UPDATE 2-Collective Brands sees strong Q1;to fight patent ruling
(Recasts; adds analysts' comments, more background, dateline and byline; updates share movement)
BANGALORE, May 12 (Reuters) - Footwear retailer Collective Brands Inc (PSS.N) forecast higher-than-expected first-quarter results and sought to allay fears about a recent unfavorable verdict it got in a patent suit filed by larger rival Adidas (ADSG.DE), boosting its shares 19 percent.
The company, which was hit with a $305 million verdict last week in a trademark infringement case filed against it by Adidas, said it expects quarterly earnings of 61 cents to 67 cents a share on sales of $932 million.
Analysts on average had expected the holding company of Payless ShoeSource and Collective Licensing International to earn 56 cents a share, before special items, on revenue of $922.7 million, according to Reuters Estimates.
The strong forecast succeeded in calming investors, who had sent the shoe maker's shares down more than 18 percent since news of the Adidas patent verdict.
The company called the verdict "excessive and unjustified," and said it would file several motions asking the court to set aside the verdict and either enter judgment in its favor or order a new trial, or reduce the jury's award substantially.
The outlook boost was not an effort to reassure investors after the verdict Collective Brands got in the Adidas patent suit, Susquehanna Financial Group analyst John Shanley said from New York. He said the "realistic" forecast was mostly based on revenue improvement and a favorable tax rate.
Collective Brands is benefitting from having a greater percentage of its business done in international markets with lower tax jurisdictions, Shanley, who has a "positive" rating and $16 price target on the stock, said.
Headquartered in Topeka, Kansas, the company operated 4,552 retail stores in 15 countries as of year-end 2007 under the Payless Shoe Source brand.
Caris & Co's Claire Gallacher said although the current litigation provides an overhang on the shoe maker's shares, the outlook indicated it was executing well amid a slowing U.S. economy and sluggish retail trends.
She also said the company's 2007 acquisition of shoe maker Stride Rite Corp is likely on track, providing for revenue and earnings upside. Gallacher reiterated her "above average" rating and $18 price target on the stock.
The $800 million buyout of Stride Rite, a marketer of children's footwear as well as casual and athletic footwear for adults, added Keds and other brands to the company's stable and expanded its retailer distribution.
Collective Brands said the first-quarter forecast excluded any possible litigation charge but reflected a tax gain of about 8 cents a share.
TO FIGHT VERDICT
Adidas sued Collective Brands, formerly known as Payless Shoesource, in 2001 for violating Adidas' three-stripe trademark.
Last week, a federal court in Portland, Oregon, awarded Adidas $305 million in damages, consisting of $30.6 million in actual damages and $274 million divided between Payless profits and punitive damages.
Collective Brands said, "The jury's total award, which is more than 10 times the actual damages found, exceeds by 15 times our profits on the sale of these shoes and, if not overturned, would permit Adidas to claim exclusive control over all shoes with two, three or four parallel stripes."
Susquehanna's John Shanley said he doubted the final settlement would be anywhere close to $305 million and expects an out-of court settlement for a substantially lesser amount.
Shares of the Topeka, Kansas-based company rose to a high of $12.03, before paring some of their gains to trade up $1.67 at $11.75 Monday afternoon on the New York Stock Exchange.
"For investors who can withstand the current litigation overhang, we recommend purchase of Collective Brands shares," Caris & Co's Gallacher said. (Editing by Pratish Narayanan)
