Blog: Eventful week at Collective Brands

Joe Ayling | 8 September 2008

It was a beehive of corporate activity at Collective Brands last week, with the US footwear retailer re-signing up a designer, securing a Middle Eastern franchise deal and revealing the financial implications of litigation with Adidas and K-Swiss earlier in the year.

First and foremost, the company's second quarter earnings fell 67% to US$8.1m, hit by pre-tax expenses of $36.2m related to litigation associated with court rulings over trademark infringement brought by K-Swiss and Adidas.

Its $30m settlement with K-Swiss came in May and followed a costly ruling that it had infringed Adidas' three-stripe trademark earlier that month (which Collective Brands says it intends to appeal). At about the same time it was ordered to pay $305m to Adidas America, consisting of $30.6m in actual damages and $274m divided between Payless profits and punitive damages.

Despite these charges, analysts were pleased with a robust 30.4% rise in second quarter sales at Collective Brands' Payless Shoesource and Stride Rite units reported last week, and the retailer confirmed it had $7.5m of the K-Swiss settlement covered by insurance.

Matthew Rubel, chief executive officer and chairman of Collective Brands, will be relieved that the company's $900m acquisition of The Stride Rite Corporation last year is now translating to sales, laying the solid foundations he wanted.

Another cause for optimism was the company's deal to expand Payless into the Middle East through a venture with Kuwait-based retail franchisee MH Alshaya. The expansion could result in around 200 Payless stores in the United Arab Emirates, Saudi Arabia, Kuwait, Oman, Bahrain, Qatar, Egypt, Jordan and Lebanon, with store openings to start next year.

At the product-level, Collective Brands also managed to continue its deal with Stacey Bendet Eisner, designer of the Alice + Olivia for Payless line, up until spring and summer 2009. Bendet Eisner, along with other Payless guest designers Laura Poretzky and Lela Rose, will be previewing their latest collections at the New York Fashion Week, which began on Friday (5 September).

The hybrid business model that Collective Brands has created over the past 16 months shone during an eventful week during which the Stride Rite and Payless units most certainly "earned their stripes", and with no further compaint from Adidas or K-Swiss in sight.

By Joe Ayling, news editor.

US: Collective earnings hit by K-Swiss and Adidas litigation


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