Adidas shoe left; Payless shoe right.
Adidas shoe left; Payless shoe right.

Collective Brands Inc. is entering its franchised expansion with a foray into the Middle East as it looks for global growth opportunities.

The Topeka-based company, which owns and operates the Payless ShoeSource and Stride Rite chains, on Wednesday announced a multi-year agreement with M.H. Alshaya, a franchisee in the Middle East, to open up to 200 Payless stores in the region. M.H. Alshaya also operates retail locations for Starbucks, H&M, MAC and TheBody Shop.

The footwear retailer also on Wednesday reported a drop in net income to $8.1 million, or 13 cents a share, from $25 million, or 38 cents a share, a year ago, after the company set aside $36.2 million for litigation costs related to trademark and copyright issues raised by Adidas and K-Swiss. Without the 41 cent-a-share charge, net earnings would have been 54 cents a share.

Revenues for the quarter ended Aug. 2 were $911.7 million compared with $699.3 million for the same period a year ago. That included sales from Stride Rite, which was acquired in mid-August of 2007. The results beat most Wall Street forecasts.

Matt Rubel, company chairman and CEO, said Wednesday that the expansion into the Middle East met the criteria Collective is looking for as it grows internationally — primarily in emerging middle-class markets with growing disposable incomes.

Rubel said the franchising model is attractive because it requires minimal investment and provides a high rate of return on invested capital.

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