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Payless Q1 comparable store sales rise 5%, net earnings up 8.1%

31 May '07

3 min read

Gross margin rate was 36.9% in the first quarter of 2007 versus 36.8% in the first quarter of 2006, an increase of 10 basis points.

The increase in gross margin rate was due primarily to higher initial mark-on partially offset by the costs related to the company's distribution center initiative.

Selling, general and administrative (SG&A) expenses were 28.8% of sales in the first quarter of 2007 versus 28.7% in the prior year period, an increase of 10 basis points. The rate increase was driven primarily by lower sales of sandals. SG&A expenses were $210 million in the first quarter of 2007, up 5% versus the prior year due primarily to higher advertising and credit card fee expenses.

During the first quarter of 2007, Payless repurchased 0.5 million shares for $15 million (including shares from stock option exercises) under its stock repurchase program.

In accordance with its indenture governing its senior subordinated notes, the company may repurchase approximately $19 million more of its stock in the open market at this time. This limit will continue to adjust quarterly based on the company's net earnings.

Payless ended the first quarter of 2007 with $328 million in cash and short-term investments compared to $408 million at the end of the first quarter of 2006.

The decrease was due primarily to the first quarter 2007 acquisition of Collective Licensing. Total inventory was $382 million at the end of the first quarter of 2007. Total inventory and inventory per store were virtually flat versus the prior year period.

Capital expenditures for first quarter 2007 totaled $56 million versus $23 million in the prior year period. The increase was due primarily to greater investments in the company's supply chain. During first quarter 2007, Payless added 15 new stores and relocated another 23. Net of closings, Payless ended the period with 4,564 stores down 38 compared to first quarter 2006.

Fiscal 2007 capital expenditures for Payless are still expected to total approximately $160 million. The increase over 2006 will be primarily driven by spending on the company's supply chain. In 2007 the company has and will continue to invest, in stores, brands, and technology which support Payless' strategic imperatives of effective brand marketing, on-trend targeted product, a great shopping experience, and efficient operations.

Payless ShoeSource Inc

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