• Swings to a Q2 loss of $35m
  • Revenue rose 4.9% to $882.4m
  • Same store sales fell 0.7% 
400 Payless stores are set to close

400 Payless stores are set to close

Footwear retailer Collective Brands Inc plans to close about 475 under-performing Payless and Stride Rite Children's stores in the next three years, as well as explore strategic options for the business as a whole, after swinging to a second quarter loss of $35m.

Of the closures, 300 are expected by the end of the fiscal year and will focus on underperforming and low volume, non-strategic stores.

In total, around 400 of the stores set to shutter are Payless shops in the US, Canada and Puerto Rico and about 75 are Stride Rite Children's locations.

Impairment charges of $19m were booked in the second quarter, with additional lease termination and severance costs likely to be in the region of $25m to $35m. But Collective Brands believes its action could lift annual operating profit by $18m to $22m.

The company, which operates 4,844 stores, also said its board and management are conducting "a review of strategic and financial alternatives to further enhance shareholder value" and will "explore a full range of alternatives for Collective Brands." It has hired Perella Weinberg Partners and Kurt Salmon as advisers.

The board has moved to defend itself against a potential takeover by adopting a "poison pill" stockholder rights plan while the review is being carried out.

The rights become exercisable once any person or group acquires 15% or more of Collective Brands' shares - and the effect is to make acquisition of the shares a far less tempting proposition for potential investors or someone looking to make a hostile bid.

Collective Brands revealed its plans late Wednesday (24 August) as the company posted a second quarter loss of $35m or $0.58 per share for the to three months to 30 July, compared with a profit of $21.1m or $0.32 per share share a year earlier.

Excluding one-time impairment and severance charges of $83.6m that relate to the falling value of its stores and the Stride Rite trade name, the company said it would have posted a profit of $9.9m or $0.16 per share. 

Quarterly revenue rose 4.9% to $882.4m from $841.3m thanks to its Performance + Lifestyle Group where Sperry Top-Sider helped lift retail revenues by 9% and wholesale by 25%; and a 7% rise in its international businesses.

But a 2% drop in Payless Domestic sales dragged same store sales down 0.7%. And higher product costs and pricing pushed gross margin rate down 360 basis points to 30.8%.

"While the second quarter was challenging for the company, we are taking aggressive actions to improve the business," said CEO Michael J Massey. 

"In Payless Domestic, we are gaining a much greater understanding of our customers and their needs and expectations. At the same time, we will continue to invest for growth and profitability in our Performance + Lifestyle Group and international businesses."