The parent of Payless ShoeSource and Stride Rite saw sales drop by 7.5 percent to $862.9 million for the first quarter ended May 2, but net income nearly doubled, rising by 92.9 percent to $38.0 million. Collective Brands’ revenue figure was reduced by $15.0 million in currency effects, and was hurt by the expiration of the Tommy Hilfiger adult license and a drop in comparable store sales of 4.8 percent.
The result handily exceeded analysts’ forecasts. Adjusted for Hilfiger, litigation expenses related to last year’s trademark dispute with Adidas and inventory step-up charges, net income would have been down against the adjusted $42.1 million. The gross margin rose by 3.2 percentage points to 35.9 percent.
On the retail side, Payless’ U.S. sales fell by 3.0 percent to $570.8 million, but itts operating profit on the domestic market jumped to $42.2 million from $5.1 million, which included $30.0 million in litigation and inventory step-up charges. Outside the U.S., revenues were down by 18.7 percent to $84.8 million, and operating profit fell to $1.8 million from $11.4 million. In the international segment, foreign exchange accounted for $10.5 million of the drop in sales. Poor customer traffic in Canada, Latin America and Puerto Rico also hurt.
Stride Rite’s retail operating profit rose by 37.5 percent to $2.2 million as sales grew by 2.5 percent to $58.5 million.
The Stride Rite wholesale division was led by a double-digit increase in Saucony with strength in core running, sporting goods and family footwear channels. The Sperry brand also had a strong increase, but shutting down Hilfiger cost $23.4 million in sales and Keds remained weak as it works to re-position the brand, a process that has seemingly been under way for two decades. Overall, the division had a slight gain in operating profit to $23.4 million from $23.1 million, and sales fell by 18.5 percent to $148.8 million.
Although Collective characterized the environment as highly promotional and not likely to abate, it was able to grow merchandise margins by increasing direct sourcing of all purchased footwear to 71 percent from 62 percent last year. On the other hand, average retail prices per pair were higher because it is costing more to import shoes and because of an increase in branded products in its mix of offerings, to 59 percent from 50 percent a year ago.
The company continues to roll out the Hot Zone concept in Payless stores, but suggests that the Fashion Lab concept won’t get any more play. The number of stores should be reduced by 60 units this year, with 102 fewer Payless stores in the U.S., 35 more internationally and seven more Stride Rite doors. At the end of the quarter Collective had 4,520 Payless stores and 356 Stride Rites.