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Collective Brands reports better earnings in Q2
Sep '08
Collective Brands Inc reported financial results for the second quarter ended August 2, 2008. Second quarter 2008 net earnings were $8.1 million, or $0.13 per diluted share including $36.2 million in pre-tax expenses, or $0.41 per share, related to litigation associated with the K-Swiss and adidas matters.

Excluding litigation items, Collective Brands' second quarter 2008 net earnings(1) were $33.6 million compared to second quarter 2007 net earnings of $24.9 million. Second quarter 2008 earnings per diluted share, excluding litigation items(1), were $0.54 an increase of 42.1% compared to second quarter 2007 earnings per diluted share of $0.38.

Collective Brands' second quarter 2008 net sales were $911.7 million, up 30.4%, and include the addition of Stride Rite. Net sales for Payless and Stride Rite were $704.4 million and $207.3 million, respectively, for the second quarter of 2008. Comparable store sales(2), including Payless Latin America, increased 0.2%, as higher retail prices offset lower unit volume.

"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.

"International and wholesale sales increased with particular strength in Payless Latin America, Sperry Top-Sider, and Saucony. In addition, we increased market share, effectively managed inventory, controlled costs, and generated positive cash flow. Our strategy is to continue to invest in growth opportunities that our retail, wholesale and licensing platforms provide."

The gross margin rate for the second quarter of 2008 was 31.0%, which included $36.2 million of litigation items. Excluding the litigation items, the gross margin rate was 35.0%(1), up 60 basis points compared to the second quarter of 2007. Gross margin gains were driven primarily by higher average unit retail prices and more direct sourcing. This was partially offset by Stride Rite's lower gross margin rate and higher merchandise and occupancy costs.

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 lower rate was due to the mix of including Stride Rite's lower SG&A rate in 2008. SG&A expenses were $259.2 million in the second quarter of 2008, up $58.2 million versus the prior year period due to the addition of Stride Rite.

Net interest expense in the second quarter of 2008 was $16.8 million compared to net interest expense of $0.8 million last year. The change was primarily due to an increase in borrowings to fund the acquisition of Stride Rite.

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