TOPEKA, KS -- (MARKET WIRE) -- 05/12/08 -- 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:
-- 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
