Thu Aug 12, 2004

NEW YORK, Aug 12 (Reuters) - Footwear chain Payless ShoeSource Inc. (PSS.N: Quote, Profile, Research) on Thursday posted lower quarterly earnings after a restructuring charge related to the closing of 260 stores and asset impairment.

But Payless shares jumped about 11 percent on the news of deeper restructuring and its plan to put more focus on its core business.

The family footwear chain of 5,072 stores in the United States and overseas said it earned $3.7 million, or 5 cents a share, for the second quarter ended July 31, including a noncash restructuring charge of 25 cents a share.

A year earlier, the Topeka, Kansas-based company posted a profit of $5.2 million, or 8 cents a share.

Sales fell to $727.9 million from $731.5 million.

Payless said it decided to close 260 stores to boost profit and net margins more quickly, even though some of the stores' leases are not scheduled to expire for a number of years.

Payless forecast costs for lease terminations, severance and other exit costs of $40 million to $60 million, but the final costs will depend on the ultimate exit transactions.

The company also said it will reduce its wholesale businesses, which provide no growth opportunity.

Late in July, Payless said it would sell or close its 181 Parade footwear and accessories stores by February.

Payless shares were up 94 cents, or 8.6 percent, at $11.90 on the New York Stock Exchange, where they were among the top percentage gainers.

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