Collective Brands Catches Its Breath

After some initial optimism on my part, Collective Brands (NYSE: PSS  ) quickly kicked it down a notch by reporting a tougher-than-expected quarter. However, based on where the stock is trading, some downside may already be priced into the valuation, which could sit well with prospective investors.

Wednesday evening, Collective Brands, which just changed its name from Payless ShoeSource after it acquired Stride Rite, posted sales and earnings for the second quarter that were below analyst projections. The performance was also below management expectations, as overall sales fell 1% and same-store sales were also weak, falling 1.4%.

The challenging top-line trends appeared to have a domino effect; management was planning for higher sales and organized costs accordingly, meaning that selling, general, and other expenses rose as a percent of sales. Spending on a "distribution center initiative," costs to integrate Stride Rite, and one-time income in last year's quarter all served to exacerbate the tougher sales environment, the end result of which was a 23% fall in earnings.

This wasn't a good quarter to suggest trouble is brewing at the Payless business, because overall uncertainty is running high as Collective Brands evolves into an owner, designer, and seller of shoe brands. The purchase of Stride Rite brings ownership of the well-known Keds, Sperry, and Saucony brands, which also operate in the faster-growing children's shoe category.

Also, Collective Brands recently signed deals with Nike (NYSE: NKE  ) and Disney (NYSE: DIS  ) to co-develop shoes. The march toward branding definitely makes sense because it generally carries higher profit margins than pure shoe retailing, but management has work to do to prove to investors it can successfully manage the Payless shoe stores with fancier ambitions to own and develop higher-end footwear and accessories.

Collective Brands is also paving a new trail, because the market for casual shoes is highly fragmented. The new corporate name stems from a recent purchase of Collective International and its skater and snowboard brands, such as Airwalk. The purchase of Stride Rite only upped the ante, and if management starts to walk tall with its new business model, rivals such as Skechers (NYSE: SKX  ) , Steve Madden (Nasdaq: SHOO  ) , Kenneth Cole (NYSE: KCP  ) , or Wolverine World Wide (NYSE: WWW  ) could start shaking in their boots with worries that they could be next on Collective's shopping list.

For related Foolishness:

Disney is a recommendation in the Motley Fool Stock Advisor newsletter service. Find out why with a free 30-day trial.

Fool contributor Ryan Fuhrmann is long shares of Nike, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 535957, ~/Articles/ArticleHandler.aspx, 12/18/2014 1:35:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement