Lower sales and margins at the Payless ShoeSource chain in the U.S. offset better results at Stride Rite, Sperry Top-Sider and other brands in the Performance & Lifestyle Group (PLG) of Collective Brands in the third quarter ended Oct. 29, leading the big American company to book a net loss of $114.3 million for the period as compared to a profit of $47.6 million a year ago. Excluding extraordinary net charges, including those related to the termination of store leases, the company recorded a small adjusted net profit of $37.1 million.
The group's operating income declined to $15.4 million from $68.8 million. The gross margin slid by 5.6 percentage points to 31.7 percent due to higher product costs and price promotions intended to raise store traffic and transactions, but the group's total retail sales dropped nonetheless by 3.7 percent on a same-store basis, including a drop of 4.5 percent at Payless in the U.S. and a decline of 1.1 percent at PLG Retail, attributed mainly to Stride Rite's stores. Payless sold more boots and sandals.
Collective has decided to accelerate the shutdown of underperforming U.S. stores, targeting 350 closures by next July instead of 315 as previously planned. Fifty Stride Rite children's stores will be affected. The company is still looking at shutting down 475 stores in the next three years. PSS will also offer more specific assortments for different areas at more than half of its U.S. stores, and develop a customer loyalty program, offering targeted discounts to its most loyal customers.
The total net number of stores is expected to be off by 329 doors to 4,515 for this year. The company had a total of 4,428 Payless stores and 378 PLG locations in operation at the end of the quarter compared with 4,477 and 380 doors, respectively, one year ago. This came after opening nine new Payless stores and three Stride Rite stores in the quarter, while closing 33 Payless and nine PLG stores.
Across the group, revenues grew by 1.4 percent to $894.4 million. The poor results of PSS, whose total sales were off by 5 percent to $520 million, were partly offset by sales increases of 1.2 percent to $119.9 million for Payless International and of 27.3 percent to $180.3 million for PLG's wholesale operations.
With a total of 750 stores and 115 franchises outside the U.S. at the end of the quarter, Payless International strengthened its position in Latin America, while its sales declined in Canada and Puerto Rico. All four brands of PLG improved their sales performance. In particular, Sperry had gains in all retail channels, partly due to the growing strength of its women's line, which now accounts for more than 50 percent of the brand's turnover.
On an adjusted basis, operating margins declined in all four business units of the company during the quarter except for PLG's wholesale activities, where they increased by 0.1 percentage points to 5.3 percent of sales. Payless' domestic operations ended up with a negative margin of 1.7 percent of sales, down by 7.2 percentage points compared with one year ago. Margins declined by 8.9 percentage points to 6.8 percent at Payless International and by 0.8 percentage points to 9.0 percent at PLG Retail.
With its order backlog up by 17 percent compared with a year ago, the PLG Wholesale unit is expected to boost its revenues by more than 20 percent in the fourth quarter.