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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Item 8.01. Other Events
Item 9.01. Financial Statements and Exhibits
99.1 Shareholder Letter dated May 12, 2008
99.2 Message to employees from Matthew E. Rubel
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
By: /s/ Ullrich E. Porzig Special Letter Discusses Recent Litigation; First Quarter EPS -- Before Possible Litigation Charges -- Expected to Exceed Analysts' Estimates TOPEKA, KS -- 05/12/2008 -- Collective Brands, Inc. (NYSE: PSS)
Today, Matthew E. Rubel, CEO and President of Collective Brands, Inc. sent
the following letter to the company's shareholders:
May 12, 2008
Dear Fellow Shareholder:
Collective Brands, Inc. is committed to competing fairly in the
marketplace. We have built a company of great brands with over 31,000
people and tens of millions of customers. At our Payless ShoeSource unit,
we are focused on democratizing fashion in footwear -- delivering to
customers the latest fashion, styles and ideas in footwear for the entire
family, at great value. This is a cornerstone of our business model. And,
it has been a core part of our Company's DNA for years. This notion was
the basis of our thinking when, nearly seven years ago in 2001, Payless
ShoeSource chose to defend against what we considered to be the unwarranted
trademark infringement case brought against us by adidas AG in federal
court in Portland, Oregon.
As you know from our previous communications of this case, adidas has
claimed that our two- and four-stripe shoe styles infringed on its
three-stripe logo and Superstar trade dress. Throughout the case, we
continued to have confidence that our defenses were meritorious, that our
designs do not infringe the adidas designs, and that we should prevail.
Unfortunately, last week, the jury saw things differently and awarded
adidas $305 million in damages, consisting of $30.6 million in actual
damages and $274 million divided between Payless profits and punitive
damages. We believe that the jury's verdict was unjustified and excessive,
and that we have strong grounds to have the jury's verdict overturned or
reduced. 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.
We are expeditiously taking steps to protect the Company's legal rights and
later today we will be filing several motions with the court that, among
other things, ask the court to set aside the verdict and either enter
judgment in our favor or order a new trial, and, if that is not the case,
to reduce the jury's award substantially. To the extent that we are not
fully successful, we intend to appeal to the United States Court of
Appeals. If the trial court does not grant our motions, it may take several
years for the matter to be resolved on appeal.
Among the issues we will be raising in our motions are that:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Securities Exchange Act of 1934.
Date of Report: May 12, 2008
(Date of earliest event reported)
Collective Brands, Inc.
(Exact name of registrant as specified in its charter)
KS
(State or other jurisdiction
of incorporation)
001-14770
(Commission File Number)
43-1813160
(IRS Employer
Identification Number)
3231 Southeast Sixth Avenue
(Address of principal executive offices)
66607-2207
(Zip Code)
785-233-5171
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Item 7.01. Regulation FD Disclosure
On May 12, 2008, Collective Brands, Inc., a Delaware corporation ("CBI") issued a press release containing a letter to Stockholders of CBI from Matthew E. Rubel, CEO and President of CBI. The letter provides an update to Stockholders on the adidas litigation and discusses first quarter earnings per share before possible charges. The full text of the letter is attached hereto as Exhibit 99.1 and incorporated by reference herein.
Also attached hereto as Exhibit 99.2 and incorporated by reference is a message to employees of CBI from Mr. Rubel.
(a) Financial statements:
None
(b) Pro forma financial information:
None
(c) Shell company transactions:
None
(d) Exhibits
Dated: May 12, 2008
COLLECTIVE BRANDS, INC.
Ullrich E. Porzig
Senior Vice President Chief Financial Officer & Treasurer
Exhibit No.
Description
99.1
Shareholder Letter dated May 12, 2008
99.2
Message to employees from Matthew E. Rubel
- -- the damages verdict should be thrown out because adidas offered no
evidence that it suffered even one penny of actual damages and the $30.6
million royalty awarded is irrational;
- -- the law requires that the entire damages award of $305 million be
thrown out or drastically reduced because it is confiscatory and
inequitable, and would give adidas a windfall unrelated to any actual
injury and would exceed by 15 times Payless' profits on the shoes at issue;
- -- judgment should be entered in Payless' favor because the law does not
permit adidas to leverage its three-stripe trademark into a monopoly on the
use of two and four stripe designs on footwear, which the verdict might
otherwise enable adidas to claim;
- -- the law does not authorize any of the $137 million in punitive damages
awarded; and
- -- the judgment cannot stand because adidas offered no credible evidence
that anyone ever bought a Payless shoe believing it to be an adidas shoe or
actually confused a Payless shoe with an adidas shoe at any time, and
introduced no evidence that there is any likelihood of confusion between
Payless' two and four-stripe shoes and adidas' trademark other than
incomplete surveys that did not even cover more than half of the shoe
styles at issue.
You should also know that despite this development, we have been successful in maintaining our focus on our businesses. Even with the very challenging economic environment, our Company has been able to demonstrate the ability to remain as a staple in the lives of our consumers who appreciate the value they get from our brands.
To that end, I am pleased to report that we anticipate sales for the first quarter, which ended May 3, 2008, to be $932 million, reflecting the Stride Rite acquisition, and earnings to be in the range of $0.61 to $0.67 per share, which is above the Thomson First Call consensus estimate, despite comparable store sales being down 6.5%. In addition, we expect EBITDA to exceed $100 million. Earnings exclude any charges that we may record associated with litigation, but do reflect a lower effective income tax rate than previously anticipated, resulting in a favorable impact of approximately $0.08 related primarily to the greater-than-expected mix of earnings in lower-tax, international jurisdictions. We expect to report our earnings on June 4 and, of course, I will keep you apprised of any new developments regarding the litigation.
Sincerely,
Matthew E. Rubel Chief Executive Officer and President
This letter contains forward-looking statements relating to such matters as anticipated financial performance, business prospects, and similar matters. Statements including the words "expected," "should," or variations of such words and similar expressions are forward-looking statements. We note that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of our business include, but are not limited to, the following: outcomes of litigation, changes in consumer spending patterns; changes in consumer preferences and overall economic conditions; the impact of competition and pricing; changes in weather patterns; the financial condition of the suppliers and; changes in existing or potential duties, tariffs or quotas and the application thereof; changes in relationships between the United States and foreign countries as well as between foreign countries; changes in relationships between Canada and foreign countries; economic and political instability in foreign countries, or restrictive actions by the governments of foreign countries in which suppliers and manufacturers from whom we source are located or in which we operate stores or otherwise do business; changes in trade, intellectual property, customs and/or tax laws; fluctuations in currency exchange rates; litigation including intellectual property and employment litigation; availability of suitable store locations on acceptable terms; the ability to terminate leases on acceptable terms; the ability to hire, train and retain associates; performance of other parties in strategic alliances; general economic, business and social conditions in the countries from which we source products, supplies or have or intend to open stores; performance of partners in joint ventures; the ability to comply with local laws in foreign countries; threats or acts of terrorism or war; strikes, work stoppages and/or slowdowns by unions that play a significant role in the manufacture, distribution or sale of product; congestion at major ocean ports; changes in commodity prices such as oil; and changes in the value of the dollar relative to the Chinese Yuan and other currencies. See also "Risk Factors" in the Company's Form 10-K for the year ended February 3, 2008.
Contacts: Financial James Grant 785-559-5321 Media Mardi Larson 612-928-0202
It is my goal to keep you well informed of any major events or activities that affect our company. As you know, we are in the midst of a legal battle with adidas, which began in 2001, over the use of two and four parallel stripes. The recent jury ruling, not in the favor of Payless, is in our opinion unjustified and excessive. This point of view is shared by many legal experts as well as industry experts. We will defend our rights thoughtfully and vigorously as explained in the attached shareholder letter which was publicly released this morning. Please take the time to read the letter as it helps answer some questions about what we plan to do next in this matter.
The focus of this note is to take the time to thank you for the tremendous effort the team has made in this first quarter of 2008. We are pre-announcing our earnings for the first quarter and the results are strong. Despite the difficult economic environment in which we, and all retailers and consumer products companies, are currently operating, our Company performed well. Our EPS estimates are in the range of 61-67 cents per share, prior to any accounting impact which may result from the adidas litigation. This range is well in excess of Wall Street's mid-point consensus estimate of 52 cents per share. Our EBITDA is expected to be over $100 million, excluding litigation impact, with all areas of the company -- Payless, Stride Rite and Collective Licensing -- making meaningful contributions.
This is continued proof that the hybrid business model we are building at Collective Brands is enabling us to become the pre-eminent consumer centric performance, fashion and lifestyle footwear company in the world. Our brands and distribution are diverse. Our business model is strong and powerful.
Tremendous contributions to the quarterly results have come from Sperry, Saucony, and Payless International, which all performed well above plan. This has been aided by solid performance in our Stride Rite Group's International operations, driven by Saucony and Keds, and our growing success at Collective Licensing. During a time of lower customer traffic and comp store sales, our teams at Payless and Stride Rite Retail were also successful in carefully managing inventories to keep them fresh while at the same time reducing expenses.
We are addressing the dynamics which are occurring in sourcing and have a solid game plan to allow for the individuality and innovation that will ensure each brand and business remain special while leveraging our sourcing and buying power globally. We are also beginning to see the benefits of integration through successful leveraging of our infrastructure. Our Western Distribution Center is gaining operational efficiency and our Eastern Distribution Center is on track and on budget.
Many new and exciting ventures are ahead of us in the second quarter: the launch of exclusive Airwalk styles endorsed by Andy Macdonald in the Stride Rite stores; the rollout of Saucony apparel; the continued expansion of Sperry into women's and new categories; the opening of Colombia for Payless international; and the launch of a new Stride Rite retail concept in New York City prior to back to school.
In closing, I want to thank you again for all of your tremendous efforts. I also hope to help you keep the adidas matter in perspective. The ongoing litigation with adidas will continue to generate publicity since both they and we are significant names in the industry and in consumers' minds. But we should not let that distract us; we are performing well because we have kept our individual and collective eyes on the ball and have served our customers well. Let's continue to put our customers' needs first. Together as a team and individually as team members we have connected with our consumers in an inspiring manner. This clearly is at the core of our success. With continued focus on creating exciting and enticing experiences for our customers, we will win even in the most difficult times.
You have my sincere congratulations and my heartfelt thanks.
Cheers,
Matt
This letter contains forward-looking statements relating to such matters as anticipated financial performance, business prospects, and similar matters. Statements including the words "expected," "should," or variations of such words and similar expressions are forward-looking statements. We note that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of our business include, but are not limited to, the following: outcomes of litigation, changes in consumer spending patterns; changes in consumer preferences and overall economic conditions; the impact of competition and pricing; changes in weather patterns; the financial condition of the suppliers and; changes in existing or potential duties, tariffs or quotas and the application thereof; changes in relationships between the United States and foreign countries as well as between foreign countries; changes in relationships between Canada and foreign countries; economic and political instability in foreign countries, or restrictive actions by the governments of foreign countries in which suppliers and manufacturers from whom we source are located or in which we operate stores or otherwise do business; changes in trade, intellectual property, customs and/or tax laws; fluctuations in currency exchange rates; litigation including intellectual property and employment litigation; availability of suitable store locations on acceptable terms; the ability to terminate leases on acceptable terms; the ability to hire, train and retain associates; performance of other parties in strategic alliances; general economic, business and social conditions in the countries from which we source products, supplies or have or intend to open stores; performance of partners in joint ventures; the ability to comply with local laws in foreign countries; threats or acts of terrorism or war; strikes, work stoppages and/or slowdowns by unions that play a significant role in the manufacture, distribution or sale of product; congestion at major ocean ports; changes in commodity prices such as oil; and changes in the value of the dollar relative to the Chinese Yuan and other currencies. See also "Risk Factors" in the Company's Form 10-K for the year ended February 3, 2008.