Collective Brands Swing into Q2 Profit

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Topeka, KA —Footwear retailer Collective Brands Inc. said Friday it turned a profit in the second quarter despite closing hundreds of stores and taking charges related to the pending sale of the company.

For the quarter ended July 28, Collective Brands reported net income of $9.7 million, or 16 cents a share, compared with a loss of $35 million, or 58 cents a share, when it booked $83.6 million in one-time charges from the declining value of its stores and of Stride Rite’s trade name, among other items.

Despite operating 375 fewer stores, the company said its revenue inched up to $886 million from $882.4 million.

Revenue from the company’s wholesale performance and lifestyle business, which includes Stride Rite, Sperry Top-Sider, and other brands, grew 6%. Sales at locations open at least a year increased 2.9%.

Gross Margin Improvement

In May, Collective Brands agreed to sell itself to Wolverine Worldwide Inc. and private investment firms Blum Capital Partners and Golden Gate Capital for $1.3 billion, or $21.75 per share. Wolverine, the maker of Hush Puppies, will buy the performance and lifestyle unit, which includes Saucony and Keds along with Stride Rite and Sperry Top-Sider. Blum Capital and Golden Gate will jointly acquire Payless and Collective Licensing International, a brand development and licensing company. The sale is to close in the third calendar quarter or early in the fourth quarter.

Collective Brands had 4,464 company-owned or joint venture stores at the end of the period, down from 4,839 a year ago. It said 3,464 of those stores were Payless locations in theUnited Statesdown by 319 from a year earlier. Revenue from its U.S. Payless locations fell 3.5% to $477 million as a result of the closures.

Revenue from Payless stores in other countries rose 1.9% to $119.4 million. In the performance and lifestyle division, wholesale revenue rose to $231 million from $217.7 million and retail revenue grew to $58.6 million from $53 million.

The company also franchises 200 locations in 23 countries.

Results were boosted by an expansion in gross margin to 33.3% from 23.6% last year, helped by an improvement in retail businesses, fewer markdowns, and lower occupancy costs, while the prior year was impacted by impairments.

At Payless International, sales edged up 1.9%, and comparable store sales were up 2%. Growth was driven by Latin America that saw an 11% increase in comparable store  sales, whileCanadaandPuerto Ricoexperienced mid and low single digit declines, respectively.

PLG Wholesale sales grew 6.1%, on growth at brands such as Sperry Top-Sider and Stride Rite Children’s Group. At PLG Retail, net sales grew 10.6% and comparable store  sales were up 12%.

Meanwhile, Payless Domestic sales fell 3.5% from last year, due to fewer store count, but comparable store sales gained 2%.