Last time a Fool took a close look at cut-price shoe retailer Payless ShoeSource (NYSE:PSS), the Take wasn't pretty: "The results were dismal," said Bill Mann in examining the company's fiscal Q4 and 2003 (ended Jan. 31) financial report. Later this week, we'll get an idea whether things are improving: The Topeka, Kan.,-based company is scheduled to report Q1 numbers before Thursday's market open.

Revenues for the quarter, preannounced last week, rose 3.5% year over year to $722 million. Same-store sales improved 2.8%. The company expects to report EPS of between $0.16 and $0.21, quite possibly down from last year's $0.21 -- which were themselves off significantly from the $0.35 reported two years ago. (It looks even worse if you consider that the company's share count is significantly lower this year than in 2003 or 2002.)

Payless has a ways to go before it reaches its stated goal of becoming "the merchandise authority for value-priced footwear and accessories." Management is working to better select merchandise, better marketing, better service and better store experience -- but must carefully balance operational improvement with the cost controls that will maintain profit margins.

This is especially true given that the company has not had a good run of years. Revenues have fallen steadily during the last four full years. That's hurt profits, as have rising costs and expenses. Same-store sales have declined. Poor merchandising has bloated inventory levels.

And so there's work, aplenty, to do. Interestingly, however, investors have found early returns a good fit: The company's shares are performing well -- and outpacing the S&P 500 -- in early 2004.

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Fool contributor Dave Marino-Nachison doesn't own any of the companies in this article.