Exhibit 99.1
PAYLESS SHOESOURCE ANNOUNCES 114 PERCENT INCREASE IN DILUTED EARNINGS PER
SHARE FOR THE FIRST QUARTER OF FISCAL 2005
TOPEKA, Kan., May 19 /PRNewswire-FirstCall/ -- Payless ShoeSource, Inc.
(NYSE: PSS) today reported that for the first quarter of fiscal 2005, which
ended April 30, 2005, diluted earnings per share increased by 114 percent to
$0.45 from $0.21 during the first quarter of fiscal 2004. The company recorded
net earnings of $30.2 million during the first quarter 2005 compared with $14.1
million during the first quarter 2004.
The loss of ($1.5) million, or ($0.02) per share from discontinued
operations during the first quarter 2005 primarily reflects additional expenses
for contract terminations. Discontinued operations include Parade, Peru, Chile
and 26 Payless stores in North America. The company exited these operations
during 2004 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.
Diluted earnings per share from continuing operations increased during the
first quarter 2005 by 81 percent to $0.47 from $0.26 during the first quarter
2004. Net earnings from continuing operations were $31.7 million in the first
quarter 2005, a 77 percent improvement over net earnings from continuing
operations of $17.9 million in the first quarter 2004.
Company sales during the first quarter 2005 totaled $695.2 million, a 0.4
percent increase from $692.3 million during the first quarter 2004. Same-store
sales increased 2.7 percent during the first quarter 2005. In total, unit sales
decreased by 4.9 percent and average unit retail increased by 5.4 percent during
the first quarter 2005, compared with the same period last year. For footwear,
unit sales decreased by 1.4 percent and average unit retail increased by 2.8
percent relative to the same period last year.
Gross margin was 35.1 percent of sales in the first quarter 2005 versus 31.3
percent in the first quarter 2004. The improvement resulted primarily from more
favorable initial mark-on relative to last year and the positive leverage on
occupancy costs due to increased sales. Inventory condition also continued to
improve in the first quarter. The company believes that inventory is currently
in excellent condition, with a low level of aged merchandise. In total, Cost of
Sales decreased by $24.7 million in the first quarter 2005. The improvements in
inventory condition in addition to other items relating to the costing of
inventory represented approximately $12 million of the reduction in Cost of
Sales in the first quarter and are unlikely to occur in this magnitude during
future quarters.
Selling, general and administrative expenses were 28.3 percent of sales in
the first quarter 2005 versus 27.2 percent in the first quarter 2004. The
increase reflects higher advertising expense relative to last year, and
increased costs for employee incentive programs. These increases were partially
offset by lower costs for payroll, reflecting reduced headcount.
The company's effective income tax rate on continuing operations was 28.6
percent during the first quarter 2005, including the benefit of released tax
reserves relating to favorable income tax audit settlements. For the full fiscal
year 2005, the effective income tax rate is expected to be approximately 35
percent, exclusive of the reserve release which was specific to the first
quarter.
Balance Sheet
The company ended the first quarter 2005 with cash of $303.3 million, an
increase of $178.0 million over the cash and marketable securities balance as of
the end of the first quarter 2004.
Total inventories at the end of the first quarter 2005 were $383.9 million
compared to $422.2 million at the end of first quarter 2004. Inventory per store
decreased by 5.6 percent.
There were no borrowings on the company's revolving credit facility
outstanding as of the end of the first quarter 2005.
Capital Expenditures
Total capital expenditures were $13.8 million during the first quarter 2005.
During fiscal year 2005, Payless intends capital expenditures to be
approximately $70 million. 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 first quarter 2005, the company opened 16 new stores and closed 10,
for a net increase of 6 stores. The company also relocated 23 stores. The store
count as of the end of the first quarter 2005 was 4,646. As of the end of the
first quarter 2004, the store count for continuing operations was 4,824.
During fiscal year 2005, the company 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 the business and, when cash reserves are
adequate, to use free cash flow to return more immediate value to shareowners.
During the first quarter 2005, the company repurchased 125,000 shares of
common stock for approximately $2 million. Under the indenture governing the
company's 8.25% Senior Subordinated Notes, the company may repurchase
approximately an additional $42 million of common stock. This limit will
continue to adjust quarterly based on the company's net earnings.
New Advertising Agency
During the first quarter 2005, Payless named Martin/Williams Inc.,
Minneapolis, Minn., part of Omnicom Group, Inc., as the company's new
advertising agency of record. The duties of Martin/Williams include the
planning and creative development of Payless' broadcast advertising for the
U.S. and Canada. Martin/Williams' creative input will be reflected in the
company's advertising beginning in the fall 2005.
Chairman's Comments
"We are enthusiastic about our performance for the first quarter of 2005,"
said Steven J. Douglass, Chairman and Chief Executive Officer of Payless
ShoeSource, Inc. "We achieved significant improvements in operating profit and
earnings. Sales exceeded our expectations for two of the three months of the
first quarter, and we met our objective of low-single digit positive same- store
sales for the quarter."
"It is clear that customers have reacted positively to the company's spring
merchandise to-date, especially in our women's and children's categories. Our
branded athletic styles also continue to be strong across men's, women's and
children's footwear."
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
its 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 the company's marketing efforts to build more customer
traffic in the Payless stores and communicate its Merchandise Authority
position more clearly;
-- Continuing to improve its information technology to manage inventory,
pricing and store operations;
-- Continuing to pursue gross margin improvement relative to 2004;
-- Maintaining disciplined control of expenses; and,
-- Improving the in-store shopping experience.
Payless ShoeSource remains committed to its long-standing goal to achieve
low single-digit positive same-store sales on a consistent basis, through
successful execution of our merchandise authority strategy. The company does not
provide guidance for sales, earnings or margins. However, certain financial
metrics for fiscal 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.
Payless ShoeSource, Inc. is the largest specialty family footwear retailer
in the Western Hemisphere. As of the end of April 2005, the Company operated a
total of 4,646 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 2004 Annual Report on Form 10-K for the fiscal year ended
January 29, 2005 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, Balance Sheets
and Statements of Cash Flows Attached]
NOTE REGARDING ATTACHMENTS:
-- The condensed consolidated statements of earnings, balance sheets and
statements of cash flows have been prepared in accordance with the
company's accounting policies as described in the company's 2004 Form
10-K, on file with the Securities and Exchange Commission, and should be
read in conjunction with the 2004 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 STATEMENTS OF EARNINGS
(UNAUDITED)
(Millions, except per share data)
13 Weeks Ended
-----------------------------
April 30, May 1,
2005 2004
------------- -------------
Net sales $ 695.2 $ 692.3
Cost of sales 450.8 475.5
Gross margin 244.4 216.8
Selling, general and administrative expenses 196.7 188.4
Restructuring 0.7 -
Operating profit from continuing operations 47.0 28.4
Interest expense, net 3.2 4.4
Earnings from continuing operations
before income taxes and minority interest 43.8 24.0
Provision for income taxes 12.5 8.0
Earnings from continuing operations
before minority interest 31.3 16.0
Minority interest, net of income taxes 0.4 1.9
Net earnings from continuing operations 31.7 17.9
Loss from discontinued operations,
net of income taxes and minority interest (1.5) (3.8)
Net earnings $ 30.2 $ 14.1
Diluted earnings per share:
Earnings from continuing operations $ 0.47 $ 0.26
Loss from discontinued operations (0.02) (0.05)
Diluted earnings per share $ 0.45 $ 0.21
Basic earnings per share:
Earnings from continuing operations $ 0.47 $ 0.26
Loss from discontinued operations (0.02) (0.05)
Basic earnings per share $ 0.45 $ 0.21
Diluted weighted average shares outstanding 67.2 68.0
Basic weighted average shares outstanding 67.1 67.9
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
APRIL 30, MAY 1, JANUARY 29,
(dollars in millions) 2005 2004 2005
- ---------------------------------------------- ---------- ---------- ------------
ASSETS:
Current assets:
Cash and cash equivalents $ 303.3 $ 121.3 $ 289.6
Marketable securities, available
for sale - 4.0 5.0
Restricted cash 2.0 33.5 3.0
Inventories 383.9 422.2 345.3
Current deferred income taxes 20.9 16.7 21.9
Other current assets 56.9 64.9 56.6
Current assets of discontinued
operations 4.8 27.4 8.5
Total current assets 771.8 690.0 729.9
Property and Equipment:
Land 8.3 8.0 8.0
Property, buildings and equipment 1,189.4 1,191.3 1,186.9
Accumulated depreciation and
amortization (785.8) (777.4) (772.6)
Property and equipment, net 411.9 421.9 422.3
Favorable leases, net 20.8 26.9 21.7
Deferred income taxes 35.6 33.7 36.4
Goodwill, net 5.9 5.9 5.9
Other assets 23.1 21.7 23.5
Noncurrent assets of discontinued
operations - 28.2 0.1
TOTAL ASSETS $ 1,269.1 $ 1,228.3 $ 1,239.8
LIABILITIES AND EQUITY:
Current liabilities:
Current maturities of debt $ 1.5 $ 0.9 $ 0.3
Notes payable 2.0 33.5 3.0
Accounts payable 169.8 126.5 160.3
Accrued expenses 158.2 140.1 159.7
Current liabilities of
discontinued operations 5.0 6.0 15.0
Total current liabilities 336.5 307.0 338.3
Long-term debt 204.3 202.6 204.3
Other liabilities 95.8 85.8 93.6
Noncurrent liabilities of
discontinued operations - 4.7 -
Minority interest 8.6 13.1 8.6
Equity 623.9 615.1 595.0
TOTAL LIABILITIES AND EQUITY $ 1,269.1 $ 1,228.3 $ 1,239.8
PAYLESS SHOESOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
13 Weeks Ended Year ended
------------------------ ------------
April 30, May 1, January 29,
(dollars in millions) 2005 2004 2005
- ---------------------------------------------- ---------- ---------- ------------
OPERATING ACTIVITIES:
Net earnings (loss) $ 30.2 $ 14.1 $ (2.0)
Loss from discontinued operations,
net of income taxes and minority
interest (1.5) (3.8) (37.1)
Net earnings from continuing
operations 31.7 17.9 35.1
Adjustments for non-cash items
included in net earnings from
continuing operations:
Non-cash component of
restructuring charges - - 10.8
Loss on impairment and
disposal of assets 2.4 2.8 7.0
Depreciation and amortization 23.0 24.6 94.6
Amortization of deferred
financing costs 0.3 0.2 0.9
Amortization of unearned
restricted stock 0.2 0.2 0.7
Deferred income taxes 1.7 (0.8) (6.4)
Minority interest, net of
income taxes (0.4) (1.9) (3.6)
Changes in working capital:
Inventories (38.7) (48.0) 31.0
Other current assets (1.2) (4.1) 8.4
Accounts payable 8.3 (3.0) 30.7
Accrued expenses (1.5) 16.3 35.3
Other assets and liabilities, net 2.4 6.9 6.1
Cash flow provided by operating
activities from continuing
operations 28.2 11.1 250.6
Net cash provided by (used in)
discontinued operations (7.7) (5.5) 6.6
INVESTING ACTIVITIES:
Capital expenditures (13.8) (26.2) (104.9)
Dispositions of property and
equipment - - 3.0
Purchases of marketable securities - (4.0) (13.0)
Sales of marketable securities 5.0 10.0 18.0
Cash flow used in investing
activities from continuing
operations (8.8) (20.2) (96.9)
FINANCING ACTIVITIES:
Payment of notes payable (1.0) - (30.5)
Restricted cash 1.0 - 30.5
Issuance of debt 1.2 - 2.4
Payment of deferred financing
costs - (0.1) (0.2)
Repayment of debt - (0.3) (1.5)
Issuances of common stock 0.7 0.3 1.6
Purchases of common stock (2.1) (0.7) (11.4)
Contributions by minority owners 0.2 - 3.7
Cash flow used in financing
activities from continuing
operations - (0.8) (5.4)
Effect of exchange rate changes on
cash 2.0 - (2.0)
Increase in cash and cash
equivalents 13.7 (15.4) 152.9
Cash and cash equivalents,
beginning of period 289.6 136.7 136.7
Cash and cash equivalents, end of
period $ 303.3 $ 121.3 $ 289.6
SOURCE Payless ShoeSource, Inc.
-0- 05/19/2005
/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
http://www.payless.com /