US footwear chain operator Collective Brands has posted second quarter 2008 net earnings of US$8.1m, down from $24.9m in Q2 last year, but including $36.2m in pre-tax expenses related to litigation associated with K-Swiss and Adidas court rulings.

Excluding the litigation items, Collective's second quarter net earnings were $33.6m.

Second quarter net sales were $911.7m, up 30.4%, including the addition of Stride Rite. Same-store sales, including Payless Latin America, increased 0.2%, as higher retail prices offset lower unit volume.

The company's K-Swiss settlement, net of insurance recoveries of $1.0m, totalled $29.0m while K-Swiss and Adidas litigation costs, primarily attorney fees, amounted to $7.2m, the company said.

However, Collective said it last week entered into a binding agreement with one of its insurers to be reimbursed for an additional $7.5m related to the company's settlement with K-Swiss.

The settlement and litigation costs followed claims of trademark infringement against Collective earlier this year.

It was ordered to pay $305m to Adidas America Inc after a court ruled in May that Payless ShoeSource infringed Adidas' three-stripe trademark. The company said at the time it intended to appeal the ruling.

Less than a month after this it also agreed to pay $30m to K-Swiss Inc to settle a similar allegation against its Payless ShoeSource unit.

Its gross margin rate for the second quarter was 31.0%, including the litigation items. Selling, general and administrative (SG&A) expenses were 28.4% of sales in the second quarter of 2008, an improvement of 30 basis points compared to the second quarter of 2007, the company said.

The company's inventory was $483.3m at the end of second quarter 2008, up $113.3m compared to the same period last year due to the addition of $136.9m of Stride Rite inventory. Average inventory in Payless stores was down 2.4% versus second quarter 2007 though and Payless aged inventory was also lower than last year.

"Our operating results in the second quarter of 2008 demonstrated the strength and resiliency of the hybrid business model we have created over the past 16 months. The success of our acquisitions, and the integration of those businesses into Collective Brands, is a strong testament to our people and their ability to accomplish that task while continuing to keep their focus on the business in spite of a difficult economy," said Matthew E Rubel, chairman, chief executive officer and president.

In its outlook, the company anticipated that full-year growth would fall below long-term targets for low-single-digit same-store sales growth.

Earlier this week Collective announced plans for expansion into the Middle East region, signing an agreement with retail franchisee MH Alshaya that could eventually lead to the opening of 200 stores.