Exhibit 99.1
Payless ShoeSource Announces Second Quarter 2003 Results
TOPEKA, Kan., Aug. 13 /PRNewswire-FirstCall/ -- Payless ShoeSource, Inc.
(NYSE: PSS) today reported that for the second quarter of fiscal 2003, which
ended August 2, 2003, diluted earnings per share were $0.08, compared to $0.69
per diluted share during the second quarter of fiscal 2002. The company
recorded net earnings of $5.2 million during the second quarter 2003 compared
with $47.2 million during the second quarter 2002.
During the first six months of fiscal 2003, diluted earnings per share
were $0.28 compared with diluted earnings per share of $1.04 during the first
six months of fiscal 2002. The company recorded net earnings of $19.3 million
in the first six months of 2003 compared with $71.1 million during the same
period last year.
Company sales for the second quarter 2003 totaled $731.5 million, a 5.8
percent decrease from $776.2 million during the second quarter 2002. Same-
store sales decreased 6.4 percent during the second quarter 2003. The sales
shortfall primarily reflects unseasonable weather conditions during the first
two months of the quarter. Sales improved in July reflecting more seasonable
weather and favorable customer response to the company's stepped-up
promotional events.
In the first six months of 2003, company sales totaled $1.43 billion, a
5.6 percent decrease from $1.51 billion a year earlier. Also during the first
six months of 2003, same-store sales decreased 6.3 percent.
Gross margin was 27.1 percent of sales in the second quarter 2003 versus
32.7 percent in the second quarter 2002. The decline resulted from increased
markdowns to clear seasonal merchandise and negative leverage of occupancy
costs. Gross margin was 28.2 percent of sales in the first six months of 2003,
versus 31.4 percent during the same period last year.
Selling, general and administrative expenses were 25.8 percent of sales in
the second quarter 2003 versus 23.0 percent in the second quarter 2002. 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. Selling, general and
administrative expenses were 25.8 percent of sales in the first six months of
2003 versus 23.5 percent during the same period last year.
Balance Sheet
Total inventories at the end of the second quarter 2003 were
$418.6 million compared to $337.3 million at the end of the second quarter
2002, an increase of 22.6 percent on a per-store basis. Inventory levels were
increased beginning last fall from their relatively low levels in the first
half of 2002, providing the Payless ShoeSource customer a more consistent
offering. Additionally the company has increased its level of inventory in the
merchandise classifications that are responding to repositioning efforts. The
company intends that inventory per store at the end of fiscal 2003 should be
approximately the same as it was at the end of fiscal 2002.
On July 28, 2003, the company successfully completed the sale of
$200 million of 8.25% senior subordinated notes, priced to yield 8.50%, due
2013. Interest on the notes is payable semi-annually, beginning on February
1, 2004.
Payless used the proceeds of the offering (net of all fees and expenses),
together with available cash, to repay all existing indebtedness under the
term loan portion of its existing Credit Facility. This action locks-in an
attractive interest rate for the next ten years.
In addition, the Credit Facility, entered into in 2000, was amended in the
second quarter. The amended Credit Facility remains in place through the first
quarter of 2005 and consists of a $150 million revolving line of credit.
While no amounts have been drawn on the revolving line of credit at the end of
the second quarter 2003, the balance available to the company was reduced by
$13.4 million in outstanding letters of credit. The company is in full
compliance with all of the covenants of the amended Credit Facility.
The company ended the second quarter 2003 with a cash balance of
$115.3 million.
Capital Expenditures
Total capital expenditures for the second quarter 2003 were $30.9 million,
including a $1.0 million contribution from the company's joint venture
partners, for a net of $29.9 million. Payless expects total capital
expenditures for fiscal 2003 to be $115 million. This includes a $5 million
contribution from the company's joint venture partners in Latin America, for a
net of $110 million.
In the second quarter 2003, the company opened 58 new stores and closed
41, resulting in 17 net new stores. This brings the total store count to
5,020, an increase of 28 net new stores since the beginning of the year. For
the fiscal year 2003, the company expects to open 50 - 60 net new stores.
International Operations
During the second quarter 2003, the company opened 9 net new stores in the
Central American and Caribbean region, resulting in 137 stores in this region,
excluding Puerto Rico. The company intends to open 25 - 30 stores in this
region during the fiscal year 2003. The company believes the Central
American and Caribbean region represents a 150 to 200-store opportunity.
In addition, during the second quarter 2003 Payless opened 4 new stores in
South America. The company now operates 53 stores in this region, in the
countries of Ecuador, Peru and Chile. The company intends to open 10 - 15
stores in this region during the fiscal year 2003, and believes the Andean
region of South America to be approximately a 300-store opportunity.
The company is currently operating 279 stores in Canada and expects to
open approximately 10 - 20 net new Canadian stores during the fiscal year
2003.
Payless continues to explore additional opportunities to expand its core
business in new International markets.
Chairman's Comments
"Persistent unseasonable weather, combined with the sluggish economy,
depressed sales of seasonal merchandise including sandals and canvas footwear
during the spring season, creating an oversupply of seasonal inventory
throughout the footwear industry. Payless intensified its promotional
activity, adding markdowns necessary to minimize the carryover of seasonal
merchandise inventories," said Steven J. Douglass, Chairman and Chief
Executive Officer of Payless.
"Despite the weakness in seasonal categories during most of the quarter,
we are encouraged by results in several key categories impacted by our new
positioning strategy -- including our women's casual and dress footwear, our
Hunters' Bay(R) line of leather footwear for men, and our girls and boys
shoes. Our accessories business continues to be an area of rapid growth for
us, consistently generating solid positive same-store sales."
Outlook
Payless ShoeSource, Inc. will no longer provide specific guidance for
sales or earnings. The company does intend to provide general forward-looking
commentary, when appropriate, on:
-- its view of the retail environment,
-- its general strategies for operating in that environment,
-- and certain business or financial metrics that it can predict with a
reasonable level of certainty.
Looking forward, the company anticipates the retail apparel and footwear
market to remain highly promotional in the second half of the year, with
continued pressure on sales, margins and earnings. In this anticipated
business environment, Payless has made significant revisions to its fall
season promotional plan to defend its market share through aggressive
promotions. In addition, the company's messaging will balance merchandise
authority and value, and the company's store associates will focus on key
customer service behaviors to improve conversion. In addition, Payless will
carefully manage inventory receipts.
Payless ShoeSource, Inc. is the largest family footwear retailer in the
Western Hemisphere. The company operates a total of 5,020 stores offering
quality family footwear and accessories at affordable prices. In addition,
customers can buy shoes over the Internet through Payless.com(R), at
www.payless.com .
This release contains forward-looking statements relating to such matters
as anticipated financial performance, international expansion opportunities,
consumer spending patterns, capital expenditure plans, business prospects,
products, future store openings, possible strategic alternatives and similar
matters. Forward looking statements are identified by words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," or
variations of such words. A variety of known and unknown risks and
uncertainties and other factors could cause actual results and expectations to
differ materially from the anticipated results or expectations which include,
but are not limited to: changes in consumer spending patterns; changes in
consumer preferences and overall economic conditions; the impact of
competition and pricing; changes in weather patterns; the financial condition
of the company's suppliers and manufacturers; changes in existing or potential
duties, tariffs or quotas; changes in relationships between the United States
and foreign countries, changes in relationships between Canada and foreign
countries; economic and political instability in foreign countries, or
restrictive actions by the governments of foreign countries in which suppliers
and manufacturers from whom the company sources are located or in which the
company has retail locations or otherwise does business; changes in trade,
customs and/or tax laws; fluctuations in currency exchange rates; availability
of suitable store locations on acceptable terms; the ability to hire and
retain associates; performance of other parties in strategic alliances; and
general economic, business and social conditions, performance of our partners
in joint ventures; the ability to comply with local laws in foreign countries;
threats or acts of terrorism; strikes, work stoppages and/or slow downs by
unions that play a significant role in the manufacture, distribution or sale
of product. Please refer to the company's 2002 Annual Report and its Form 10-K
for the fiscal year ended February 1, 2003, and the company's Form 10-Q for
the fiscal quarter ended May 3, 2003 for more information on these and other
risk factors that could cause actual results to differ. The company does not
undertake any obligation to release publicly any revisions to such forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
[Unaudited Consolidated Condensed Statement of Earnings, Balance Sheet and
Statement of Cash Flows Attached]
NOTES REGARDING ATTACHMENTS:
The consolidated condensed statement of earnings, balance sheet and
statement of cash flows have been prepared in accordance with the company's
accounting policies as described in the company's 2002 Form 10-K, on file with
the Securities and Exchange Commission, and should be read in conjunction with
the 2002 Annual Report to Shareowners. In the opinion of management, this
information is fairly presented, and all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of the results
for the interim periods have been included.
PAYLESS SHOESOURCE, INC.
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(Millions, except per share data)
13 Weeks 26 Weeks
Ended Ended Ended Ended
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
2003 2002 2003 2002
Net sales $731.5 $776.2 $1,429.2 $1,514.4
Cost of sales 533.2 522.1 1,026.5 1,039.4
Gross Margin 198.3 254.1 402.7 475.0
Selling, General and Administrative
Expenses 188.7 178.3 368.8 356.2
Non-recurring Benefit - (0.9) - (0.9)
Operating Profit 9.6 76.7 33.9 119.7
Interest expense, net 3.3 5.1 7.4 10.6
Earnings Before Income Taxes and
Minority Interest 6.3 71.6 26.5 109.1
Provisions for income taxes 2.3 25.4 9.7 39.8
Net earnings Before Minority Interest 4.0 46.2 16.8 69.3
Minority Interest 1.2 1.0 2.5 1.8
Net Earnings $5.2 $47.2 $19.3 $71.1
Diluted earnings per share $0.08 $0.69 $0.28 $1.04
Basic earnings per share $0.08 $0.70 $0.28 $1.05
Diluted weighted average shares
outstanding 68.1 68.4 68.1 68.3
Basic weighted average shares
outstanding 68.0 67.9 68.0 67.6
Payless ShoeSource, Inc
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
August 02, August 03, February 1,
(dollars in millions) 2003 2002 2003
ASSETS:
Current Assets:
Cash and cash equivalents $115.3 $169.6 $74.4
Restricted Cash 33.0 18.5 28.5
Merchandise inventories 418.6 337.3 452.5
Current deferred income taxes 16.1 22.3 16.4
Other current assets 69.6 65.3 61.8
Total Current Assets 652.6 613.0 633.6
Property and Equipment:
Land 8.4 8.1 7.6
Property, buildings and equipment 1,149.7 1,100.1 1,120.0
Accumulated depreciation (737.7) (671.9) (701.3)
Property and equipment, net 420.4 436.3 426.3
Favorable Leases, net 31.8 34.6 34.3
Deferred Income Taxes 29.1 34.8 29.0
Other Assets 36.0 26.2 27.6
TOTAL ASSETS $1,169.9 $1,144.9 $1,150.8
LIABILITIES AND EQUITY:
Current Liabilities:
Current maturities of long-term debt $0.9 $48.9 $83.2
Notes Payable 33.0 18.5 28.5
Accounts payable 114.3 109.6 106.4
Accrued expenses 121.7 161.1 123.7
Total Current Liabilities 269.9 338.1 341.8
Long-Term Debt 203.1 182.5 140.7
Other Liabilities 54.9 53.7 52.3
Minority Interest 18.3 10.8 17.8
Equity 623.7 559.8 598.2
TOTAL LIABILITIES AND EQUITY $1,169.9 $1,144.9 $1,150.8
Payless ShoeSource, Inc
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
Year to Date Year Ended
August 02, August 03, February 1,
(dollars in millions) 2003 2002 2003
OPERATING ACTIVITIES:
Net Earnings $19.3 $71.1 105.8
Adjustments for noncash items
included in earnings:
Loss on disposal of assets 10.3 1.8 10.5
Depreciation and amortization 50.2 51.1 102.2
Amortization of unearned
restricted stock 0.3 0.8 0.9
Deferred income taxes 0.2 9.0 20.7
Minority interest (2.5) (1.8) (4.9)
Tax benefit of stock option
exercises --- 2.9 3.1
Changes in working capital:
Merchandise inventories 33.9 2.2 (113.0)
Other current assets (6.8) (9.1) 2.4
Accounts payable 7.9 36.0 32.9
Accrued expenses (2.0) 21.8 (18.6)
Other assets and liabilities, net 11.6 (5.0) (11.5)
TOTAL OPERATING ACTIVITIES 122.4 180.8 130.5
INVESTING ACTIVITIES:
Capital expenditures (55.3) (47.3) (98.8)
Disposition of property and equipment --- 1.7 3.9
TOTAL INVESTING ACTIVITIES (55.3) (45.6) (94.9)
FINANCING ACTIVITIES:
Issuance of notes payable 4.5 9.0 19.0
Restricted cash (4.5) (9.0) (19.0)
Issuance of long-term debt 196.7 --- 4.0
Payment of deferred financing costs (9.0)
Repayments of long-term debt (216.6) (79.7) (91.1)
Net issuances (purchases) of common
stock (0.2) 15.9 17.6
Contributions by minority owners 3.6 6.1 17.2
Other financing activities (0.7) (0.2) (1.2)
TOTAL FINANCING ACTIVITIES (26.2) (57.9) (53.5)
INCREASE (DECREASE) IN CASH 40.9 77.3 (17.9)
Cash and Cash Equivalents, Beginning
of Period 74.4 92.3 92.3
Cash and Cash Equivalents, End of
Period $115.3 $169.6 $74.4
SOURCE Payless ShoeSource, Inc.
-0- 08/13/2003
/CONTACT: Timothy J. Reid of Payless ShoeSource, +1-785-295-6695/
/Company News On-Call: http://www.prnewswire.com/comp/136152.html /
/Web site: http://www.paylessinfo.com /
(PSS)
CO: Payless ShoeSource, Inc.
ST: Kansas
IN: REA FAS
SU: ERN