Shoe retailers aren't stepping lively these days. Sizing up the results Collective Brands (NYSE: PSS ) and Foot Locker (NYSE: FL ) just untied to investors, it looks as if strapped consumers are forgoing a new pair of spring pumps in favor of a fill at the gas pump.
Not much "rite" here
Collective Brands saw comparable sales fall 6.8% in its fourth quarter on lower traffic than usual and a decline in consumer spending. A gross margin decline of 260 basis points (before unusual items) didn't help either; the bottom line slipped into negative territory coming in at a loss of $0.73 per stub. However, a $0.42 charge contributed to the loss due to purchase accounting adjustments connected to the acquisition of Stride Rite last year.
Management was a bit coy in its margin discussion, noting that the Payless stores showed improved margins, and pointing to low-aged inventory (discontinued styles) at quarter end. But I'm not buying it. Total inventories ended up 30% on 12% higher sales (including the acquired Stride Rite stores). I'd say that's a lot of stock to move through this spring.
Further, the outlook for 2008 looks murky. Management tentatively guided toward mid-teens operating profit growth based on low-single-digit comp sales, but warned that sales may well be worse than this "long-term goal." This sounds as though management's saying: Earnings will be good if sales get a lot better, but don't count on it.
We did our best, coach
Foot Locker's comp sales were stomped on even further, declining 7.8% during the quarter. Earnings that clocked in at $0.56 per share, reflecting a 4.8% drop, didn't look too bad, but they were boosted by a net $0.32 due to a big tax benefit that offset charges for closing unproductive stores. Excluding the unusual items, operating profit of $10 million fell more than 93%.
Looking at the soft sales, management decided the quarter wasn't pretty and bit the bullet on markdowns, driving margins down a whopping 630 basis points. Inventories looked reasonably in line, down 1.7% in total but up 2.1% per store.
Out of fashion?
Is there any good news to be found in shoes? Certainly not at Shoe Carnival (Nasdaq: SCVL ) , which has shed nearly 60% of its market value in the past year.
It's not all doom and gloom, but I'd try these companies on carefully to make sure the shoe fits before I'd wear it.
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