Sell Payless, Stride Rite Parent PSS as it Closes 475 Retail Stores

You'd think that in this brutal economic environment, cheap shoes would be
appealing above expensive brand names. But that just isn't the case at
Collective Brands, Inc. (NYSE: PSS ), parent of Payless ShoeSource and Stride
Rite shoe stores. The company posted an ugly $35 million loss in its most recent
earnings report. The stock is off 43% so far in 2011. And after posting numbers,
the company announced plans to close hundreds of stores. So is this the
beginning of the end for Payless and Stride Rite? Well, the good news for fans
of the chains is its not likely Collective Brands will disappear. The loss was
due to a mammoth $83.6 million one-time charge tied to the declining value of
its stores a simple accounting adjustment showing that its assets now are worth
much less than they were a few years ago. That's a harsh reality many normal
Americans have had to deal with, too. The company actually has paid down a bit
of its long-term debt, has decent cash on hand and has posted annual profits in
both fiscal 2010 and fiscal 2011 after a rough 2009. But the bad news is 475
Collective Brands locations will close, almost 10% of its current count of over
4,800 stores mostly under the Payless nameplate. Worse for investors is the
Payless store closures will result in charges of $19 million related to the
restructuring in the current quarter. Future charges for the closings could add
up to $25 million to $35 million, according to industry estimates. In short,
Collective Brands is suffering from a decline in its brand name, a decline in
its footprint (pardon the pun) and an uptick in expenses to reflect the new
reality. Not encouraging signs for investors in PSS stock. Furthermore,
consumers appear to be willing to pony up more cash for quality. Take Steve
Madden (NASDAQ: SHOO ), which has seen its shares rise more than 20%
year-to-date in 2011 thanks to robust sales. Or Deckers Outdoor (NASDAQ: DECK ),
maker of Ugg boots, which has posted a small gain since Jan. 1 despite a decline
for the broader stock market. If investors want to play apparel and retail, they
have other options. Shares rebounded from a brutal 52-week low of $9.11 earlier
in the week but remain off almost 50% from a peak earlier in 2011. And if this
ugly earnings report is any indication, Payless parent Collective Brands is in
store for further declines or at best, a bumpy future as it muddles through the
next several months. Jeff Reeves is editor of InvestorPlace.com. As of this
writing, he did not own a position in any of the stocks named here. Follow him
on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook .