20

Collective Brands Inc.

Matt's Fundamental Stock Analysis
Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.

Collective Brands (PSS) Company Business Collective brands is an international shoe and accessories discount company with three business segments: Payless ShoeSource, Collective Brands Performance + Lifestyle, and Collective Licensing. They target consumers that make less than $75,000 a year. Brands: Payless ShoeSource (Payless): Focus on shoes and accessories One of the largest footwear specialty stores in the World Internationally it is looking good o 62 international stores as of fiscal 2010 and planned to double that in fiscal 2011 Collective Brands Performance + Lifestyle (PLG): Essentially a wholesaler and sells their products through retail stores, specialty stores, ecommerce website, etc. Offers the following brand names:

Collective Licensing International (CLI): Acquired in March 2007 Focus on youth footwear, apparel and equipment for the sports lifestyle market They have signed contracts related to top sport lines and endorsements with athletes Owns and licensees youth-oriented skate-and-snowboard brands o Have also started to include MMA and basketball gear Business Segment - Sales

Business Segments - Region: Focusing on growing markets in the future

Competitors: Consist of Brown Shoe Company (BWS), Genesco (GCO), and Shoe Carnival (SCVL) Financial Statement Notes: Fiscal 2008 o Goodwill impairment charge amounted to $42 million o Net litigation expenses amount to $45.1 million and was included in COGS o Tangible asset impairment and other charges amount to $20.1 million $13.2 million was included in COGS $6.9 million was included in SG&A Interest expense seems to be relatively high Fiscal 2010 - Repaid off a significant amount of debt and purchased a significant amount of common stock compare to the previous two fiscal year Threats: They are economy driven and a bad economy will drive down net income and sales They have very thin margins and price increases in the cost of goods can very much harm their profitability Potential Risks: They hedge both their foreign exchange risk and their interest rate risks

Historical Ratio Analysis **If the value is green than the number is believed to be better than the previous number, vice versa if the value is
red

Profitability Ratios
ROE ROA ROIC CROIC

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

9.7% 4.2% 21.3% 6.4%

17.7% 9.2% 21.7% 13.6%

0.0% 0.0% -0.1% -1.6%

-0.3% -0.2% 9.6% 2.9%

10.8% 5.4% 12.0% 10.1%

17.4% 8.5% 16.0% 7.4%

6.1% -11.0% 1.8% -3.1% 4.6% 4.9% -0.4% -3.1%

12.0% 3.9% 8.4% 6.8%

14.9% 5.4% 10.6% 9.1%

Ratios are starting to look better although on an average basis they are nothing spectacular
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Solvency Ratios

Quick Ratio 0.68 0.53 0.92 1.14 1.54 1.43 1.13 1.16 1.56 1.15 Current Ratio 1.84 1.85 2.28 2.16 2.52 2.38 2.27 2.38 2.71 2.26 Total Debt/Equity Ratio 1.29 0.92 0.94 1.08 1.02 1.04 2.44 2.62 2.11 1.76 Long Term Debt/Equity Ratio 0.52 0.24 0.33 0.34 0.31 0.29 1.30 1.43 1.15 0.80 Short Term Debt/Equity Ratio 0.16 0.19 0.06 0.01 0.00 0.00 0.01 0.04 0.01 0.01 The amount of debt looking forward can be a concern especially with the Europe crisis happening o Debt has reduced a lot since the crisis and they have just paid off a good portion of their debt

Efficiency Ratios
Asset Turnover Cash % of Revenue Receivables % of Revenue SG&A % of Revenue R&D % of Revenue

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2.73 3.2% 0.0% 24.6% 0.0%

2002

2.50 2.6% 0.0% 24.2% 0.0%

2003

2.36 5.3% 0.0% 27.0% 0.0%

2004

2.14 10.9% 0.0% 27.6% 0.0%

2005

2.03 14.2% 0.0% 28.9% 0.0%

2006

1.96 13.3% 0.0% 28.9% 0.0%

2007

1.26 7.7% 2.8% 29.6% 0.0%

2008

1.53 7.2% 2.8% 29.3% 0.0%

2009

1.45 11.9% 2.9% 29.7% 0.0%

2010

1.49 9.6% 3.4% 30.0% 0.0%

2011

Liquidity Ratios
Receivables Turnover Days Sales Outstanding Days Payable Outstanding Inventory Turnover Average Age of Inventory (Days) Intangibles % of Book Value Inventory % of Revenue

0.00 0.0 13.9 5.67 64.36 0.0% 11.7%

0.00 0.0 20.4 4.81 75.95 0.0% 15.7%

0.00 0.0 25.1 4.57 79.80 0.0% 14.1%

0.00 0.0 33.6 4.72 77.34 1.0% 13.0%

0.00 0.0 36.6 4.97 73.43 0.9% 12.5%

0.00 0.99 -0.75 0.0 10.4 10.3 39.1 38.0 28.8 4.98 4.63 4.58 73.25 78.79 79.68 0.8% 125.3% 116.9% 12.9% 15.5% 14.3%

0.92 10.5 35.3 4.33 84.31 98.7% 13.4%

1.17 12.4 51.5 4.18 87.35 86.1% 15.8%

Relative Ratio Comparison PSS does classify some of its competitors in their latest's annual statement. I believe there direct competitors to consist of Brown Shoe Company (BWS), Genesco (GCO), and Shoe Carnival (SCVL), DSW (DSW), and Wal-Mart (WMT).
$ $ $ $ $ DSW 55.76 2,410.00 2,120.00 57.06 36.48 52.9% 16.3 1.2 3.2 0.0 0.0 8.3 1.1% 0.0% 0.0% 0.0% 9.7% 1.2% 9.6% 895.4% 1188.3% 25.9% 1.7 2.8 0.00 0.00 32.3% 29.3% 7.5% 5.8% 9.9% 4.7% 17.8% 9.2% 34.8% 13.1% 134.1 4.3 1.8 GCO $ 73.40 $ 1,780.00 $ 1,720.00 $ 75.55 $ 35.76 105.3% 21.3 0.8 2.5 0.0 0.0 8.7 0.0% 0.0% 0.0% 0.0% 29.1% 0.8% 9.4% 28.8% 49.9% 5.9% 0.5 1.9 0.04 0.06 50.4% 50.3% 6.3% 6.7% 3.6% 3.8% 7.5% 7.4% 12.4% 12.6% 52.0 2.9 2.1 $ $ $ $ $ SCVL 26.79 357.77 301.03 34.05 19.19 39.6% 12.9 0.5 1.3 8.5 38.1 5.1 0.0% 0.0% 0.0% 0.0% 5.4% 0.5% 2.4% 11.3% 6.1% 8.0% 0.9 4.3 0.00 0.00 29.9% 28.6% 5.8% 3.9% 3.6% 2.5% 7.6% 5.5% 10.2% 8.0% 270.4 2.3 2.1 WMT $ 60.60 $ 207,540.00 $ 254,490.00 $ 62.63 $ 48.31 25.4% 13.3 0.5 4.1 8.4 36.4 7.3 2.6% 0.0% 16.9% 32.0% 5.9% 0.5% 5.1% 7.1% 8.2% 9.2% 0.2 0.9 0.66 0.75 25.0% 25.1% 5.9% 5.9% 3.7% 3.6% 8.8% 8.7% 22.6% 21.4% 81.1 8.7 2.4 BWS $ $ $ $ $ 9.47 397.60 747.87 13.57 5.85 61.9% 48.6 0.2 1.5 5.5 0.0 6.7 3.0% 2.5% 5.6% 133.7% 4.0% 0.2% 0.9% -324.7% -77.1% -32.3% 0.5 1.6 0.48 0.97 38.6% 39.5% 1.3% 0.5% 0.3% -0.1% 0.7% -0.3% 2.2% -0.9% 19.3 2.9 2.2 $ $ $ $ $ PSS 18.25 1,110.00 1,520.00 23.16 9.11 100.3% 0.0 0.3 0.0 0.0 0.0 13.2 0.0% 0.0% 0.0% 0.0% 5.4% 0.3% 4.4% -328.6% -258.2% 0.0% 0.9 2.2 0.94 0.95 29.7% 32.9% -0.8% 2.2% -4.4% 0.3% -7.1% 0.4% -22.4% 0.1% 26.6 4.4 1.6

Stock Price Mkt Cap ($M) EV 52 Wk High 52 Wk Low % off 52Wk Low

Multiples
P/E(TTM) P/S(TTM) P/Tang BV(MRQ) P/CF P/FCF(TTM) EV/EBITDA(TTM)

Dividends
Div Yld Div Yld - 5yr avg Div 5yr Grth Payout Ratio(TTM)

Growth Rates
Sales(MRQ) v 1yr ago Sales(TTM) v 1yr ago Sales 5yr Grth EPS(MRQ) v 1yr ago EPS(TTM) v 1yr ago EPS 5yr Grth

Balance Sheet
Quick Ratio(MRQ) Current Ratio(MRQ) LTD/Eq(MRQ) Tot D/Eq(MRQ)

Margins
Gross %(TTM) Gross % 5yr Op %(TTM) Op % 5yr avg Net %(TTM) Net % 5yr avg

Returns
ROA(TTM) ROA 5yr avg ROE(TTM) ROE 5yr avg

Efficiency
Rec Turnover(TTM) Inv Turnover(TTM) Asset Turnover(TTM)

The multiples ratios are all coming up as 0 because on a trailing twelve months basis PSS is losing money o Therefore I will not comment on a relative basis They do take on more debt than their competitors making them more risky EPS TTM and quarterly is messed up because a huge net loss that occurred in last quarter o I would have to look further into this if I decide they are an investment candidate o ROA and ROE are absolutely brutal and not attractive at all

Investment Valuations Reverse DCF

Note: I usually use owners earnings to figure out the valuation. For this company I used FCF growth instead since it adds back to net income the goodwill impairment charges among other things. Starting with a reverse DCF valuation, I will assume a discount rate of 12% and a terminal growth rate of 2.5%. (The terminal growth rate of any company should never be higher than the growth rate of the economy.) A reverse DCF valuation should be used just to see a rough picture of where the market has currently priced PSS based on fundamentals. Based on my assumptions the market has currently priced PSS to have a FCF growth rate of around a 4% - 5% year after year for the next 10 years with it gradually decreasing over the years, where then it will grow at its terminal growth rate. The range of the FCF growth is given due to the difference between TTM, annual, and average owners earning FCF input. This is a rough estimate number, however this is massively above its 5 year and 10 year historical averages. FCF growth is best to be looked at over multi-year periods as it is very volatile on a year to year basis. Actual Owners Earnings DCF This is the heart of my valuation of a company. I believe that a more reasonable estimate of around 10% for the next 10 years with it slowing down in the later years. The same thing that applied above, applied here; FCF. Under my assumptions, I believe the intrinsic value to be around $21.71 on the safe side and on the more optimistic side $24.18.

40

5 Yr Price vs Intrinsic Value

35
30 25

20
15 10 5 0 11/07/2005 11/07/2007
Historical Price

11/07/2009
Intrinsic Value

11/07/2011
Buy Price

FCFE Valuation The growth rate for this model is built around fundamentals, where it is equal to the non-cash return on equity multiplied by the equity reinvestment rate which gives us a net income growth rate of 16.45%. Reason being that we do not want to just guess a growth rate and it is better to get one from fundamentals, obviously the option to adjust these ratios can occur if needed. According to this model, the intrinsic value is roughly around $13.20 - $16.72. Technical Analysis Looking at the chart below, there does seem to be evident support and resistance levels. There is a really key pivot level at around the $23 level. Potential exit point, I would not go long on this stock if it broke that level because the fundamentals say otherwise. It has also been in a trading range for the past 2- 3 yrs. May mean the public are not too sure where this stock should be priced accurately but they believe it should be somewhere within this range.

Overview As a long-term trade, I simply do not like this company since they have reported net income losses a few too many times for my liking. A lot of the financial ratios are forcing me to look away from this stock and there definitely lies a lot more of deeper analyzing of this company if I intend to buy it. There trailing twelve months number worry me quite a bit, however I am pretty confident in saying that if this stock were anywhere under $10 it would be largely over-valued. To be truthfully honest the fundamentals weren't adding up all that nicely but after looking at the chart I seem to think that technicals might be able to work on this stock. I will be looking for price to retract to the $12 support level and I would again reanalyze and go through the quarterly data and if I was still confident I would go long the stock. Since I am also comfortable fundamentally with the stock, I know that if the price dropped to say $10 or $8 I would still be comfortable holding it on due to the fact that my analysis considers it to be undervalued. In Short: Target Price $20-22 on technicals. Fundamentals $17-$24 Entry Price Anywhere Less than $14, Optimal entry point $12 Exit at target Price I have a hold rating on this stock at the current price. Best Regards, Matthew

Matt's Fundamental Stock Analysis

Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.