SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
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[ ] Definitive Proxy Statement
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[ ] Soliciting Material Under Rule 14a-12
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PAYLESS SHOESOURCE, INC.
(Name of Registrant as Specified in Its Charter)
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BARINGTON COMPANIES EQUITY PARTNERS, L.P.,
BARINGTON COMPANIES OFFSHORE FUND, LTD. (BVI),
PARCHE, LLC and STARBOARD
VALUE & OPPORTUNITY FUND, LLC
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
- -------------------------------------------------------------------------------
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Barington Companies Equity Partners, L.P.
888 Seventh Avenue, 17th Floor
New York, New York 10019
(212) 974-5700
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AN IMPORTANT MESSAGE TO ALL
PAYLESS SHOESOURCE STOCKHOLDERS
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May 25, 2004
Dear Fellow Payless ShoeSource Stockholders:
By now you should have received our proxy materials requesting your
support to elect our three nominees to the Board of Directors of Payless
ShoeSource, Inc. ("Payless" or the "Company") at the Annual Meeting of
Stockholders being held this Thursday, May 27, 2004. Our nominees, William J.
Fox, Harold D. Kahn and James A. Mitarotonda, are highly qualified candidates
who possess significant retail, operational, merchandising and financial
experience.
We have been encouraged by the support for our nominees who seek to
maximize value for all Payless stockholders by working with the other members of
the Board of Directors to address the significant operating and financial
performance challenges that the Company continues to confront.
The Payless Board Has Failed To
Maximize Stockholder Value
As an investor in the Company, we were heartened by the fact that the
Company posted positive returns for its stockholders when it announced results
for the first quarter of 2004 less than two weeks ago. Unfortunately, the recent
modest improvement in performance cannot erase the disappointing financial
record presided over by the Company's current Board during the past three years.
Look at the following FACTS:
o Poor Share Price Performance
o The Company had a total shareholder return of negative 15.7 percent
and negative 43.8 percent for the one and three-year periods ending
January 30, 2004.
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o Declining Revenues and Gross Margins
o From fiscal year 2001 to fiscal year 2003, net sales decreased 4.5%
from $2.91 billion to $2.78 billion. Similarly, same store sales
declined 3.9% from fiscal year 2002 to fiscal year 2003, 3.2% from
fiscal year 2001 to fiscal year 2002, and 2.9% from fiscal year 2000
to fiscal year 2001.
o Cost of sales, as a percentage of sales, increased 3.5% from 69.5%
in fiscal year 2001 to 73.0% in fiscal year 2003.
o From fiscal year 2001 to fiscal year 2003, gross profits declined to
$750.9 million, or 27.0% of net sales, from $881.4 million or 30.3%
of net sales.
o Increasing Selling, General and Administrative Costs
o SG&A costs swelled to an all time high of $752.0 million in fiscal
year 2003, or 27.0% of net sales, from $715.9 million, or 24.6% of
net sales, in fiscal year 2001. SG&A costs have continued to soar in
2004, increasing 10.7% in the first quarter, from $180.1 million in
the first quarter of fiscal year 2003 to $199.3 million in the first
quarter of fiscal year 2004.
o Diminished Operating Profits
o Operating margins declined to 0.0% in fiscal year 2003 from 3.4%
in fiscal year 2001.
We believe that the Company's performance over the past three years is
unacceptable and that management has been slow to address the persistent
operational and financial performance issues that have plagued the Company and
resulted in diminished stockholder value.
The Barington Slate Is Committed To Maximizing
Stockholder Value For All Payless Stockholders
We have nominated three individuals who are committed to maximizing value
for all stockholders of the Company. We feel that the Board of Payless can
benefit from their experienced and independent voice that represents the
interests of stockholders rather than the status quo.
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Institutional Shareholder Services, while unfortunately failing to support
the Barington slate, recently noted in its May 17, 2004 proxy analysis that:
"[W]e do believe that Payless has specific challenges to face with the
execution of its "Merchandise Authority" strategy. We would strongly
advise that the company seek additional experience and expertise on its
board, specifically targeting the challenges of dynamic merchandising
within a highly distributed retail network."
Our nominees will function as advocates of the interests of stockholders
of the Company and bring needed retail, operational, merchandising and financial
expertise to the Board. They intend to serve as a catalyst for improved
financial performance, working constructively with the other members of the
Payless Board to ensure that management properly addresses the operational and
financial performance concerns that have been detrimental to stockholder value.
At the Company's 2004 Annual Meeting, show the Payless Board your
dissatisfaction with the Company's performance by electing independent and
experienced directors focused on the interests of all stockholders. With your
support we can make a difference.
We thank you for your consideration.
James A. Mitarotonda
For the Barington Companies Group
Telephone: (212) 974-5701
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ACT NOW! THE ANNUAL MEETING IS JUST TWO SHORT DAYS AWAY!
SIGN, DATE AND RETURN THE GREEN PROXY CARD VOTING IN FAVOR
OF THE BARINGTON COMPANIES GROUP NOMINEES
Do not execute the white proxy card furnished by current management. Even if you
have previously executed management's white proxy card, you may change your vote
by signing and returning a later dated GREEN proxy card of the Barington
Companies Group. Only the latest dated proxy card will count.
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If you hold your shares in street name, through a broker, bank or other
custodian, carefully follow the instructions of your custodian and direct it to
vote on your behalf FOR the Barington Companies Group nominees.
The Barington Companies Group Nominees are ready to act on your behalf.
VOTE FOR THE BARINGTON COMPANIES GROUP
NOMINEES ON THE GREEN PROXY CARD
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If you have any questions or need help voting FOR
the Barington Companies Group proposals,
please contact our proxy solicitor:
Georgeson Shareholder Communications, Inc.
17 State Street, 10th Floor
New York, New York 10004
Toll free at (800) 334-9584
Banks and Brokers call (212) 440-9800
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