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NEW YORK — Increased gross margins and cost reductions helped Collective Brands Inc. swing to a profit in the first quarter, but analysts warn that the next few months could be more challenging for the Topeka, Kan.-based firm.
Collective’s second-quarter results, like those in the rest of the retail industry, are likely to be affected by the absence of last year’s stimulus checks, as well as a shift in tax-free holidays and back-to-school sales to the back half of the year. “The second quarter is likely to be tougher than the first,” said MKM Partners analyst Patrick McKeever. “But we continue to expect a better top-line dynamic in the second half as comparisons ease and as merchandising and marketing initiatives gain traction.”
As a result, McKeever raised his full-year earnings per share estimate for Collective to $1.15, and boosted his 12-month price target to $19 from his earlier target of $16. “If the economy improves, as is looking increasingly likely, these figures should prove conservative,” he said.
Matthew Rubel, chairman, CEO and president of Collective, acknowledged that the company expects challenges in the near term. “The retail environment will be much tougher in the second quarter than people realize,” he said during a conference call with analysts.
Although Collective did not provide guidance for the second quarter or the remainder of the year, executives did note that declines are expected due to the December 2008 expiration of its licensing agreement for the Tommy Hilfiger adult footwear business, which yielded $16 million in sales in the second quarter of last year. The company is also repositioning its Keds business and anticipates sales declines of $8 million in the last nine months of 2009, half of which will come in the second quarter.
Even with these expected hits, Susquehanna Financial Group analyst Christopher Svezia said, “[Collective] has the potential to grow its earnings in 2009, despite a difficult sales environment, and could have more upside opportunity should macro conditions improve considerably.”
Collective’s first-quarter net earnings of $38 million, or 59 cents a diluted share, came in 12 cents higher than the EPS estimate of analysts polled on Yahoo Finance. In the year-ago period, the company’s profits totaled $19.7 million, or 30 cents a share, which included one-time charges of $22.4 million, or 36 cents, attributable to various factors, including litigation.
The company’s sales dropped 7 percent to $862.9 million in the first quarter, and comparable-store sales declined by 4.8 percent, as the company’s Payless ShoeSource stores dropped 5.2 percent, and Stride Rite slipped a lesser 0.5 percent. Although store traffic was down, executives singled out increases in children’s retail sales at both Payless and Stride Rite, as well as increases in Payless accessory sales, thanks to a new fixture rollout.
On the wholesale side, Saucony’s sales grew by a double-digit percentage, although Sperry, which has been one of the company’s star brands, “had a little bit tougher quarter primarily because of bankruptcies at Boaters World and one quality issue that they had to work their way through,” said Rubel. “But retail sell-throughs [for Sperry] are strong, and we’re seeing very, very strong comp-store gains.”
Payless’ domestic athletic footwear was also soft for the quarter, and the retail chain’s international net sales declined by $15 million, due mainly to negative impacts of foreign currency exchange, lower comp-store sales in Canada and new regulatory and tax policies in Ecuador.