Payless Shoesource Inc/MO – ‘10-K’ for 2/1/97

As of:  Friday, 4/25/97   ·   For:  2/1/97   ·   Accession #:  1008802-97-5   ·   File #:  1-11633   ·   Correction:  This Filing was Corrected by the SEC on 5/7/97. ®

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Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Payless Shoesource 1996 Form 10-K                     19     87K 
 2: EX-3        Articles of Incorporation/Organization or By-Laws     11     49K 
 3: EX-11       Statement re: Computation of Earnings Per Share        2±     8K 
 4: EX-12       Statement re: Computation of Ratios                    1      6K 
 5: EX-13       Annual or Quarterly Report to Security Holders        26±   116K 
 6: EX-21       Subsidiaries of the Registrant                         1      6K 
 7: EX-23       Consent of Experts or Counsel                          1      6K 
 9: EX-24       Power of Attorney                                      1      8K 
 8: EX-27       Financial Data Schedule (Pre-XBRL)                     3      9K 

10-K   —   Payless Shoesource 1996 Form 10-K
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION              
Washington, D.C. 20549              
FORM 10-K               
(Mark one)                                                                      
[X]       ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)                         
OF THE SECURITIES EXCHANGE ACT OF 1934              
For the fiscal year ended February 1, 1997                                      
OR              
[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)                       
OF THE SECURITIES EXCHANGE ACT OF 1934              
For the transition period from ______________ to ______________                 

Commission File Number 1-11633              

PAYLESS SHOESOURCE, INC.              
(Exact name of registrant as specified in its charter)              

Missouri                          48-0674097              
(State or other jurisdiction of            (I.R.S. Employer                     
incorporation or organization)          Identification Number)                  

3231 Southeast Sixth Street, Topeka, Kansas        66607-2207                   
(Address of principal executive offices)            (Zip Code)                  

(913) 233-5171              
(Registrant's telephone number,               
including area code)              

Securities registered pursuant to Section 12(b) of the Act:                     

                     Name of each exchange
Title of each class                      on which registered                    
-------------------                     -----------------------                 
Common Stock, par value $.01 per share  New York Stock Exchange                 
Preferred stock purchase rights         New York Stock Exchange                 

Securities registered pursuant to Section 12(g) of the Act:  None               

(Title of Class)              

Indicate by check mark whether the registrant (1) has filed all                 
reports required to be filed by Section 13 or 15(d) of the                      
Securities Exchange Act of 1934 during the preceding 12 months (or              
for such shorter period that the registrant was required to file                
such reports), and (2) has been subject to such filing requirements             
for the past 90 days.                   Yes   X    No                           
                      ------    ------

Indicate by check mark if disclosure of delinquent filers pursuant              
to Item 405 of Regulation S-K is not contained herein, and will not             
be contained, to the best of registrant's knowledge, in definitive              
proxy or information statements incorporated by reference in Part               
III of this Form 10-K or any amendment to this Form 10-K.  [ x ]                

The aggregate market value of registrant's common stock held by                 
non-affiliates based on the closing price of $40.50 on April 14,                
1997 was $1,616,745,218.                                                        

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Indicate the number of shares outstanding of each of the issuer's               
classes of common stock, as of the latest practicable date:                     
39,919,635 shares of common stock, $.01 par value, as of April 14,              
1997.                                                                           

Documents incorporated by reference:                                            
1.  Portions of Registrant's 1996 Annual Report to Shareowners are              
incorporated into Part II.                                              

2.  Portions of Registrant's 1997 Proxy Statement for the Annual                
Meeting to be held on May 23, 1997, are incorporated into Part          
III.                                                                    

PART I              

Item 1.  Business                                                               
-----------------                                                               

General                                                                         

Payless ShoeSource, Inc. ("Payless" or "Company") is the largest                
family footwear retailer in the United States with more than $2.3               
billion in sales in 1996. The Company sold approximately 195                    
million pairs of shoes in 1996, and served more than 130 million                
customers.                                                                      

As of February 1, 1997, the Company operated 4,236 Payless stores               
in 50 states, the District of Columbia, Puerto Rico and the U.S.                
Virgin Islands. The Company's stores feature fashionable, quality               
footwear for men, women and children, including athletic, casual,               
dress, sandals, work boots and slippers.                                        
Recent Developments                                                             

During 1996, the Company opened 171 new Payless stores and closed               
484 Payless stores. The Company opened 4 new Payless stores in                  
Alaska, the only state where the Company had not previously                     
operated any facilities.  The Company also announced the planned                
open market repurchase, pursuant to Rule 10b-18 of the Securities               
Exchange Act of 1934, of up to $150 million of common stock during              
1997-98, contingent upon receipt of a favorable ruling from the                 
Internal Revenue Service and market conditions.  The favorable                  
ruling was subsequently received on April 8, 1997. In addition, the             
Company completed a repurchase of 460,000 shares of its common                  
stock in 1996.  As discussed below, in late 1996 the Company                    
initiated the purchase of the Parade of Shoes division of J. Baker,             
Inc.,  which consisted of 186 stores operating in 14 states.  This              
transaction was consummated in March, 1997.                                     

History                                                                         

The Company was founded in Topeka, Kansas in 1956 with a strategy               
of selling low cost, high quality family footwear on a self-service             
basis. In 1962, Volume Distributors, as the Company was known at                
the time, became a public company and its shares were registered on             
the New York Stock Exchange. In 1979, the Company (then called                  

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"Volume Shoe Corporation") was acquired by The May Department                   
Stores Company of St. Louis, Missouri. The Company changed its name             
to Payless ShoeSource, Inc. in 1991. On May 4, 1996, Payless became             
an independent company as a result of its spin-off from The May                 
Department Stores Company.   Payless is traded on the New York                  
Stock Exchange under the symbol "PSS."                                          

Payless Stores                                                                  

The average size of the Company's Payless stores is 3,400 square                
feet.   Each store carries approximately 10,000 pairs of shoes and              
more than 600 styles.  Payless stores operate in a variety of real              
estate venues formats, including shopping malls, central business               
districts, free-standing buildings and strip centers.  Of the 4,236             
Payless locations open at the end of fiscal 1996, 748 incorporated              
a concept called "Payless Kids" which consists of an additional                 
approximately 1,000 square feet of selling space devoted to an                  
expanded assortment of children's shoes. These stores are located               
throughout the country and include wider aisles, children-friendly              
seating and an entertainment center for children.                               

The Company's Payless stores operate successfully in rural,                     
suburban and urban environments.  The 10 states with the largest                
concentrations of the Company's Payless stores are identified                   
below:                                                                          

No. of      
Payless     
State                   Stores                              
-----                   -------                             

California                 654                              
Texas                      368                              
Florida                    282                              
New York                   267                              
Illinois                   196                              
Pennsylvania               196                              
Ohio                       187                              
Michigan                   154                              
New Jersey                 116                              
Washington                 106                              

Other                    1,712                              

Total                    4,236                              

The Company's Payless stores are highly automated, each with an                 
electronic point of sale register and a back office computer which              
not only records transactions from the register, but also serves                
many other store supporting functions including price look-up,                  
accumulation of associate hours worked and communications with the              
Company's headquarters in Topeka, Kansas.  Store associates receive             
regular weekly communications from the Company's headquarters                   
describing promotional and display requirements.                                

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The Company's Payless retail operations are directed centrally by               
a senior officer and small support staff.  The retail operations                
organization is subdivided into six divisions headquartered in the              
cities of Atlanta, Baltimore, Chicago, Dallas, Denver and Los                   
Angeles.  Divisions are directed by a vice president, two to four               
operations directors and a small support staff.                                 
Each Payless store has a manager and approximately five associates.             
The stores are organized into districts.  District managers, to                 
whom the store managers report, themselves report to the division               
offices and have full financial responsibility for the stores in                
their district.  Division offices also have loss prevention and                 
inventory control functions.  Human resources, merchandising                    
support and other more general support services, are provided from              
the Company's headquarters.                                                     

Parade of Shoes Stores                                                          

The Company's Parade of Shoes division, which was acquired in                   
March, 1997, from J. Baker, Inc., of Canton, Massachusetts,                     
emphasizes the retail sale of quality, primarily leather, women's               
shoes. The Company operates the 186 Parade of Shoes store chain as              
a division separate from the Payless chain. J. Baker reported sales             
for the chain of $123 million in 1996.                                          

Parade of Shoes stores are self-service and feature fashionable                 
women's dress, casual and athletic footwear priced in the $20 to                
$40/pair range. Major markets include Boston, New York City,                    
Chicago, Philadelphia and Washington, D.C.  The average size of a               
Parade of Shoes store is 2,300 square feet.  These stores operate               
in a variety of real estate venues including shopping malls,                    
central business districts, free-standing buildings and strip                   
centers.                                                                        

Employees                                                                       

During 1996, the Company's average number of employees was                      
approximately 24,000, including approximately 13,000 full-time                  
associates and 11,000 part-time associates.  Approximately 650 of               
the Company's distribution center associates are covered by                     
collective bargaining agreements.  Management believes it has a                 
good relationship with all employees.                                           

The Company is led by a team of senior management executives who                
have an average of 16 years of retail industry experience,                      
including an average of eight years with the Company.                           

Products                                                                        

The Company's Payless stores offer a broad assortment of                        
fashionable footwear to meet the needs of its customers including               
basic, seasonal and fashion shoes in dress, casual, athletic and                
work boot categories. Shoes are constructed with leather, canvas                
and man-made materials. Styling is updated regularly to keep pace               
with proven fashion trends.  During fiscal 1996, the Company's                  
Payless shoes sold at an average retail price of $11.38/pair, with              

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one-third of its women's footwear and two-thirds of its children's              
footwear selling at $9.99 or less.  In addition to shoes, the                   
Company's stores offer accessories, including handbags, shoe polish             
and hosiery.                                                                    

The Company's merchandising effort is led by the President and                  
three general merchandise managers with an average of 24 years of               
retail experience.  They direct teams of buyers, planners and                   
distributors that interact with vendors, agents and factory                     
representatives to design, select, produce, inspect and distribute              
footwear and accessories for the Company.  The Company believes                 
that it has good relationships with its vendors.                                

Customers                                                                       

The Company sells footwear to women, men and children of all age                
groups and from households with incomes that represent                          
approximately 85% of the United States population. The Company has              
significant market penetration with its target customers: women                 
between the ages of 18 and 64. The Company believes that more than              
40% of its target customers, regardless of household income,                    
purchased at least one pair of shoes from the Company last year.                
The Company maintains a leadership position in the children's                   
category as well, selling more pairs of children's shoes than any               
other U.S. footwear retailer.                                                   

Competition                                                                     

The Company operates in a highly competitive retail market                      
competing primarily with national and regional discount mass-merchandisers,     
as well as with other self-service discount shoe                                
stores and off-price outlet stores.  Competition is based on                    
product selection and quality, availability, price, store location,             
customer service and efficient promotional activities.  The Company             
has successfully operated in its markets with each of these                     
segments of retailing for many years and has continued to capture               
increased market share by offering a wider selection of fashionable             
styles and favorable prices in conveniently located stores;                     
however, the Company is facing increased competition from certain               
national discount mass-merchandisers.                                           

Seasonality                                                                     

The retail footwear market is characterized by four high volume                 
seasons: Easter, early Summer, back-to-school and Christmas. The                
Company must increase inventory levels during these periods to                  
support the increased demand for seasonal styles.  Unseasonable                 
weather patterns may affect planned sales of seasonal products such             
as sandals and boots.                                                           

Purchasing                                                                      

The Company utilizes a network of vendors and factories in 13                   
foreign countries and the United States to procure its products                 
which are manufactured to meet the Company's specifications and                 
standards.  The strength of the Company's relationships with                    
vendors and factories, some dating back over 40 years, has allowed              
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the Company to adapt quickly its sourcing strategies to reflect                 
changing political and economic environments.  On several occasions             
over the past years, many of the Company's vendors and factory                  
owners have played significant roles in developing production in                
new factories and in new countries without compromising production              
capacity or product quality.  Factories in the People's Republic of             
China ("China") are a source of approximately 80% of the Company's              
merchandise. The Company does not purchase "seconds" or "overruns"              
and does not own any manufacturing facilities.  The Company closely             
integrates its merchandise purchasing requirements with various                 
manufacturers through its sourcing organization which has offices               
in Topeka, Kansas, and in Taiwan, China and Brazil.  Management                 
believes it has good relationships with its suppliers.                          

On a worldwide basis, approximately two-thirds of the Company's                 
merchandise is acquired through a network of third-party vendors.               
Payless ShoeSource International, the Company's Taipei, Taiwan                  
office, arranges directly with factories for the design, selection,             
production management, inspection and  distribution of                          
approximately one-third of the shoes acquired for the Company.                  

Risks inherent in foreign manufacturing (i.e., manufacturing                    
outside the United States) include economic and political                       
instability, transportation delays and interruptions, restrictive               
actions by foreign governments, the laws and policies of the United             
States affecting importation of goods, including duties, quotas and             
taxes, trade and foreign tax laws and fluctuations in currency                  
exchange rates.  While the Company has not historically experienced             
material adverse effects from these risks, there is no assurance                
that in the future these risks will not result in increased costs               
and delays or disruption in product deliveries that could cause                 
loss of revenue and damage to customer relationships.                           

China currently enjoys "most favored nation" ("MFN") status under               
United States tariff laws, which provides the most favorable                    
category of United States import duties. China's MFN status is                  
annually reviewed by Congress.  Extension of this status is subject             
to political uncertainties.  The loss of MFN status for China would             
likely result in substantially increased costs to the Company in                
the purchase of merchandise from China  until the Company could                 
arrange to shift its merchandise requirements to alternative                    
manufacturers in other countries.  The Company believes, however,               
that its competitors in the footwear industry would be similarly                
affected.                                                                       

Quality Assurance                                                               

The Company's quality assurance organization sets standards and                 
specifications for product performance and appearance.  It                      
communicates those standards and specifications through its                     
copyrighted quality assurance manual.  The Company stands behind                
the quality of the shoes it sells to its customers by permitting                
return of purchased merchandise with proper documentation.                      

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The quality assurance organization also provides technical design               
support for the Company's direct purchasing function.  It is                    
responsible for review and approval of vendor and factory technical             
design, for  worldwide laboratory testing of materials and                      
components, and for performing in-factory product inspections to                
ensure that materials and factory production techniques are                     
consistent with Company specifications.  The Company locates its                
field inspection personnel close to the factories and freight                   
consolidation facilities it uses throughout the world.                          

Production Management                                                           

The production management organization manages an ongoing process               
to qualify and approve new factories, while continually assessing               
existing factory service and quality of performance.  New factories             
must meet specified quality standards for shoe production and                   
minimum capacity requirements.  They must also agree to the                     
Company's production control processes and certify that neither                 
they nor their suppliers use forced or child labor.  Factory                    
performance must continually improve or the factory runs the risk               
of being removed from the list of approved factories.  The                      
production management organization utilizes a unique, internally                
developed production control process by which the Company is                    
electronically linked to its factories and vendors.  This process               
is designed to ensure on-time deliveries of merchandise with                    
minimum lead time and without unnecessary costs.                                

The Company believes that maintaining strong factory relationships,             
improving key factory performance factors and improving factory                 
profitability is critical to long-term sourcing stability.  Its                 
manufacturing services group, based in Asia, provides direction and             
leadership to key factories in the areas of overall productivity                
improvement and lead time reduction.                                            

Merchandise Distribution                                                        

The Company believes that its distribution system provides it a                 
competitive advantage.  The Company's merchandise distribution                  
teams are able to track shoes by the pair from order placement                  
through sale to the customer by the use of perpetual inventory,                 
product planning and retail price management systems.  These                    
systems are maintained by experienced information systems personnel             
and are enhanced regularly to improve the product distribution                  
process.  Distribution analysts review sales and inventory by size              
and style to maintain availability of product within the Company's              
stores.                                                                         

The Company operates a single 765,000 square foot distribution                  
center in Topeka, Kansas, capable of replenishing in-store product              
levels by style, color and size.  This facility operates seven                  
days-a-week and has sufficient capacity to support more than 5,000              
stores.  Management believes this is one of the most highly-automated           
and cost-efficient distribution facilities in the                               
industry.  Stores receive product at least once a week, maintaining             
a constant flow of fresh and replenished merchandise.                           

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Industry Segments                                                               

The retail footwear industry can be divided into high, moderate and             
value-priced segments, and is dominated by the Company and national             
discount mass-merchandisers in the value-priced segment.  The high              
priced segment is controlled by department stores.  The moderate                
priced segment, which is dominated by specialty shoe chains and                 
mass merchants, is declining, in part due to improved product                   
quality in the value priced segment and price competition from the              
high priced segment.                                                            

Based on industry data, the United States footwear market is                    
estimated to be $33 billion and one billion pairs, and has stayed               
relatively flat over the past several years.  The value-priced                  
segment as a percent of the total pairs has more than doubled over              
the past 15 years.  Industry data suggests that the quality offered             
in the value priced segment has improved significantly over the                 
last 15 years, causing the doubling of this segment's share of the              
market.                                                                         

The Company considers itself part of the low-priced segment of the              
footwear industry. In 1996, the Company's share of the estimated                
$33 billion United States footwear market was 7 percent; this share             
has grown consistently over the past four decades.                              

Trademarks                                                                      

The Company owns certain trademarks which it uses in its business,              
including "Payless," "Payless ShoeSource," "Payless Kids," and                  
"Parade of Shoes."  The Company owns all rights to the yellow and               
orange logo used in its Payless ShoeSource signs and advertising.               
In the United States, the Company has registered over 100 key marks             
and owns over 50 common law marks under which it markets private                
label merchandise in its Payless ShoeSource stores and owns over                
30 registered and common law marks under which it markets private               
label merchandise in its Parade of Shoes stores.  All of the                    
Company's registered trademarks may be renewed indefinitely.                    

Marketing                                                                       

The Company's marketing efforts are multi-dimensional, including                
nationally broadcast television advertising, national magazine                  
advertisements, local market radio and newspaper inserts in support             
of major promotional periods. In addition to media support, the                 
Company utilizes in-store promotional materials, including posters,             
signs and point of sale items.  Also, the Company advertises its                
business through promotional funds, media funds, merchants'                     
associations and similar efforts offered by various landlords from              
whom the Company leases its stores.                                             

The Company's marketing staff is augmented by a full-service advertising        
concern that provides creative services, media purchase and consumer            
research.                                                                       

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Environment                                                                     

Compliance with federal, state and local provisions which have been             
enacted or adopted regulating the discharge of materials into the               
environment, or otherwise relating to the protection of the                     
environment, has not had, and is not expected to have, a material               
effect on capital expenditures, earnings or the competitive                     
position of the Company.                                                        

Government Contracts                                                            

No material portion of the Company's business is subject to                     
renegotiation of profits or termination of contracts or                         
subcontracts at the election of the U.S. government.                            

Directors of the Company                                                        

Listed below are the names and principal occupations of the                     
Company's Directors:                                                            

Name                         Principal Occupation                     
----                         --------------------                     

Steven J. Douglass         Chairman of the Board and Chief                      
       Executive Officer  of the Company
Howard R. Fricke           Chairman of the Board, President and                 
    Chief Executive Officer of The
         Security Benefit Group of Companies
(life and other insurance)
Thomas A. Hays             Retired, formerly Deputy Chairman of                 
       The May Department Stores Company
Richard A. Jolosky         President of the Company                             
Michael E. Murphy          Vice Chairman and Chief Administrative               
           Officer of Sara Lee Corporation (food
products)                 
Robert L. Stark            Dean of The Regents Center at the                    
University of Kansas      

Executive Officers of the Company                                               

Listed below are the names and ages of the executive officers of                
the Company and offices held by them with the Company.                          

Name                Age            Position and Title                 
----                ---            ------------------                 

Steven J. Douglass       47        Chairman of the Board and Chief              
       Executive Officer
Richard A. Jolosky       62        President and Director of the                
Company   
Duane L. Cantrell        41        Executive Vice President-Retail              
Operations
Bryan P. Collins         43        Senior Vice President and                    
                     Division Director for Parade of
Shoes     
Stephen Farley           42        Senior Vice President-                       
Marketing 

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Gerald F. Kelly, Jr.     49        Senior Vice President-Logistics/             
          Information Services
Harris Mustafa           43        Senior Vice President-Merchandise            
  Distribution
Jed L. Norden            46        Senior Vice President-Human                  
Resources 
Ullrich E. Porzig        51        Senior Vice President and Chief              
       Financial Officer
William J. Rainey        50        Senior Vice President, General               
           Counsel and Secretary
Thomas L. Rinehart       42        Senior Vice President and                    
                       General Merchandise Manager-Men's
Gary M. Stone            48        Senior Vice President-Store                  
 Development
Larry M. Strecker        38        Senior Vice President of the                 
                   Company and Managing Director
           of Payless ShoeSource
   International
Michael S. Wilkes        43        Senior Vice President and                    
                            General Merchandise Manager-Children's

Steven J. Douglass has served as Chairman of the Board, Chief                   
Executive Officer and Director of the Company since May, 1996, the              
date on which the Company's shares were distributed in a spin-off               
by The May Department Stores Company to its shareowners.  Mr.                   
Douglass has been Chairman and Chief Executive Officer of the                   
Company since April, 1995.  He joined the Company in 1993 and                   
served as Senior Vice President-Director of Retail Operations from              
1993 to January, 1995 and as Executive Vice President-Director of               
Retail Operations from January, 1995 to April, 1995.  Prior to his              
association with the Company, Mr. Douglass held several positions               
at divisions of May, serving as Chairman of May Company, Ohio                   
(1990-1993) and Senior Vice President and Chief Financial Officer               
of  J.W. Robinsons (1986-1990).                                                 

Richard A. Jolosky has served as President of the Company since                 
January, 1996.  He initially joined the Company in September, 1982,             
serving as Executive Vice President-Merchandising (1982-1984) and               
then as President (1985-1988).  Prior to rejoining the Company in               
1996, Mr. Jolosky was President and Chief Executive Officer of                  
Silverman Jewelry Company (1995-1996), and Chief Executive Officer              
of the Richard Allen Company (1992-1995).    Mr. Jolosky has served             
as a Director of the Company since May, 1996.                                   

Duane L. Cantrell has served as Executive Vice President-Retail                 
Operations since April, 1997 and as Senior Vice President-Retail                
Operations (1995-1997).  He was the Company's Senior Vice                       
President-Merchandise Distribution and Planning (1992-1995) and                 
Senior Vice President-Merchandise Distribution (1990-1992).  Mr.                
Cantrell has been employed by the Company since 1978.                           

Bryan P. Collins has served as Senior Vice President and Division               
Director for Parade of Shoes since December, 1996.  Prior to that               
he was Senior Vice President and General Merchandise Manager-Women's            
since January, 1994.  He also served the Company as Senior                      

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Vice President-General Merchandise Manager-Women's Seasonal/Leisure             
(October, 1991- January, 1994).   Mr. Collins has been employed by              
the Company since 1991 and was previously employed by the Company               
(1975-1985).                                                                    

Stephen Farley has served as Senior Vice President-Marketing since              
July, 1994.  Prior to that he was Vice President-Marketing (1993-1994)          
and Vice President-Advertising (1992-1993).  Prior to joining                   
the Company, Mr. Farley was employed by Earl Palmer Brown as                    
Executive Vice President of Client Services (1989-1992).                        

Gerald F. Kelly, Jr. has served as Senior Vice President-Logistics/             
Information Services since February, 1996.  Prior to that                       
he was Senior Vice President-Information Services and Chief                     
Financial Officer (1990-1996) and Senior Vice President-Information             
Services (1986-1990).                                                           

Harris Mustafa has served as Senior Vice President-Merchandise                  
Distribution since May, 1995.  Prior to that he was Vice President-             
Financial Planning/Purchasing (1990-1995).  Mr. Mustafa has been                
employed by the Company since 1987.                                             

Jed L. Norden has served as Senior Vice President-Human Resources               
since July, 1985.                                                               

Ullrich E. Porzig has served as Senior Vice President and Chief                 
Financial Officer since February, 1996. Between 1993 and 1996, Mr.              
Porzig was Senior Vice President-Financial Officer and Treasurer of             
Petro Stopping Centers L.P.  From 1982 to 1993 he was employed by               
The May Department Stores Company in various capacities including               
Senior Vice President-Chief Financial Officer of the Company from               
1986 to 1988 and Senior Vice President-Finance of Foley's (1988-1993).          

William J. Rainey has served as Senior Vice President, General                  
Counsel and Secretary since April, 1996.  Prior to joining the                  
Company, Mr. Rainey served as Executive Vice President, General                 
Counsel and Secretary of Fourth Financial Corporation (1994-1996)               
and Vice President, General Counsel of Cabot Corporation (1991-1993).           

Thomas L. Rinehart has served as Senior Vice President and General              
Merchandise Manager-Men's since December, 1992.  Before joining the             
Company, he was employed by the Custom Shop as President and Chief              
Operating Officer (1992) and by Club International as President and             
Chief Executive Officer (1991-1992).                                            

Gary M. Stone has served as Senior Vice President-Store Development             
since February, 1997.  Prior to joining the Company, Mr. Stone was              
employed by Pepsico, Inc. as Senior Vice President and General                  
Manager (1995-1997) and Vice President, Asset Development (1991-1995).          

Larry M. Strecker has served as Senior Vice President of the                    
Company and Managing Director of Payless ShoeSource International               
since April, 1996. Prior to that, he was Vice President of                      
Worldwide Sourcing (1993-1996).  Before joining the Company, Mr.                
Strecker was employed by Frito-Lay as Director of Service and                   
Distribution (1991-1993).                                                       

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Michael S. Wilkes has served as Senior Vice President and General               
Merchandise Manager-Children's since January, 1994.  Prior to that              
he was Senior Vice President-General Merchandise Manager-Women's                
Dress/Casual (1990-1994).  Mr. Wilkes has been employed by the                  
Company since 1986.                                                             

Item 2.  Properties                                                             
-------------------                                                             

The Company leases substantially all of its stores.  The leases                 
typically have a primary term of 10 years, with one or two five-year            
renewal options.  Leases usually require payment of base rent,                  
applicable real estate taxes, common area expenses and, in some                 
cases, percentage rent based on the store's sales volume.  Its                  
Payless stores average approximately 3,400 square feet.  The                    
Company owns and operates a 305,000 square foot central office                  
building and a 765,000 square foot distribution facility both of                
which are located in Topeka, Kansas.                                            

Item 3.  Legal Proceedings                                                      
--------------------------                                                      

There are no material pending legal proceedings, other than                     
ordinary routine litigation incidental to the business, to which                
registrant or any of its subsidiaries is a party or of which any of             
their property is the subject.                                                  

Item 4.  Submission of Matters to a Vote of Security Holders                    
------------------------------------------------------------                    

There were no matters submitted to a vote of security holders                   
during the 13 weeks ended February 1, 1997.                                     

PART II               

Item 5.  Market for Company's Common Equity and Related Shareowner              
------------------------------------------------------------------              
Matters                                                                         
-------                                                                         
There were approximately 70,000 shareowners of record of the                    
Company's common stock as of February 1, 1997.  The information set             
forth under the headings "Common Stock and Market Prices" (page 15)             
and "Shareowner Information - Common Stock" (page 28) in the                    
Company's 1996 Annual Report to Shareowners is incorporated herein              
by reference.                                                                   

Item 6.  Selected Financial Data                                                
--------------------------------                                                

The information set forth under the heading "Summary of Selected                
Historical Financial Information" (page 25) of the Company's 1996               
Annual Report to Shareowners is incorporated herein by reference.               

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Item 7.  Management's Discussion and Analysis of Financial                      
----------------------------------------------------------                      
Condition and Results of Operations                                             
-----------------------------------                                             

The information set forth under the heading "Management's                       
Discussion and Analysis" (pages 12-15) of the Company's 1996 Annual             
Report to Shareowners is incorporated herein by reference.                      

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Item 8.  Financial Statements and Supplementary Data                            
----------------------------------------------------                            

The Financial Statements (pages 16-18), "Notes to Consolidated                  
Financial Statements" (pages 19-23) and "Report of Independent                  
Public Accountants" (page 24) of the Company's 1996 Annual Report               
to Shareowners are incorporated herein by reference.                            

Item 9.  Changes in and Disagreements with Accountants on                       
---------------------------------------------------------                       
Accounting and Financial Disclosure                                             
-----------------------------------                                             

None.                                                                           

PART III              

Item 10.  Directors and Executive Officers of the Company                       
---------------------------------------------------------                       

a)  Directors - The information set forth under the heading "The                
Election of Directors" on pages 1-3 of the Company's Proxy                      
Statement dated April 14, 1997 is incorporated herein by reference.             

b)   Executive Officers - Information regarding the Executive                   
Officers of the Company as of April 14, 1997 is set forth in Item               
1 of this report under the caption "Executive Officers of the                   
Company."                                                                       

Item 11. Executive Compensation                                                 
-------------------------------                                                 

The information required by Item 402 of Regulation S-K is                       
incorporated herein by reference from the Company's Proxy Statement             
dated April 14, 1997, as follows: page 3, "Compensation of                      
Directors;" page 4, "Compensation Committee Interlocks and Insider              
Participation;" pages 5-6, the description of long term awards                  
under the captions "Bonus Opportunities," "Long-Term Stock                      
Incentives," "Spin-off Arrangements," and pages 21-23, under the                
captions "Annual Awards" and "Long Term Awards;" and pages 9-15,                
under the caption "Executive Compensation."                                     

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Item 12. Security Ownership of Certain Beneficial Owners and                    
------------------------------------------------------------                    
Management                                                                      
----------                                                                      

The information required by Item 403 of Regulation S-K is                       
incorporated herein by reference from the Company's Proxy Statement             
dated April 14, 1997, as follows: pages 25-26, "Beneficial Stock                
Ownership of Directors, Nominees, Executive Officers and Persons                
Owning More than Five Percent of Common Stock."                                 

Item 13. Certain Relationships and Related Transactions                         
-------------------------------------------------------                         

Not applicable.                                                                 

PART IV               

Item 14.  Exhibits, Financial Statement Schedules and Reports on                
----------------------------------------------------------------                
Form 8-K                                                                        
--------                                                                        

(a)  Documents filed as part of this report:                                    
(1)   Financial Statements.  The following financial                  
statements are incorporated herein by reference to the    
Company's 1996 Annual Report to Shareowners:              

                                   Page in
                                   Annual Report
                                   -------------
Financial Statements-                                     
Consolidated Statements of Earnings for                 
the three fiscal years ended                      
February 1, 1997                           16     
Consolidated Statements of Shareowners'                 
Equity for the three fiscal years               
ended February 1, 1997                    16    
Consolidated Balance Sheets -                           
February 1, 1997, and February 3, 1996    17    
Consolidated Statements of Cash Flows                   
for the three fiscal years ended                
February 1, 1997                          18    

Notes to Consolidated Financial Statements   19-23      
Report of Independent Public Accountants      24        

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(3)   Exhibits:                                                       

Number                             Description                                  
------                             -----------                                  

2.1            Distribution Agreement, dated as of April 2, 1996,               
between The May Department Stores Company ("May") 
and the Registrant.1                              

3.1            Amended and Restated Articles of Incorporation of                
the Registrant.2                                  

3.2            Amended and Restated Bylaws of the Registrant.*                  

4.1            Rights Agreement, dated as of April 2, 1996,                     
 between the Registrant and The Bank of New York, as
Rights Agent.1                                    

10.1           Tax Sharing Agreement, dated April 2, 1996,                      
between May and the Registrant.3                  

10.2           Sublease, dated as of April 2, 1996, between May                 
and the Registrant.1                              

10.3           Multi-Currency Credit Agreement, dated as of April               
22, 1996, among the Registrant, several financial 
institution and Bank of America National Trust and
Savings Association.4                             

10.4           Administrative Services Agreement, dated as of                   
April 2, 1996, between May and the Registrant.1   

10.5           Payless ShoeSource, Inc. 1996 Stock Incentive Plan,              
as amended.5                                      

10.6           Payless ShoeSource, Inc. Spin-Off Stock Plan.1                   

10.7           Payless ShoeSource, Inc. Spin-Off Cash Plan.1                    

10.8           Payless ShoeSource, Inc. Restricted Stock Plan for               
Non-Management Directors.1                        

10.9           Form of Employment Agreement between the Registrant and          
      certain executives of the Registrant. The Registrant has
      entered into Employment Agreements in the form contained
in this exhibit with each of the named executive  
     officers which expire at various dates on or before May
     31, 2001, and which provide for annual base salaries at
      rates not less than the amounts presently paid to them.1

10.10          Payless ShoeSource, Inc. Supplementary Retirement Plan.1         

10.11          Payless ShoeSource, Inc. Profit Sharing Plan.1                   

10.12          Payless ShoeSource, Inc. Deferred Compensation Plan.             

10.13          Payless ShoeSource, Inc. Executive Incentive                     
Compensation Plan for Payless Executives.6        
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10.14          Form of Management Severance Agreement.  The Registrant          
  has entered into Severance Agreements with the named
executive officers in the form contained in this  
      exhibit.1  The agreement with Mr. Douglass also provides
             for a "tax gross-up" payment to ensure that the above-mentioned
payments are not subject to net reduction due     
   to imposition of excise taxes which are payable under
Section 4999 of the Internal Revenue Code.  The   
 agreement with Mr. Jolosky provides for 50% of such
payment.                                          

10.15          Form of Indemnification Agreement.1                              

11.1           Computation of Net Earnings Per Share.*                          

12.1           Computation of Ratio of Earnings to Fixed Charges.*              

13.1           Payless ShoeSource, Inc. 1996 Annual Report to                   
Shareowners (only those portions specifically     
      incorporated by reference shall be deemed filed with the
Commission).*                                     

21.1           Subsidiaries of Registrant*                                      

23.1           Consent of Independent Public Accountants.*                      

24.1           Power of Attorney                                                

27.1           Financial Data Schedule*                                         

* Filed herewith                                                                
1) Incorporated by reference from the correspondingly numbered Exhibit to   
Registrant's Registration Statement on Form 10 Dated February 23, 1996
as amended through April 15, 1996.                                    
2) Incorporated by reference from Exhibit 3.1 of the Registrant's Form      
10-Q (file Number 1-11633) for the quarter ended May 4, 1996.         
3) Incorporated by reference from Exhibit 10.1 of the Registrant's Form     
10-Q (file Number 1-11633) for the quarter ended May 4, 1996.         
4) Incorporated by reference from Exhibit 10.2 of the Registrant's Form     
10-Q (file Number 1-11633) for the quarter ended May 4, 1996.         
5) Incorporated by reference from Appendix A(pages A-1 to A-13)             
Registrant's April 14, 1997, Proxy Statement relating to its May 23,  
1997 annual meeting of shareowners.                                   
6) Incorporated by reference from Exhibit 10.5 of the Registrant's Form     
10-Q (file Number 1-11633) for the quarter ended May 4, 1996.         

(3)   Reports on Form 8-K:  None                                      

All other schedules and exhibits of the Company for which provision             
is made in the applicable regulations of the Securities and Exchange            
Commission have been omitted, as they are not required or are                   
inapplicable or the information required thereby has been given                 
otherwise.                                                                      

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SIGNATURES              
----------              

Pursuant to the requirements of Section 13 or 15(d) of the                      
Securities Exchange Act of 1934, the registrant has duly caused                 
this report to be signed on its behalf by the undersigned,                      
thereunto duly authorized.                                                      

      PAYLESS SHOESOURCE, INC.

Date:  April 24, 1997          By: /s/ Ullrich E. Porzig                        
                ----------------------------------
                 Ullrich E. Porzig
                         Senior Vice President and
                       Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of                  
1934, this report has been signed below by the following persons on             
behalf of registrant and in the capacities and on the dates                     
indicated.                                                                      

Principal Executive Officer:            

Date:  April 24, 1997          By: /s/ Steven J. Douglass                       
                ----------------------------------
                  Steven J. Douglass
            Chairman and
                       Chief Executive Officer

Principal Financial and                 
Accounting Officer:                 

Date:  April 24, 1997          By: /s/ Ullrich E. Porzig                        
                ----------------------------------
                 Ullrich E. Porzig
                         Senior Vice President and
                       Chief Financial Officer

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Directors:              

Date:  April 24, 1997          By: /s/ Steven J. Douglass*                      
                ----------------------------------
                  Steven J. Douglass
            Chairman and
                       Chief Executive Officer

Date:  April 24, 1997          By: /s/ Richard A. Jolosky*                      
                ----------------------------------
                  Richard A. Jolosky
                      President and Director

Date:  April 24, 1997          By: /s/ Howard R. Fricke*                        
                ----------------------------------
                Howard R. Fricke
        Director

Date:  April 24, 1997          By: /s/ Thomas A. Hays*                          
                ----------------------------------
              Thomas A. Hays
        Director

Date:  April 24, 1997          By: /s/ Michael E. Murphy*                       
                ----------------------------------
                 Michael E. Murphy
        Director

Date:  April 24, 1997          By: /s/ Robert L. Stark*                         
                ----------------------------------
               Robert L. Stark
        Director

*Executed by William J. Rainey, attorney-in-fact, on behalf of the              
indicated Director pursuant to Power of Attorney dated April 17,                
1997.                                                                           

18              

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		5/31/01		16
		5/23/97		2		17			DEF 14A
Corrected on:		5/7/97
Filed on:		4/25/97							S-8
		4/24/97		18		19
		4/17/97		19
		4/14/97		1		17
		4/8/97		2
For Period End:		2/1/97		1		15
		5/4/96		3		17			10-Q
		4/22/96		16
		4/15/96		17					10-12B/A
		4/2/96		16
		2/23/96		17					10-12B
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