Peru-less Payless

Payless ShoeSource Inc. (Topeka, Kan.) announced that sales for the second quarter 2004 dropped 0.5 percent and same-store sales decreased 0.9 percent.

As a result, the company will close approximately 260 Payless ShoeSource stores, in addition to the approximately 230 stores that had originally been scheduled for closing or relocation. It will also sell or dispose of all 181 Parade stores and its 32 Payless ShoeSource stores in Peru and Chile.

“Payless ShoeSource is committed to serving the interests of our shareowners by building long-term shareowner value through improved execution of our core business strategy,” said chairman and ceo Steven Douglass. “During the second quarter, we made decisions on strategic initiatives in order to sharpen our focus on our core business strategy. “The decision to exit Parade was based on the conclusion that its contribution to our core business strategy is diminishing. Parade, which offers mid-price footwear and accessories in leather and fine fabrics for women, provided Payless the opportunity to develop relationships with footwear designers and branded footwear suppliers, as well as a window on women’s fashion direction. We believe that the Payless merchandising team now has a solid foundation of fashion knowledge and relationships and that therefore, an exit from Parade is now in the best long-term interest of our shareowners.

“As we have previously disclosed, operations in Chile and Peru were not performing up to our company standards. After careful review, and several months of effort to improve performance in these two countries, we determined it is now prudent to focus resources on more profitable alternatives.

“In addition, because of the weaker sales performance during second quarter 2004, our management team decided to accelerate the closing of approximately 260 stores despite the fact that their leases are not scheduled to expire for a number of years. This action was a proactive decision to more quickly position the chain to increase profits and net margin.”

In the second quarter 2004, the company opened 68 new stores and closed 62, for a net increase of 6 stores. The total store count at the end of the second quarter 2004 was 5,072, including 150 stores in the company’s Central American region, 62 stores in South America and 296 stores in Canada. With the exit from approximately 470 to 475 stores relating to the strategic initiatives, and the 230 stores that were already scheduled for closing or relocation as part of the normal course of business in 2004, the company now intends to close a total of approximately 700 to 705 stores in fiscal 2004. But it said it remains on schedule to open approximately 300 new stores in fiscal 2004. And it said it still expects to open its first test store in Japan during 2004. But it has curtailed any other expansion into new international markets to focus on its core business.

“Our sales performance started strong during the second quarter of 2004,” noted Douglass, “with same-store sales growth of 3.9 percent during May. However, in June, sales of seasonal merchandise slowed across much of the country. Also, many competitors in the apparel and footwear market appeared to take clearance markdowns earlier in the season. In addition, throughout the quarter, it is likely that consumer buying patterns were impacted by higher energy prices. Payless decided to remain less promotional than last year and therefore protect our gross margin. Our tighter inventory management provided us the flexibility to improve operating results, absent the restructuring charge, despite lower sales for the quarter.”