Consumers Refuse To Payless

• Wal-Mart (NYSE:WMT) Yes, its not just a shoe store; however, Wal-Mart does offer a decent selection of footwear and its far reaching store footprint certainly extends into some of the same markets that Payless does. In Q1 the company's comps from its Wal-Mart stores (remember, it owns Sam's Club too) were up 2.7%. It's impossible to break out its shoe business, but many investors will look at the raw number, and Wal-Mart's raw number is better and I suspect likely to draw more attention, rightly or wrongly.
  
  
• Kohl's (NYSE:KSS) sells more than just shoes, but it can be viewed as a competitor as well. In Q1 the Kohl's reported a comps decrease of 6.7%. That is slightly worse than the Collective/Payless decline, but I think investors would still favor Kohl's if for no other reason than it has a broader selection of merchandise.

Again, I think that in order to draw the investment community, Payless needs to stand out with regard to this metric.

Guidance? What Guidance?
The "outlook" section of the first quarter press release seems to be lacking. Management did say its Stride Rite acquisition, excluding the impact of purchase accounting, will be accretive in 2008, and that it "anticipates an operating profit growth rate in the mid-teens over time", but what I didn't see any EPS forecasts for the full year. 

It's management's prerogative not to release any guidance if it doesn't want to, but when this important prediction is missing, the absence stands out and forces investors to ask troubling questions like: Why is it missing? (Explore the controversies surrounding companies commenting on their forward-looking expectations, in Can Earnings Guidance Accurately Predict The Future?)

Collective Brands is providing very little incentive for the average investor to get involved at this point. Management already said investors can expect weak comps over the next three-to-six months, and there remains uncertainty among retailers in general. Unless investors have some reasonable expectation that things are going to get better, I don't see people clamoring for the stock.

The sell side is also an important part of this equation. Analysts generally like some assurance that the estimates they're putting out are achievable. If the company is unsure about the future, it's unlikely many analysts will risk sticking their necks out. If I were sitting on the sidelines, I'd  remain there. (For more on analyst expectations, read Analyst Forecasts Spell Disaster For Some Stocks.)

Bottom Line
Payless and Stride Rite are solid brand names, and once this economic cloud breaks, sales should pick up. Contrarians might argue that now is actually the time to be buying the stock; however, I think there are still too many danger signs. We've heard over and over again that discount retailers are soaring as the economy slows, but Payless has bucked the trend.

Collective Brands' comps were lousy, and its lack of forward-looking guidance is a turn off. I'd avoid the shares.