Collective Deal May Be Nearing

NEW YORK — Though Collective Brands Inc. made improvements in its beleaguered Payless ShoeSource business in the fourth quarter, the firm is still up for grabs, either as a whole or in part, said analysts.

They noted a deal could be struck within the next three months, as long as the price is right.

“I’m hopeful that we hear something before they announce their first-quarter [sales and earnings],” said Christopher Svezia, analyst at Susquehanna Financial.

He added the firm’s improved performance could impact the sale price of a potential deal. “Does it change the valuation? In my mind, yes,” he said. “The board is serious about driving value. There is genuine interest in these properties, and it all comes down to whether it’s the right price.”

Paul Swinand, analyst at Morningstar Inc., said, “Everyone is waiting for some kind of strategic buyout. The slowdown in Saucony and run-up in Sperry Top-Sider means that [now] could be the time to sell.”

But who might be the leading bidders? Svezia said VF Corp. has the resources to make a play for Collective’s Performance & Lifestyle Group. “With their balance sheet, they can do a $500 million or higher [acquisition] if they want to,” he said.

Michael Massey, interim president and CEO of Collective Brands, said the firm continues to work with its adviser, Perella Weinberg Partners, on its strategic and financial review, and that business is on the right track.

“We’ve had limited blunt tools to work with at the outset, [but] we are listening more closely to the customer and making faster adjustments in the business,” he said during a call with analysts. “We’ve made tough decisions such as deep category markdowns in the third and fourth quarters to jumpstart the business, and we stuck to our convictions in spite of the near-term financial implications.”

Notably, the PLG division hit $1 billion in full-year revenues, after its fourth-quarter sales grew 19 percent to $222 million, said Gregg Ribatt, president and CEO of PLG.

Within that group, Sperry sales jumped more than 50 percent in the fourth quarter, while Saucony advanced in the high single digits. PLG’s retail net sales also advanced 13 percent in the period, driven by Stride Rite and Sperry specialty stores.

Meanwhile, Collective’s Payless unit delivered mixed results, with the domestic business improving and the international segment slipping 1 percent. LuAnn Via, president and CEO of Payless, said, “The results were due to less-than-satisfactory execution, in part because we prioritized fixing the domestic business.”

Collective said last Tuesday Payless delivered improved performance across all metrics. Sequentially, domestic same-store sales rose nearly 2 percent in the fourth quarter, compared with a 5 percent decline in the third quarter and a 0.4 percent dip in the year-ago period.

As a whole, Collective’s fourth-quarter loss widened year-over-year to $41.6 million, or 69 cents a share, despite a revenue bump of 5.4 percent to $815.9 million. Its shares traded about 6 percent higher last Wednesday after topping analysts’ estimates.

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