Exhibit 99.1
Payless ShoeSource Announces Third Quarter 2003 Results
TOPEKA, Kan., Nov. 12 /PRNewswire-FirstCall/ -- Payless ShoeSource, Inc.
(NYSE: PSS) today reported that for the third quarter of fiscal 2003, which
ended November 1, 2003, the company posted a loss of $0.03 per diluted share,
compared to diluted earnings per share of $0.43 during the third quarter of
fiscal 2002. During the first nine months of fiscal 2003, diluted earnings
per share were $0.25, compared to $1.47 during the first nine months of fiscal
2002.
The company recorded a net loss of $2.2 million during the third quarter
2003 compared with net earnings of $29.6 million during the third quarter
2002. During the first nine months of 2003, net earnings were $17.1 million,
compared with $100.7 million during the first nine months of 2002.
Company sales for the third quarter 2003 totaled $709.8 million, a 0.5
percent decrease from $713.0 million during the third quarter 2002. Same-
store sales decreased 1.4 percent during the third quarter 2003.
During the first nine months of 2003, company sales totaled $2.14 billion,
a 4.0 percent decrease from $2.23 billion during the first nine months of
2002. Same-store sales decreased 4.7 percent during the first nine months of
2003.
Gross margin was 26.7 percent of sales in the third quarter 2003 versus
32.2 percent in the third quarter 2002. The decline reflects the aggressive
markdown of merchandise during the third quarter 2003. In addition, third
quarter 2002 benefited from a lower level of markdowns, in anticipation of
potential supply interruptions in the fourth quarter 2002 resulting from the
West Coast port situation. During the first nine months of 2003, gross margin
was 27.7 percent of sales, compared with 31.5 percent in the first nine months
of 2002.
Selling, general and administrative expenses were 26.8 percent of sales in
the third quarter 2003 versus 25.3 percent in the third quarter 2002. The
increase reflects an $8 million increase in advertising and higher insurance
costs. During the first nine months of 2003, SG&A expenses were 26.1 percent
of sales versus 24.0 percent during the first nine months of 2002.
Balance Sheet
Total inventories at the end of the third quarter 2003 were $410.7 million
compared to $407.8 million at the end of the third quarter 2002. Inventory per
store declined by 1 percent. The company intends that inventory per store at
the end of fiscal 2003 should be less than at the end of fiscal 2002.
Therefore, working capital should be a source of cash for fiscal year 2003.
In July 2003, the company successfully completed the sale of $200 million
of 8.25% senior subordinated notes, priced to yield 8.50%, due 2013. Proceeds
from the notes, together with existing cash, were used to repay all existing
indebtedness under the term loan portion of the company's existing credit
facility. The credit facility, consisting of a $150 million revolving line of
credit, is scheduled to expire in the first quarter of 2005.
The current long-term debt structure provides the company enhanced
flexibility, as no principal payments are required until 2013.
The company ended the third quarter 2003 with a cash balance of
$141.7 million.
Capital Expenditures
Total capital expenditures for the third quarter 2003 were $26.6 million,
including a $0.3 million contribution from the company's joint venture
partners, for a net of $26.3 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 third quarter 2003, the company opened 84 new stores and closed 54,
resulting in 30 net new stores. The total store count at the end of the third
quarter was 5,050, an increase of 58 net new stores since the beginning of the
year, consistent with previously announced plans.
International Operations
During the third quarter 2003, the company opened 6 net new stores in the
Central American and Caribbean region excluding Puerto Rico. The company is
currently operating 143 stores in this region, and intends to open 3 - 8
additional stores by the end of fiscal year 2003. The company believes the
Central American and Caribbean region represents a 150 to 200 store
opportunity.
In addition, during the third quarter 2003 Payless opened 2 new stores in
South America. The company now operates 55 stores in this region, in the
countries of Ecuador, Peru and Chile. Payless does not expect the store count
to change significantly through the end of the year as it continues to focus
on achieving its performance standards in all countries in this region.
The company is currently operating 286 Canadian stores and expects to be
operating 290 stores in Canada by the end of the year, for a net increase of
16 stores.
Payless continues to explore additional opportunities to expand its core
business in new International markets. Recently, the company announced a
joint venture agreement with Nichimen Corporation to test the Payless
ShoeSource concept in Japan. Under the arrangement, Payless and Nichimen
intend to open their first test store in Japan during 2004. Nichimen
Corporation is a Japanese trading company headquartered in Tokyo, with fiscal
year 2002 sales in excess of $17 billion.
Chairman's Comments
"Following a difficult second quarter, we entered the third quarter with
22 percent more inventory than the previous year, and the belief that the
retail environment would remain highly promotional in the second half of
2003," said Steven J. Douglass, Chairman and Chief Executive Officer of
Payless. "Our strategy was driven by our determination to defend our market
share, maintain our value proposition relative to higher-price tiers, and
reduce inventory."
"We have seen measurable improvement in several key merchandise
categories. During the third quarter, we achieved positive same-store sales in
women's and men's dress shoes, men's athletic shoes, children's footwear, and
our accessories business. Total unit sales also grew in the third quarter,
driven by unit sales increases in our women's and children's categories, and
our men's leather and athletic shoes."
Fourth Quarter 2003 Outlook
The company expects the retail environment to remain highly promotional in
the fourth quarter. Therefore, margins and financial results are expected to
remain under intense pressure through the end of the year.
Payless ShoeSource, Inc. is the largest family footwear retailer in the
Western Hemisphere. The company operates a total of 5,050 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 August 2, 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.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Millions, except per share data)
13 Weeks 39 Weeks
Ended Ended Ended Ended
Nov 1, Nov 2, Nov 1, Nov 2,
2003 2002 2003 2002
Net sales $709.8 $713.0 $2,138.9 $2,227.4
Cost of sales 520.5 483.6 1,546.9 1,525.3
Gross Margin 189.3 229.4 592.0 702.1
Selling, General and Administrative
Expenses 190.2 180.6 558.9 534.4
Non-recurring Benefit - (1.2) - (2.1)
Operating (Loss) Profit (0.9) 50.0 33.1 169.8
Interest expense, net 4.9 4.6 12.3 15.3
(Loss) Earnings Before Income Taxes
and Minority Interest (5.8) 45.4 20.8 154.5
(Benefit) Provision for income taxes (2.1) 16.5 7.6 56.4
Net (loss) earnings Before Minority
Interest (3.7) 28.9 13.2 98.1
Minority Interest 1.5 0.7 3.9 2.6
Net (Loss) Earnings $(2.2) $29.6 $17.1 $100.7
Diluted (loss) earnings per share $(0.03) $0.43 $0.25 $1.47
Basic (loss) earnings per share $(0.03) $0.44 $0.25 $1.49
Diluted weighted average shares
outstanding 68.1 68.4 68.1 68.3
Basic weighted average shares
outstanding 68.1 68.0 68.0 67.7
Payless ShoeSource, Inc
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
November 1, November 2, February 1,
(dollars in millions) 2003 2002 2003
ASSETS:
Current Assets:
Cash and cash equivalents $141.7 $149.1 $74.4
Restricted Cash 33.5 28.0 28.5
Merchandise inventories 410.7 407.8 452.5
Current deferred income taxes 13.8 19.9 16.4
Other current assets 70.5 63.5 61.8
Total Current Assets 670.2 668.3 633.6
Property and Equipment:
Land 8.0 8.0 7.6
Property, buildings and equipment 1,166.5 1,120.7 1,120.0
Accumulated depreciation (750.6) (690.2) (701.3)
Property and equipment, net 423.9 438.5 426.3
Favorable Leases, net 30.6 34.9 34.3
Deferred Income Taxes 22.8 22.4 29.0
Other Assets 36.2 30.2 27.6
TOTAL ASSETS $1,183.7 $1,194.3 $1,150.8
LIABILITIES AND EQUITY:
Current Liabilities:
Current maturities of long-term debt $0.9 $70.6 $83.2
Notes Payable 33.5 28.0 28.5
Accounts payable 131.2 119.0 106.4
Accrued expenses 120.6 149.8 123.7
Total Current Liabilities 286.2 367.4 341.8
Long-Term Debt 202.9 159.2 140.7
Other Liabilities 57.5 55.3 52.3
Minority Interest 16.4 20.2 17.8
Equity 620.7 592.2 598.2
TOTAL LIABILITIES AND EQUITY $1,183.7 $1,194.3 $1,150.8
Payless ShoeSource, Inc
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Year to Date Year Ended
November 1, November 2, February 1,
(dollars in millions) 2003 2002 2003
OPERATING ACTIVITIES:
Net Earnings $17.1 $100.7 $105.8
Adjustments for noncash items
included in earnings:
Loss on disposal of assets 13.1 3.0 10.5
Depreciation and amortization 74.8 75.5 102.2
Amortization of unearned
restricted stock 0.5 0.9 0.9
Deferred income taxes 8.8 23.8 20.7
Minority interest (3.9) (2.6) (4.9)
Tax benefit of stock option
exercises --- 3.1 3.1
Changes in working capital:
Merchandise inventories 41.8 (68.3) (113.0)
Other current assets (7.6) (7.4) 2.4
Accounts payable 24.8 45.5 32.9
Accrued expenses (6.6) 10.6 (18.6)
Other assets and liabilities, net 8.8 (5.8) (11.5)
TOTAL OPERATING ACTIVITIES $171.6 $179.0 $130.5
INVESTING ACTIVITIES:
Capital expenditures (81.9) (76.3) (98.8)
Disposition of property and equipment 1.0 2.6 3.9
TOTAL INVESTING ACTIVITIES $(80.9) $(73.7) $(94.9)
FINANCING ACTIVITIES:
Issuance of notes payable 5.0 18.5 19.0
Restricted cash (5.0) (18.5) (19.0)
Issuance of long-term debt 196.7 --- 4.0
Payment of deferred financing costs (5.5) ---
Repayments of long-term debt (216.8) (81.2) (91.1)
Net (purchases) issuances of common
stock (0.3) 16.7 17.6
Contributions by minority owners 3.6 16.4 17.2
Other financing activities (1.1) (0.4) (1.2)
TOTAL FINANCING ACTIVITIES $(23.4) $(48.5) $(53.5)
INCREASE (DECREASE) IN CASH $67.3 $56.8 $(17.9)
Cash and Cash Equivalents, Beginning
of Period 74.4 92.3 92.3
Cash and Cash Equivalents, End of
Period $141.7 $149.1 $74.4