [those].’”

Patrick McKeever, analyst at MKM Partners, agreed that “wholesale was a bright spot,” but added that “in some respects, this highlights just how much better other footwear retailers [that] buy [their] wholesale are doing.”

Collective Brands’ third-quarter backlog is up 70 percent, the firm said, thanks to customers ordering earlier to ensure adequate supply.

Both Sperry Top-Sider and Saucony sales grew more than 30 percent, while Keds saw a double-digit increase, said Matthew Rubel, chairman, president and CEO of Collective Brands. Stride Rite’s new collections for Glitzy Pets and Slingshot, which launched in stores last month, also are experiencing double-digit sell-throughs, he added.

But while the wholesale business is strong, the Payless business continues to struggle, due to its high degree of exposure to urban and ethnic markets, where unemployment outpaces the national average.

Internal factors, such as slow reactions to key trends, as well as sub-optimal allocation and pricing, also played a role.

“We had a bad second quarter in Payless. There [are] no excuses,” Rubel told analysts in a conference call last Wednesday. “I’ll say 30 or 35 percent of it is due to the external factors, [while] 65 percent of it is on our plate, in terms of [what] we’ve got to do to create more energy and excitement with the brands [and] with the product.”

Strategies to increase Payless sales include highlighting trend-right offerings in boots, children’s and athletic footwear; improving the retailer’s breadth and depth in the fast-growing accessories category; and ensuring favorable pricing and value in every merchandise category. Rubel said multi-channel marketing will support these initiatives.

But analysts said the issues seem both macro and company-specific and will continue to be a problem in the third and fourth quarters.

The Topeka, Kan.-based firm said last Wednesday it earned $21.1 million, or 32 cents a share, in the second quarter, a 13 percent jump from $18.7 million, or 29 cents, in the same period a year ago.

Net sales increased 0.6 percent to $841.3 million, from $836.3 million.

The firm missed analysts’ estimates for an average of 46 cents on revenue of $863.3 million, as polled by Yahoo Finance. Company shares fell 6 percent in Thursday morning trading.

Revenue was driven by a 27 percent sales growth in its wholesale segment, but was offset by a 5 percent comparable-store sales decline.

Net sales at Payless Domestic fell 7 percent in the second quarter, faster than the 4 percent they fell in the first quarter. Key footwear categories such as sandals, casuals and canvas also declined.

Net sales at Payless International increased 6 percent to $109.8 million, from $103.7 million.

At the end of the quarter, the firm had cash and cash equivalents of $333.9 million, up from $295.2 million, and net debt declined 26 percent to $434.4 million.

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