Amid a sluggish retail environment, Collective Brands, Inc. (PSS), a wholesaler and retailer of footwear and related accessories, recently reported second quarter 2009 results. Despite lower operating costs and inventory management, the company continues to experience diminishing top and bottom lines hurt by lower consumer discretionary spending.

Collective Brands’ second quarter earnings plunged 42.0% year over year to 29 cents a share, after falling 10.6% in the first quarter of 2009. However, the quarterly earnings were in line with the Zacks Consensus Estimate.

The operator of Payless ShoeSource and Stride Rite chains, delivered revenue of $836.3 million, down 8.3% due to a fall in same-store sales, the expiration of a Tommy Hilfiger adult footwear licensing agreement and an adverse impact of foreign currency exchange rates. Total revenue fell 7.5% in the first quarter of 2009.

Same-store sales continue to fall at an accelerating rate. It dipped 7.3% for the quarter under review after declining 4.8% in the previous quarter. Same-store sales had increased 0.2% in the year ago quarter. Same-store sales slipped 6.0% and 2.7% for Payless ShoeSource and Stride Rite chains, respectively.

The economic slowdown has also engulfed the footwear industry, which is experiencing sluggish demand and decline in retail traffic count. Cash-strapped consumers are prioritizing their purchases.

Payless ShoeSource domestic chains’ revenue fell 6.9% to $546.8 million, whereas Payless ShoeSource international chains slid 11.4% to $103.7 million. Stride Rite wholesale revenue dipped 13.2% to $137.7 million, whereas Stride Rite retail revenue dropped marginally by 1.2% to $48.1 million.

During the quarter, Collective Brands opened 20 new stores (16 Payless ShoeSource and 4 Stride Rite), closed 33 Payless ShoeSource stores and relocated five stores (4 Payless ShoeSource and 1 Stride Rite). During fiscal year 2009, the company expects to open 87 stores (76 Payless ShoeSource and 11 Stride Rite) and close 147 stores (143 Payless ShoeSource and 4 Stride Rite). Currently, the company operates 4,863 stores.

Management now expects capital expenditures for fiscal year 2009 to be $85 million, down from $129.2 million in the last year, reflecting the completion of distribution centers and lower spending on stores. The company generated free cash flow of $67.2 million in the first six-months of 2009 compared to $8.8 million in the same period last year due to lower capital expenditures.

Collective Brands ended the quarter with cash and cash equivalents of $295.2 million and long-term debt of $891.2 million, representing debt-to-capitalization ratio of 55.2%.
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