Original Source: FD (FAIR DISCLOSURE) WIRE
. James Grant, PAYLESS SHOESOURCE INC, Director, IR . Rick Porzig, PAYLESS SHOESOURCE INC, SVP, CFO . Matt Rubel, PAYLESS SHOESOURCE INC, CEO, President . Margaret Mager, Goldman Sachs, Analyst . Stewart Khan, Xander, Analyst . Shawn Badlaney, Canon Capital, Analyst
. Scott Roberts, Aim Investments, Analyst . Chris Svezia, Susquehanna Financial Group, Analyst . David Mann, Johnson Rice, Analyst
PSS reported full-year 2006 total sales of $2.8b and 4Q06 sales of $693m. PSS added that full-year 2006 net earnings from continuing operations were $125m and 4Q06 net earnings from continuing operations were $25m or $0.38 per diluted share.
A. Key Data From Call 1. Full-year 2006 total sales = $2.8b. 2. 4Q06 sales = $693m. 3. Full-year 2006 net earnings from continuing operations = $125m. 4. 4Q06 net earnings from continuing operations = $25m. 5. 4Q06 diluted EPS = $0.38. 6. Full-year 2006 GM = 34.9%.
7. 4Q06 GM = 33.9%. 8. FY06 CapEx = $119m. 9. Inventory at 4Q06-end = $362m. 10. Cash and short-term investments 2006-end = $461m.
S1. 4Q06 & 2006 Financials (U.P.) 1. 4Q06 Highlights: 1. Generated strong sales and earnings growth. 2. Expanded GM rate. 3. Managed inventory well. 4. Generated a high level of cash from operations.
2. 4Q06 Sales: 1. Sales totaled $693m, an increase of 13% over 4Q05. 1. Include sales of $36m in the 14th week of fiscal qtr.
2. Same-store sales increased 6.8%. 1. Same-store sales figure was calculated excluding the 14th week. 3. 4Q06 sales results, which trended more favorably each month were driven primarily by: 1. Women's and children's footwear categories, each experienced
strong sales increases. 1. Women's category performed well despite modest sales gains in boots. 2. Dress and casual footwear were also strong. 2. Sold 4% more of footwear units vs. 4Q05, excluding the 14th week of 4Q06. 3. Customer conversion was up due to increased customer engagement and strong store operations execution.
4. International segment sales increased 16%, due to more effective merchandising and strengthening of the brand in international markets.
3. 4Q06 GM: 1. GM was 33.9% of sales vs. 31.2% in 4Q05, an increase of 270 BP. 1. Increase was driven primarily by higher initial mark-on. 2. GM benefited by having more on-trend and differentiated
product, which resonated with the customers. 1. Sourced more product directly, directly sourced products tend to have a lower cost relative to indirectly sourced products. 2. Higher sales allowed PSS to leverage the fixed components of cost of goods. 4. 4Q06 SG&A: 1. SG&A were $219m, up 16% vs. 4Q05. 1. Increase was driven by higher incentive compensation, the 14th week of 4Q06, and expensing of stock options, which did not occur last year.
2. SG&A as a percent of sales was 31.6% vs. 30.9% in 4Q05, an
increase of 70 BP. 5. 4Q06 Interest Income: 1. Had net interest income of $2m vs. net interest expense of $300,000 in 4Q05.
1. Driven by higher cash balances and higher interest rates on
the investments. 6. 4Q06 Income Tax: 1. Income tax benefit was $10m vs. $1m benefit in 4Q05. 1. Income tax was favorably impacted by the release of $14.3m of income tax reserves, related primarily to the closing of income tax audits in various jurisdictions.
2. $14.3m equates to $0.22 per diluted share. 7. 4Q06 Minority Interest: 1. Minority interest represents the 40% share of earnings that is due to the JV partners in Latin America. 2. 4Q06 minority interest was $2.7m vs. $1.5m in 4Q05. 1. Increase was due to strong business trends in Latin American businesses. 8. 4Q06 Earnings From Continuing Operations: 1. Net earnings from continuing operations were $25m or $0.38 per diluted share vs. a net loss from continuing operations of $600,000 or $0.01 per diluted share for 4Q05. 9. Full-Year 2006 Income Statement: 1. Total sales were $2.8b, up 4.9%. 1. Comparable store sales were up 3.5%. 2. Increase in sales for FY was due primarily to: 1. More on-trend product in stores. 2. Greater mix of brand merchandise. 3. Higher international segment sales. 2. GM rate was 34.9%, up 160 BP. 1. Driven primarily by higher initial mark-on. 3. EBIT margin was 6% vs. 4.4% in 2005. 1. Due primarily to, the best comp store sales PSS had in nine years and GM expansion. 4. Net earnings from continuing operations were $125m, up 64% vs.
2005. 1. Driven by higher operating profits and lower provision for income taxes, which resulted in income tax rate of 23.5%. 10. Balance Sheet: 1. Cash and short-term investments at year-end were $461m, up $24m or 5% over 2005. 1. Increase was due to greater cash from operations. 2. Inventory at 4Q06-end was $362m vs. $333m at 4Q05-end. 1. Increase was driven primarily by: 1. Timing, FY06 ended one week later than 2005 and this coming Easter is one week earlier than last year's and this necessitated taking ownership of more merchandise sooner than last year. 2. An increase in raw materials, PSS takes ownership of raw materials when it sources product directly, and Co. Increased the percentage mix of directly sourced product vs. last year. 2. Avg. inventory in the stores at 2006-end was flat vs. 2005. 1. This was due principally to less aged inventory, a well-timed inventory flow model, on trend merchandising, good store execution and a disciplined promotional
schedule. 3. CapEx for FY06 totaled $119m, about two-thirds of it was related to the stores and remaining third for distribution
centers, technology and other projects. 1. CapEx for FY07 is expected to total about $160m. 1. Driven by higher supply chain spending. 4. During 4Q06, repurchased 1.1m shares for $37.6m, under its …