Payless ShoeSource (NYSE:PSS), operator of more than 5,000 retail outlets, put out its fourth-quarter and annual earnings this morning. The results were dismal. The company lost a quarter per share in Q4 and produced almost zero earnings for the year -- a total loss of about $100,000. On the other hand, Payless did beat expectations of a loss of $0.32 per share.

The best news for the company was that it managed to reduce its inventories substantially. Thus, inventory dropped from 84 days of sales in the last quarter of fiscal 2002 to 72 days this quarter. For a shoe retailer, this still seems absurdly high. Skechers (NYSE:SKX) has higher inventory levels, but Kenneth Cole (NYSE:KCP), Steve Madden (NASDAQ:SHOO), and Vans (NASDAQ:VANS) all offer substantially more streamlined inventory levels.

Here's where the struggle of Payless is clearest: In the last quarter of 2002, the company spent $163 million in marketing, sales and administration, and generated $650 million in top-line revenues. This quarter, the company increased its marketing and administrative expenditures by 19% and achieved lower sales. Not a good return on marketing expenses for sure. A walk into any Payless store could tell as much of a story as a glance at its financials could -- everything is on sale, sometimes at deep discounts to retail price.

All of this can be confirmed by the press release's details, and especially the Chairman's comments in the shoe maker's earnings announcement. I'd like to offer my own translation. You can read more about interpreting press releases from my article Things Left Unsaid.

Have I ever mentioned how much I love corporate press releases and especially letters from CEOs? Let's call it another oddball hobby of mine. Here's why: in most cases you can assume that the companies are trying to make sure that whatever they're presenting is in the best possible light. Sure, there are folks at companies like (NASDAQ:OSTK), MacDermid (NYSE:MRD), IHOP (NYSE:IHP), and others who will tell you exactly what's happening -- but most folks simply cannot resist the temptation to spin.

Payless: "Gross margin was 24.7 percent of sales in the fourth quarter 2003 versus 26.1 percent in the fourth quarter 2002. The decline reflects the increased level of markdowns, asset write-offs, increases in impairment reserves, and the negative leverage on occupancy costs."

Translation: "We put everything on sale, we marketed aggressively, and still sold less than last year."

Payless: "The markdowns were needed to defend market share and reduce inventory in a highly competitive retail environment."

Translation: "We lost money on each sale but figured we'd make it up in volume. Plus, we bought too much stuff in the first place."

Payless' Chairman: "The aggressive promotional environment that has persisted since the beginning of the second quarter..."

Translation: "We're having our heads handed to us..."

Payless' Chairman: "Recently we took action to re-examine our strategy and assess our execution, including an intensive review of our business, the competitive landscape, and customer response to our strategy."

Translation: "We're trying to figure out how to stop having our heads handed to us."

Payless: "Our analysis has reaffirmed our commitment to our long-term strategy to be the merchandise authority in value-priced footwear and accessories."

Translation: "Here's some random business-ese that doesn't mean much but I hope that you'll accept. Really, I don't talk like this."

The reaction to Payless' results has been quite positive, with the stock up nearly 10% in early trading today. Clearly, this is a company that's groping to find its way. Investors ought to keep looking for inventory streamlining, and should certainly demand that the company make better use of its advertising dollars.

Bill Mann owns shares of several companies, none of which are mentioned here. He contributes to the Motley Fool Hidden Gems newsletter.