Collective Brands Inc, the parent of Payless ShoeSource and Stride Rite, has posted a sharp drop in first quarter profit after being hit by charges of $30m to cover potential losses from an ongoing legal dispute.

For the first quarter ended 3 May, Collective Brands said its net earnings fell to $19.7m, or $0.31 per share, a drop of 49% from the $38.9m or $0.59 per share posted in the same period last year.

The results include a $30m or $0.36 a share pre-tax charge related to loss contingencies associated with a court ruling last month that Payless ShoeSource infringed Adidas' three-stripe trademark.
Collective Brands has been ordered to pay $305m to Adidas America Inc, consisting of $30.6m in actual damages and $274m divided between Payless profits and punitive damages - but says it intends to appeal the ruling.

Excluding the litigation charge, Collective Brands said its first quarter earnings would have risen 8.5% to $42.2m, or $0.67 per share.

Sales for the quarter were up 28% to $932.4 million, helped by strong international and wholesale revenues.

Net sales for Payless and Stride Rite were $692.8m and $239.6m respectively. Comparable store sales fell 6.5% on lower consumer traffic.

Matthew E Rubel, chairman, chief executive officer and president, said: "International and wholesale sales increased with particular strength in Payless Latin America, Sperry Top-Sider, and Saucony.

"In addition, we effectively managed our retail inventories to keep them fresh and controlled our costs to produce good first quarter results and position us well for the future."

Collective Brands operates 4,562 Payless ShoeSource and 348 Stride Rite stores selling footwear brands including Keds, Robeez, Saucony, and Sperry Top-Sider.