Payless to Enter Middle East; Collective Revenues Jump

NEW YORK — Payless ShoeSource has its sights set on the Middle East.

The unit of Collective Brands Inc. said Wednesday that it has signed an agreement with M.H. Alshaya Co. to open franchised stores in 2009 in the United Arab Emirates, Saudi Arabia, Kuwait, Oman, Bahrain, Qatar, Eqypt, Jordan and Lebanon. Additional terms of the multiyear deal were not disclosed, but Payless said in a statement that over time the partnership could support more than 200 stores.

“The people of the Middle East are young, vibrant and love to shop. Frequenting malls and other shopping venues is a significant leisure activity, with customer visits as often as three times a week. Consumers in the Middle East want the latest fashions, and women, in particular, enjoy expressing themselves through shoes and accessories,” said Matthew Rubel, chairman and CEO of Collective Brands, in a statement. “We see a strong fit with the shoppers of this region and the Payless brand promise. We are thrilled to have such a tremendous franchisee in Alshaya, with its significant retail expertise, infrastructure and deep knowledge of the region. We look forward to bringing shoppers great style, quality and brand names — all at a great price.”

Payless operates 4,500 retail stores globally, including more than 600 stores in 13 territories, such as Canada, Central America and South America, operated through either joint ventures or wholly owned subsidiaries. Most recently, Payless launched into Colombia, South America, in early August with four stores in Bogota; more than 35 additional stores are expected to open in Colombia over the next 18 months.

M.H. Alshaya is a franchise operator, whose 1,400 retail stores include Foot Locker, H&M, Starbucks and The Body Shop, in such markets as the Middle East, North Africa, Turkey, Russia and Poland, among others.

Separately, Wednesday, after the close of the markets, Collective reported that second-quarter net earnings fell threefold despite a 30 percent rise in revenues. The Topeka, Kan.-based firm said net earnings fell to $8.1 million, or 13 cents a diluted share, down from $24.9 million, or 38 cents, the prior year. Results in the latest quarter included pre-tax expenses of $36.2 million related to trademark infringement litigation with two footwear brands: K-Swiss and Adidas.

Excluding the expenses, the firm said earnings would have been $33.6 million, or 54 cents, versus $24.9 million, or 38 cents, last year.

Revenues in the quarter totaled $911.7 million, versus $699.3 million a year ago.

Analysts polled by Thomson One Analytics were expecting a profit of 31 cents on revenues of $885.2 million.

“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 Rubel in a statement. “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.”

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