Collective Brands Inc. swung to a loss in the second quarter, following impairments to assets and goodwill, and expenses related to the June departure of Matt Rubel as CEO.
The company also announced it will shutter about 475 underperforming Payless ShoeSource and Stride Rite stores over the next three years, with at least 300 of those closings completed by the end of fiscal 2011.
Collective Brands added it will “conduct a review of strategic and financial alternatives to further enhance shareholder value” with advisers at Perella Weinberg Partners and Kurt Salmon. It also noted “there can be no assurance that this review will result in any additional action, [nor] will [the firm] make any comments until the board completes its review and has decided upon a specific course of action.” The board has adopted a Rights Plan to protect shareholder rights while this review is being conducted.
Paul Swinand, analyst at Morningstar Inc., said, “My personal feeling is you don’t sell Payless when it’s on its back, but the wholesale is on a roll, so you’d get a premium. The wholesale [alone] could go for more than the whole company [when the stock was $9.50 earlier this month].”
In a quarter it described as challenging, the Topeka, Kan.-based firm lost $35 million, or 58 cents a share, versus a net income of $21.1 million, or 32 cents, in the same period a year earlier.
Collective Brands missed estimates from analysts, who according to Yahoo Finance were expecting earnings of 14 cents a share for the period ended July 30.
Excluding the impairment and severance charges, however, adjusted net income was $9.9 million, or 16 cents.
“We are taking aggressive actions to improve the business,” Michael Massey, CEO of Collective Brands, said in a statement. “In Payless Domestic, we are gaining a much greater understanding of our customers and their needs and expectations. We are taking short-term actions to improve our performance, accelerating key initiatives and adjusting our longer-term strategies. At the same time, we will continue to invest for growth and profitability in our Performance & Lifestyle Group and international businesses.”
Costs for lease terminations, severance and other exit costs related to closing stores over the next two quarters could range between $25 million and $35 million, the company added.
Net revenue for Collective Brands increased 5 percent, thanks to growth in its three other segments: PLG Wholesale, Payless International and PLG Retail.
PLG Wholesale grew 25 percent, led by the Sperry Top-Sider brand, which saw improvements across almost all product categories, distribution channels and customer segments. The Saucony brand also delivered gains globally, driven by innovative styles in the minimalist and lightweight categories. PLG Retail advanced 9 percent.
Payless International sales increased 7 percent, driven primarily by Latin American stores. Payless Domestic declined 3 percent, with same-store sales down 2 percent, an improvement from the 8 percent same-store sales decline in the first quarter.
Collective Brands ended the quarter with cash and cash equivalents of $234.8 million and long-term debt of $657 million.