TOPEKA, KS-The nation’s leading specialty footwear retailer, Payless ShoeSource Inc., said earnings were up $6 million during the year’s first quarter but sales dropped slightly as the company moved to build a “house of brands” chain featuring well known brand names that will drive customers into its stores.

For the quarter ending April 29, 2006, the footwear retailer said the company posted net earnings of $36 million, or 53 cents per share, compared to the first quarter of 2005 when it recorded net earnings of $30 million, or 45 cents per share.

Companywide sales, meanwhile, slid 0.1% below last year’s figure to $694.8 million during the quarter, down from $695.2 million. Same store sales were up a slight 0.4% during the period.

The locally based firm, which operates 4,602 stores throughout the US, said it is hoping to get a boost in those numbers with the acquisition of the American Eagle brand of footwear and accessories. Matthew E. Rubel, CEO and president, said the brand will help Payless attract younger customers and accelerate the company’s growth.

The acquisition is part of Payless’ “house of brands” strategy that also includes a partnership with American Ballet Theater to launch a line of co-branded dance shoes and accessories, Rubel said.

Payless is also taking other steps to aggressively target customers, including remodeling stores to better showcase merchandise, re-branding its logo and rolling out new television advertising. A test of the company’s remodeling concept showed it produced incremental sales increases in the mid- to upper-teen range, Rubel said. All new Payless Shoe stores will incorporate the concept. An additional 40 stores will be remodeled using that new design by this fall, he said.

“Our strategy is beginning to gain traction,” Rubel said during a conference call announcing the first quarter numbers. He added that the firm also recently began an aggressive $26-million stock buyback program to acquire more than $1 million shares of company stock.

Rubel said Payless also is planning to develop a distribution center in the western states as part of its revved-up strategy. It is expected to cut down on distribution time and costs.

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