475 Payless and Stride Rite stores to close

Marketwatch - PRESS RELEASE

Aug. 24, 2011, 4:00 p.m. EDT

Collective Brands Reports 2011 Second Quarter Net Sales Increase of 5%

Company to Close 475 Non-Strategic Stores Over Next Three Years; Board to Commence Review of Strategic Alternatives to Enhance Shareholder Value

TOPEKA, KS, Aug 24, 2011 (MARKETWIRE via COMTEX) -- Collective Brands, Inc. today reported financial results for the second quarter ended July 30, 2011 and announced plans to close underperforming and low-volume, non-strategic stores. The Company also announced that its Board of Directors will, together with management, conduct a review of strategic and financial alternatives to further enhance shareholder value.

Net sales for the second quarter increased 4.9% to $882.4 million. The second quarter 2011 net loss attributable to Collective Brands, Inc. was $35.0 million or $0.58 per diluted share. Excluding certain impairment and severance charges, adjusted(1) net earnings attributable to Collective Brands were $9.9 million, or $0.16 per diluted share.

In the quarter, the Company recorded impairment and severance charges ("adjustments") that reduced pre-tax income by $83.6 million, of which $76.8 million was non-cash. The impairment charges, all of which are non-cash, consist of $33 million in asset impairments primarily related to the net book value of stores at both Payless and Stride Rite; $31 million in trade name impairments mostly related to Stride Rite; and $10 million in goodwill impairment in Payless Domestic. In addition, the Company recorded a $10 million severance charge of which $3 million is non-cash.

The Company said that as part of its efforts to optimize the performance of its Payless and Stride Rite store fleet, it would close approximately 475 under-performing and low-volume, non-strategic stores in the next three years with more than 300 of those closings coming by the end of this fiscal year. The Company estimated that the costs for lease terminations, severance, and other exit costs related to closing these stores could be in the range of $25 million to $35 million.

"While the second quarter was challenging for the company, we are taking aggressive actions to improve the business," said Michael J. Massey, Chief Executive Officer of Collective Brands, Inc. "In Payless Domestic, we are gaining a much greater understanding of our customers and their needs and expectations. With this clarity, we are taking short term actions to improve our performance, accelerating key initiatives, and adjusting our longer term strategies. At the same time, we will continue to invest for growth and profitability in our Performance + Lifestyle Group and international businesses."

Strategic Review

The Company also announced that its Board of Directors will, together with management, conduct a review of strategic and financial alternatives to further enhance shareholder value. Working with its advisors, Perella Weinberg Partners and Kurt Salmon, the Board and management will explore a full range of alternatives for Collective Brands.

The Board stressed that there can be no assurance that this review will result in any additional action, and the Company will not make any comments until the Board completes its review and has decided upon a specific course of action. The Board also announced that it adopted a short duration Rights Plan to protect shareholder rights while the review is being conducted.

Under the Rights Plan, the Rights will become exercisable if a person or group acquires 15% or more of Collective Brands outstanding common stock. The Record Date for the issuance of the Rights will be September 6, 2011 and the Rights will expire on August 15, 2012 unless earlier redeemed or terminated.

A Form 8-K will be filed with the United States Securities and Exchange Commission containing additional information regarding the terms and conditions of the Rights Plan.

D. Scott Olivet, Non-Executive Chairman of Collective Brands, said, "The Board is working with management on aggressive actions to drive shareholder value by positioning our brands, driving growth, improving profitability and return on invested capital as well as building the team and infrastructure for long-term success. The Board will also work with management and our advisors on a comprehensive review of strategic and financial alternatives to best unlock the value of the Company for our shareholders."

Second Quarter Financial Results

Net sales for Collective Brands increased 4.9% due to growth in three of our four segments -- PLG Wholesale, Payless International and PLG Retail. Same store sales(2) declined 0.7% due to the sales results in Payless Domestic.

PLG Wholesale continued its strong sales performance, increasing 25%. The increase was led by Sperry with growth across virtually all product categories, distribution channels, and customer segments. Saucony also delivered gains globally driven by innovative styles in the minimalist and lightweight categories.

PLG Retail net sales increased 9% on growth from new Sperry Top-Sider stores combined with a 4% same store sales increase.

Payless International sales increased 7% on the strength of a 3% same store sales increase driven primarily by Latin America stores.

Payless Domestic net sales declined 3%, with same store sales down 2% in the quarter. This sequential improvement from the 8% same store sales decline in the first quarter was partly the result of aggressive actions the Company took during the latter half of the quarter. These actions resulted in sharper pricing and greater value for consumers, and served to reduce sandal inventory.

The gross margin rate in the quarter was 23.6%. On an adjusted basis(1), the gross margin rate was 30.8%, a decrease of 360 basis points compared to last year as a result of higher product costs and pricing actions.

SG&A expense in the quarter increased due to the severance charge, but decreased on an adjusted basis(1) by $2 million and 160 basis points as a percent of sales. The SG&A rate decrease was driven by lower compensation-related expense in the Payless Domestic segment and expense leverage from sales growth in every other reporting segment.

Inventory at the end of the quarter was $585.0 million, up 17.6%. The higher inventory level was driven principally by higher product costs, more PLG footwear units, and additional Payless accessories.

Subsequent to the end of the quarter, the Company amended and extended its revolving credit facility. The Company will no longer have a limit on pre-payments of the 8.25% senior subordinated notes, subject to excess line availability. As a result, the Company intends to repay at least $50 million of the notes in the third quarter of 2011.

Collective Brands repurchased 900,000 shares of its stock, or 1.5% of its shares outstanding, on the open market for $13.0 million during the second quarter -- the maximum amount permitted under its credit agreements.

During the second quarter, the Company added 18 new stores (16 Payless and 2 PLG), closed 20 stores (19 Payless and 1 PLG), and relocated 14 stores (12 Payless and 2 PLG).