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Original Source: FD (FAIR DISCLOSURE) WIRE
. Timothy Reid, Payless ShoeSource, Inc., Director, Corporate Communications & IR . Steven Douglass, Payless ShoeSource, Inc., Chairman & CEO
. Ullrich Porzig, Payless ShoeSource, Inc., CFO, SVP & Treasurer
During 2Q03, PSS opened 58 new stores and closed 41 for a net increase of 17 stores. As a percent of sales, 2Q03 SG&A expenses were 25.8% vs. 23% in 2Q02. PSS will no longer provide specific guidance for sales or earnings. Q&A Focus: Athletic footwear, inventory, balance sheet.
A. Key Data From Call 1. 2Q03 sales = $732m. 2. 2Q03 cash balance = $115m. 3. 2Q03 CAPEX = $31m. 4. 1H03 sales = $1.430.
S1. 2Q03 Summary (S.D.) 1. Overall Retail Environment: 1. The economy remains sluggish. 2. Unemployment has climbed to over 6%, a nine-year high and personal bankruptcies are in an all-time high. 3. Unusual weather pattern severely depressed demand for
important sandal and canvas categories, leading to weak sales
for PSS in May and June. 4. PSS' customers began to see more promotions with deeper discounts, new promotional events and a faster pacing of these events, and messages that balance merchandise authority and value. 5. With the exception of sandals and canvas, most merchandise classifications had good sales performance during the spring season, particularly those where the co. has implemented its new positioning strategy.
1. Women's casual and dress shoes, expanded lines of Hunters'
Bay and leather dress and casual footwear for men. 2. The children's category, particularly girls and boys shoes. 3. The accessory business, which continued to generate solid positive same-store sales.
2. 2Q03 Financial Performance: 1. 2Q03 sales totaled $732m, 5.8% decrease vs. 2Q02. 2. 2Q03 same-store sales decreased 6.4% vs. 2Q02. 3. 2Q03 GM was 27.1% of sales vs. 32.7% in 2Q02. 1. The decline resulted from increased markdowns to clear seasonal merchandise and negative leverage from occupancy costs. 4. As a percent of sales, 2Q03 SG&A expenses were 25.8% vs. 23% in 2Q02. 1. The increase reflects higher advertising expense, increased insurance costs, the write-off of deferred financing costs related to the refinancing of long-term debt, and the negative leverage of lower sales. 5. 2Q03 net interest expense decreased vs. 2Q02 reflecting the
lower interest rate and lower debt balance. 6. 2Q03 diluted EPS was $0.08 vs. $0.69 per diluted share in 2Q02. 3. 1H03 Financials: 1. Sales totaled $1.430b, 5.6% decrease vs. 1H02.
2. Same-store sales decreased by 6.3% vs. 1H02. 3. GM was 28.2% of sales vs. 31.4% during 1H02. 4. SG&A expenses were 25.8% of sales vs. 23.5% during 1H02. 5. Diluted EPS was $0.28 vs. $1.04 during 1H02. 4. Balance Sheet: 1. Total inventories at the end of 2Q03 were $419m vs. $337m at the end of 2Q02, an increase of 23% on a per-store basis. 1. Inventory levels were increased beginning last fall from their relatively low levels in 1H02.
2. PSS has increased its level of inventory in merchandise classifications that are responding to the repositioning efforts. 3. Inventory per store at the end of FY03 should be approx. the same as it was at the end of FY02. 4. The working capital should be neutral to a slight source of cash for FY03. 2. In July 2003, PSS successfully completed the sale of $200m of 8.25% senior subordinated notes price to yield 8.5% due 2013. 1. Interest on 8.25% senior subordinated notes due 2013 is payable semi-annually beginning on 02/01/2004.
2. PSS used the proceeds of the offering, net of all fees and
expenses together with available cash to repay all existing indebtedness under the term long-portion of the co.'s existing credit facility. 1. This action locks in an attractive interest rate for the next 10 years. 3. The credit facility entered into in the year 2000 was amended during 2Q. 4. The amended credit facility remains in place through 1Q05 and consists of $150m revolving line of credit.
5. PSS is in full compliance with all covenants of the amended
credit facility. 6. The amended credit facility allows up to $50m a year for share repurchases. 3. PSS' cash balance at the end of 2Q03 was $115m. 1. PSS remains committed to prudent capital management and protecting its cash position, especially as the co.
approaches FY05 when the current credit facility expires. 2. PSS' goal is to earn the best possible credit rating and maximize shareholder value. 4. 2Q03 CAPEX was $31m for a total of $55m so far this year. 1. The co. expects capital spending to be $115m in FY03. 5. Store Openings: 1. During 2Q03, PSS opened 58 new stores and closed 41 for a net increase of 17 stores. 2. For FY03, PSS expects to open 50-60 net new stores. 6. Strategic Initiatives: 1. PSS remains committed to a long-term strategy to be the merchandise authority in value price footwear and accessories.
2. In women's category, PSS is featuring fashion right styles
delivered to market consistent with higher-priced industry
tiers. 1. Balance proportions of traditional basics and more fashionable merchandise across groups of customers and clusters of stores. 2. More leather shoes and tiered pricing meeting the pocketbook of a broader range of customers. 3. In the children's line for the near-term, PSS will focus primarily in girls' segment.
1. PSS is improving styling, providing more fashionable expressive merchandise. 2. …