Collective Brands' sales decreased by 1.1 percent to $869.0 million in the first quarter ended on April 30.

Turnover at U.S. stores of the group's Payless Shoesource chain, which represents more than half of the group's business, was down by 8.8 percent to $498.4 million, due to lower traffic and a drop in transactions as some customers reacted negatively to higher footwear prices.

Negative results at the retail level were partially offset a 22.5 percent increase in revenues for the wholesale segment Performance + Lifestyle Group (PLG). The increase was led by Sperry Top-Sider and Saucony. The two brands and Keds booked double-digit growth in the all-important Western European market.

The group signed some wholesale distribution deals for the Asia-Pacific region (see next article) that are expected to accelerate international growth and better balance the international presence.

Notably, Iconic Advantage will be the wholesale distributor for Keds, Saucony and Sperry Top-Sider in the Philippines. It will be responsible for introducing Saucony and Sperry to the market. Based in Manila, Iconic licenses, distributes and retails international footwear and apparel brands in the country with its national network that includes hundreds of points of sale, including 20 own retail stores. Collective's deal with the company is a multi-year agreement.

PLG's wholesale turnover in the second quarter is expected to increase by approximately 20 percent from a year earlier because the backlog for delivery in the second quarter amounted to $196 million, representing a 39 percent year-over-year increase. The group sees capital expenditure totaling $105 million in the full year.

Collective Brands' gross margin dropped to 35.7 percent in the first quarter from 38.3 percent a year earlier due to lower sales, higher product costs and a greater share of wholesale revenues, which generate lower gross margins than retail.

Product costs, on a comparable basis, were up by about 6 percent for footwear in the first quarter and the increase is expected to reach 10 percent in the full year. To mitigate the increase, the company is moving production outside of China and to less expensive factories within the Asian powerhouse. PLG's wholesale division plans to pass on some of the additional costs in the third and fourth quarters after having refrained from doing so in the first and second quarters. The company expects other large wholesalers to also start increasing prices in the second half of the year.

The group's operating margin was slashed to 4.9 percent in the quarter from 9.3 percent a year ago, with declines for all divisions. Payless domestic's margin dropped to 2.6 percent from 9.0 percent, Payless International to 3.1 percent from 7.1 percent, PLG wholesale to 11.9 percent from 13.4 percent and PLG retail to 1.8 percent from 3.2 percent (more in Shoe Intelligence).