Exhibit 99.1
PAYLESS SHOESOURCE ANNOUNCES FOURTH QUARTER AND FISCAL YEAR-END RESULTS FOR
2004, AND ANNOUNCES A 13.5% INCREASE IN FEBRUARY 2005 SAME-STORE SALES
TOPEKA, Kan., March 1 /PRNewswire-FirstCall/ -- Payless ShoeSource, Inc.
(NYSE: PSS) today reported preliminary unaudited financial results for the
fourth quarter and fiscal year ended January 29, 2005, and preliminary sales
results for February 2005.
Like numerous other retailers and many restaurant chains, the company has
undertaken a comprehensive review of its accounting treatment for leases and
lease-related items. The company, in consultation with its independent
registered public accounting firm, Deloitte & Touche LLP, decided to change its
accounting practices in this area, and to restate its historical financial
statements. The impact of the lease accounting corrections on net earnings does
not exceed $1 million in any of fiscal years 2004, 2003 or 2002.
In addition, an error was discovered relating to the company's accounting
for deferred income taxes. The company estimates that, beginning in a period
prior to 1998, deferred tax assets had been understated by approximately $4.5
million. In connection with the restatement mentioned above, the company will
record a correction that increases deferred tax assets by approximately $4.5
million, and will have no impact on earnings (loss) in fiscal years 2004, 2003
or 2002.
Although the company does not believe that these errors resulted in a
material misstatement of the company's consolidated financial statements for any
annual or interim periods previously reported, the effects of correcting the
error in the fourth quarter 2004 would have had a material effect on the
company's results for the quarter and for fiscal year 2004. The resulting
adjustments will not affect the company's historical or future cash flows, the
timing of payments under the related leases, or compliance with any debt
covenants. Also, the corrections will not affect the company's financial
strength or business prospects for 2005 and beyond. The amounts in this press
release have been presented on a restated basis.
Financial and Operational Results for 2004
Payless ShoeSource announced that for fiscal 2004, which ended January 29,
2005, the company reported a net loss of ($2.0) million, and a diluted loss per
share of ($0.03). These results include restructuring charges relating to the
company's previously announced strategic initiatives of $67.9 million pre- tax,
or ($0.63) per share. The $67.9 million pre-tax charge consisted of charges of
$24.9 million pre-tax, or ($0.24) per diluted share relating to continuing
operations and $43.0 million pre-tax, or ($0.39) per diluted share relating to
discontinued operations. In fiscal 2003, the company recorded a net loss of
($0.1) million and a diluted loss per share of ($0.00).
During the fourth quarter of fiscal 2004, the company recorded a net loss of
($26.5) million and a diluted loss per share of ($0.39), including restructuring
charges of $23.9 million pre-tax or ($0.22) per share. The $23.9 million pre-tax
charge in the fourth quarter consisted of charges of $7.3 million pre-tax, or
($0.07) per diluted share relating to continuing operations and $16.6 million,
pre-tax, or ($0.15) per diluted share relating to discontinued operations.
During the fourth quarter 2003, the company recorded a net loss of ($17.2)
million and a diluted loss per share of ($0.25).
During fiscal year 2004, diluted earnings per share from continuing
operations were $0.52, an increase of 108 percent from diluted earnings per
share of $0.25 from continuing operations in fiscal 2003. Net earnings from
continuing operations in 2004 increased by 108 percent, to $35.1 million,
compared with net earnings from continuing operations of $16.9 million in fiscal
2003. Fiscal year 2004 results from continuing operations include restructuring
charges of $24.9 million pre-tax, or ($0.24) per diluted share.
The company recorded a diluted loss per share from continuing operations in
the fourth quarter 2004 of ($0.22), compared to a diluted loss per share of
($0.18) from continuing operations in the fourth quarter 2003. The net loss from
continuing operations in the fourth quarter was ($15.1) million, compared to a
net loss from continuing operations of ($12.1) million in the fourth quarter
2003. The fourth quarter 2004 results from continuing operations include
restructuring costs of $7.3 million pre-tax, or ($0.07) per diluted share.
Discontinued operations include Parade, Peru, Chile and a small number of
North American Payless ShoeSource stores. The loss from discontinued operations
of ($37.1) million, or ($0.55) per diluted share during fiscal year 2004
includes the effects of restructuring charges of $43.0 million pre-tax, or
($0.39) per share. These discontinued operations recorded a loss of ($17.0)
million, or ($0.25) per diluted share during fiscal year 2003.
Analysis of Continuing Operations
During fiscal year 2004, company sales totaled $2.66 billion, compared with
$2.66 billion during fiscal year 2003. Same-store sales decreased 0.5 percent
during fiscal year 2004.
Company sales for the fourth quarter 2004 totaled $607.2 million, a 1.7
percent decrease from $617.7 million during the fourth quarter 2003. Same- store
sales decreased 2.3 percent during the fourth quarter 2004. In total, unit sales
decreased by 14 percent and average unit retail increased by 11 percent during
the fourth quarter 2004, compared with the same period last year. For footwear,
unit sales decreased by 12 percent and average unit retail increased by 11
percent relative to last year.
Gross margin was 30.0 percent of sales in the fourth quarter 2004 versus
25.4 percent in the fourth quarter 2003. The improvement resulted primarily from
fewer markdowns and more favorable initial mark-on, relative to the same period
last year. During fiscal year 2004, gross margin improved to 30.9 percent of
sales versus 27.9 percent during fiscal year 2003.
Selling, general and administrative expenses were 30.9 percent of sales in
the fourth quarter 2004 versus 29.8 percent in the fourth quarter 2003. The
increase reflects costs for employee incentive programs and a $1 million
increase in advertising expense. These increases were partially offset by lower
costs for payroll and medical, reflecting reduced headcount. During fiscal year
2004, selling, general and administrative expenses were 27.6 percent of sales
versus 26.9 percent during fiscal year 2003.
Strategic Initiatives
During the third quarter 2004, Payless announced a series of strategic
initiatives as part of a plan designed to sharpen the company's focus on its
core business strategy, reduce expenses, accelerate decision-making, increase
profitability, improve operating margin and build value for shareowners over the
long-term. These strategic initiatives included:
-- Exiting all 181 Parade stores, and related operations;
-- Exiting all 32 Payless ShoeSource stores in Peru and Chile, and related
operations;
-- Closing 491 Payless ShoeSource stores in North America, including 230
stores that had originally been scheduled for closing or relocation as a
part of the normal course of business in fiscal 2004;
-- Reducing wholesale businesses that provide no significant growth
opportunity; and,
-- Reducing the company's expense structure.
The total pre-tax costs relating to the strategic initiatives were $67.9
million, approximately $10 million to $30 million below the company's original
estimate of $77 million to $97 million. This includes:
-- The non-cash, restructuring charge of $36.7 million, incurred in the
second quarter;
-- $7.3 million of restructuring charges incurred in the third quarter;
and,
-- $23.9 million of restructuring charges in the fourth quarter 2004.
These costs represent substantially all expected charges relating to the
strategic initiatives.
Balance Sheet
The company ended fiscal year 2004 with cash and marketable securities of
$294.6 million, an increase of $147.9 million over fiscal year 2003.
Total inventories at the end of the year were $345.3 million compared to
$375.2 million at the end of fiscal year 2003. Inventory per store decreased by
4.2 percent.
There were no borrowings on the company's revolving credit facility
outstanding as of the end of fiscal 2004.
In addition, payment terms to suppliers have been adjusted to improve
operating cash flow and reduce interest expense.
Capital Expenditures
Total capital expenditures were $105 million during fiscal year 2004,
excluding $8 million of landlord provided tenant improvement allowances.
Including these tenant improvement allowances, capital expenditures would have
been $97 million in fiscal 2004. During fiscal year 2005, Payless intends
capital expenditures to be approximately $70 million, excluding tenant
improvement allowances. This reduction in capital expenditures compared with
recent years is consistent with the company's focus on execution of merchandise
authority in its core business.
Store Count
In the fourth quarter 2004, the company opened 81 new stores and closed 463,
for a net decrease of 382 stores. During fiscal 2004, the company opened 302 new
stores and closed 704, for a net reduction of 402 stores. Total store count at
the end of the year was 4,640.
During fiscal year 2005, the Payless intends to open approximately 30 new
stores and close approximately 70, for a net reduction of approximately 40
stores. The company also intends to relocate approximately 70 stores.
Payless ShoeSource opened its first test store in Japan during the fourth
quarter 2004. The company will continue to evaluate performance of this test
store before considering any additional locations in Japan. Payless has
curtailed any other expansion into new international markets to focus on its
core business.
Share Repurchase
The company's capital allocation strategy is designed to fund both the
necessary investment to improve business and, when cash reserves are adequate,
to use free cash flow to return more immediate value to shareowners.
During the fourth quarter 2004, the company repurchased 839,200 shares of
common stock for approximately $10 million. Under the indenture governing the
company's 8.25% Senior Subordinated Notes, the company may repurchase
approximately an additional $40 million of common stock. This limit may increase
based on the company's net earnings. The company has approximately $240 million
of remaining common stock repurchase authorization from its Board of Directors.
Board of Directors
The expertise of the Payless ShoeSource Board of Directors has traditionally
been very strong, particularly in the areas of finance, compensation, governance
and corporate direction-setting. During fiscal 2004, the Board's expertise in
Marketing and Merchandising was strengthened significantly through the addition
of three new outside directors.
-- Michael George was elected to the Board in February 2004.
- Mr. George is Chief Marketing Officer and General Manager of U.S.
Consumer business for Dell Inc. Prior to his current role, he was
executive assistant to Michael Dell and Vice President of Corporate
Strategy and Vice President of U.S. Consumer Market and eBusiness.
- Before joining Dell in March 2001, Mr. George was a senior partner
at McKinsey & Co., Inc., and led the firm's North American Retail
Industry Group.
-- In July 2004, Judith K. Hofer was elected to the Board.
- Ms. Hofer has extensive retail merchandising experience. Most
recently, she was with Corporate May Merchandising/MDSI, a division
of The May Department Stores Company, serving as President and CEO
from 2000 to 2002.
- Prior to that, she was President and CEO of Filene's Department
Stores, a division of The May Department Stores Company, from 1996
to 2000. From 1981 to 1996 she served as President and CEO of three
divisions of The May Department Stores Company.
-- In January 2005, Michael Weiss was elected to the Board.
- Mr. Weiss, is the retired President and Chief Executive Officer of
Express, a subsidiary of Limited Brands, Inc. He served in such
capacity from 1997 to 2004.
- Mr. Weiss joined Limited in 1981 as merchandise manager for Express,
and quickly rose to become President of Express from 1982 to 1993.
Under his leadership, Express grew from an eight-store concept in
1981 to a 640 store chain by 1993. Along the way, he started Express
for Men and was responsible for merging Express for Men with the
women's version, creating the dual-gender Express brand in 2001.
- Mr. Weiss also helped create the Bath & Body Works concept, which
operates 1,578 stores as of the end of December 2004.
The Payless ShoeSource Board now consists of ten Directors, including nine
independent Directors.
February 2005 Sales
Company sales for the month of February 2005 are currently estimated to be
approximately $183 million, compared with sales of $164.7 million from
continuing operations during February 2004. Same-store sales increased 13.5
percent during February 2005. Detailed sales results for February will be
announced on Thursday, March 3.
Chairman's Comments
"During the fiscal year 2004, Payless ShoeSource continuing operations
achieved 30.9 percent gross margin, and significant improvements in operating
profit and earnings, despite lower sales than last year," said Steven J.
Douglass, Chairman and Chief Executive Officer of Payless ShoeSource, Inc.
"Payless also achieved the following objectives:
-- Reduced and improved the quality of our merchandise inventory and
positioned the company for improved performance in 2005;
-- Substantially completed our Strategic Initiatives;
-- Reduced the company's operating expense structure through the reduction
of 8% of its store base and the elimination of approximately 200
management and administrative positions in the second half of 2004;
-- Modified certain tactics -- including more focused and intensified
messaging, simplified merchandise planning processes, and we are
achieving better balance of tasks and customer service in our stores;
-- Broadened the merchandising and marketing expertise of our Board of
Directors, adding Michael George, Judith Hofer and Michael Weiss to the
Board during fiscal 2004; and,
-- Began to repurchase shares of our stock during the fourth quarter 2004
as part of our on-going capital allocation strategy.
In February we began to see the results of our efforts. Our inventory
position, trend-right merchandise, effective promotions and compelling messaging
all contributed to the strong February performance."
Fiscal 2005 Outlook
Payless ShoeSource is committed to serving the interests of its shareowners
by building long-term shareowner value. During 2005, the company will strive for
continued improvements in operating results by:
-- Maintaining a singular focus on its core business, the Payless
ShoeSource chain of family footwear stores;
-- Accelerating customer acceptance of the Merchandise Authority
positioning in value priced footwear and accessories, differentiating
our product offering from other retailers;
-- Continuing the efforts to build select athletic and casual lifestyle
brands that provide styling and quality to a broader audience of
customers;
-- Refocusing our marketing efforts to build more customer traffic in our
stores and communicate our Merchandise Authority position more clearly;
-- Relentlessly pursue optimizing gross margin;
-- Continuing to improve our information technology to manage inventory,
pricing and store operations;
-- Holding selling, general and administrative costs in check with 2004;
and,
-- Improving our in-store shopping experience.
Payless does not provide guidance for sales, earnings or margins. However,
certain financial metrics for 2005 are expected to include:
-- Depreciation and amortization of approximately $90 - $95 million
dollars;
-- Capital expenditures planned at $70 million; and,
-- Working capital should be approximately neutral, as Payless believes
it is at an appropriate level of inventory on a per store basis, and as
the company's store count is expected to change by less than one
percent.
Payless also announced that its Annual Meeting of Shareowners will be held
on May 26, 2005, and that April 1, 2005 has been set as the record date for the
meeting.
Lease Accounting
Historically, when accounting for leases with renewal options, the company
had recorded rent expense on a straight-line basis over the initial non-
cancelable lease term, with the term commencing when the store opened for
business. The company depreciated leasehold improvements on those properties
over a period of typically 10 years that, in certain cases, would have included
a portion of the renewal option periods. The company has corrected its
accounting to accelerate the recognition of rent expense on leases by recording
lease expense from the time at which the company takes possession of the
property, rather than at the time the store opens for business. In addition, the
company will calculate rent expense on a straight line basis to include certain
option periods up to a maximum of ten years, where failure to exercise such
options would result in an economic penalty. When an economic penalty does not
exist, the leasehold improvements will be depreciated over a period not to
exceed the existing non-cancelable lease term. The cumulative effect of the
lease accounting corrections through fiscal year 2004 would be an increase in
expense of approximately $12 million, pre-tax. The impact of the lease
accounting corrections on net earnings does not exceed $1 million in any of
fiscal years 2004, 2003 or 2002.
Also, the company had followed the practice of netting landlord-provided
tenant improvement allowances against property and equipment. The company will
correct the manner in which it accounts for tenant improvement allowances to
record the allowances as a deferred credit. There was no impact to earnings for
this correction. Further, the annual amount of tenant improvement allowances
received each year will be shown within the operating activities on the
Statement of Cash Flows rather than a reduction of capital expenditures. The
restated financial statements as of January 31, 2004 and for fiscal years 2003
and 2002, as well as the financial information for the first, second and third
quarters of fiscal 2004 will be reflected in the company's Fiscal 2004 10-K
filing.
Payless ShoeSource, Inc. is the largest specialty family footwear retailer
in the Western Hemisphere. As of the end of the fiscal year 2004, the Company
operated a total of 4,640 stores offering quality family footwear and
accessories at affordable prices. In addition, customers can buy shoes over
the Internet through Payless.com(R), at http://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 and closings, possible strategic initiatives 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 terminate leases on acceptable terms; the
ability to hire and retain associates; performance of other parties in strategic
alliances; general economic, business and social conditions in the countries
from which we source products, supplies or have or intend to open stores,
performance of 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; congestion at major ocean ports; changes in the
value of the dollar relative to the Chinese Yaun and other currencies. Please
refer to the Company's 2003 Annual Report on Form 10-K for the fiscal year ended
January 31, 2004 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 Condensed Consolidated Statements of Earnings Attached]
NOTE REGARDING ATTACHMENTS:
-- The attached condensed consolidated statements of loss should be read in
conjunction with the company's Annual Report on Form 10-K for the fiscal
year ended January 31, 2004. In the opinion of management, this
information is fairly presented, and all adjustments necessary for a
fair statement of the results for the interim periods have been
included.
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
(Millions, except per share data)
13 Weeks Ended 52 Weeks Ended
------------------------------ ------------------------------
As restated As restated
January 29, January 31, January 29, January 31,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Net sales $ 607.2 $ 617.7 $ 2,656.5 $ 2,662.4
Cost of sales 425.0 460.6 1,836.9 1,920.9
Gross margin 182.2 157.1 819.6 741.5
Selling, general and administrative
expenses 187.6 184.0 733.2 715.7
Restructuring 7.3 (0.2) 24.9 (0.2)
(Loss) earnings from continuing
operations before interest,
income taxes and minority interest (12.7) (26.7) 61.5 26.0
Interest expense, net 3.7 4.5 16.8 16.8
(Loss) earnings from continuing
operations before income taxes and
minority interest (16.4) (31.2) 44.7 9.2
(Benefit) Provision for income taxes (2.0) (17.8) 13.2 (4.0)
(Loss) earnings from continuing
operations before minority interest (14.4) (13.4) 31.5 13.2
Minority interest, net of income tax (0.7) 1.3 3.6 3.7
(Loss) earnings from continuing
operations (15.1) (12.1) 35.1 16.9
Loss from discontinued operations, net
of income tax and minority interest (11.4) (5.1) (37.1) (17.0)
Net loss $ (26.5) $ (17.2) $ (2.0) $ (0.1)
Diluted (loss) earnings per share:
(Loss) earnings from continuing
operations $ (0.22) $ (0.18) $ 0.52 $ 0.25
Loss from discontinued operations (0.17) $ (0.07) (0.55) (0.25)
Diluted loss per share $ (0.39) $ (0.25) $ (0.03) $ (0.00)
Basic (loss) earnings per share:
(Loss) earnings from continuing
operations $ (0.22) $ (0.18) $ 0.52 $ 0.25
Loss from discontinued operations (0.17) $ (0.07) (0.55) (0.25)
Basic loss per share $ (0.39) $ (0.25) $ (0.03) $ (0.00)
Diluted weighted average shares
outstanding 67.9 68.1 67.9 68.0
Basic weighted average shares
outstanding 67.9 68.1 67.9 68.0
NOTE: The effect of the corrections did not cause the restated fiscal 2003
income statements (as presented above) to differ significantly from the fiscal
2003 income statements that were previously reported.
SOURCE Payless ShoeSource, Inc.
-0- 03/01/2005
/CONTACT: Timothy J. Reid of Payless ShoeSource, Inc., +1-785-295-6695/
/Company News On-Call: http://www.prnewswire.com/comp/136152.html/
/Web site: http://www.paylessinfo.com /
(PSS)