Matthew Rubel has an action plan for Collective Brands Inc.’s Payless Domestic unit.
It starts with adding new styles and freshness, as well as increasing advertising and promotional activity.
The chairman, president and CEO said in a call with analysts last week that trends are resonating with consumers, particularly cork wedges and espadrilles, floral designs, minimalist running, colored-bottom athletic shoes and boat shoes, but the key strategy going forward will be to present “sharper prices and greater discernable value to those customers who are economically challenged.”
He also told Footwear News he is optimistic about stronger sales in the back-to-school season. “B-t-s is a need-based time period, and it’s not as discretionary as Easter,” said Rubel, noting that when the lower-income consumer was hit by gas prices of nearly $4 in March and April, “they just went back and used the black shoe from Christmas because the kid hadn’t grown out of it.”
He concluded that Payless Domestic’s turnaround is “not a one-year transition. We want to drive growth in [the wholesale Performance + Lifestyle Group], drive growth internationally and then modulate this other thing as it goes.”
Rubel also is encouraged by “clear wins in wholesale, as our Sperry Top-Sider business is incredibly strong in sell-through [rates] and has growth platforms in both women’s and men’s beyond the boat shoe.”
He added that Saucony also has had consistent growth every quarter, while Keds and Stride Rite are seeing high-single-digit sales increases and Payless International is performing strongly in Latin America.
The PLG wholesale backlog was up 39 percent at the end of the first quarter, and the firm anticipates that wholesale revenue, which makes up about a third of Collective’s business, will increase about 20 percent in the second quarter.
Analysts said the outlook is mixed for the firm, which missed estimates by a large margin. Patrick McKeever, analyst at MKM Partners LLC, said “traffic [at Payless] could remain negative for the foreseeable future, even against easy comparisons.”
Collective’s consolidated comps decreased 7.4 percent in the first quarter, with Payless Domestic down 8.3 percent on top of a 4.2 percent drop in the first quarter of 2010.
“The magnitude of the domestic decline is a concern moving forward,” said Christopher Svezia, analyst at Susquehanna Financial. “While weather and, to some extent, the macro environment played a role, we were surprised at the magnitude given strong footwear product trends industrywide. PLG remains a bright spot, but gross margin remains a moving target.”
Collective’s consolidated gross margin declined 260 basis points in the first quarter. The firm said it expects to move about 25 percent of production outside China, to Vietnam, Indonesia and various parts of Latin America, by the end of 2011.
For the period ended April 30, the firm’s net income halved to $26.4 million, or 42 cents a share. Revenue slipped 1 percent to $869 million. Analysts were expecting earnings per share of 82 cents.