Collective Brands Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Payless ShoeSource parent company Collective Brands (NYSE: PSS  ) gave the Street's profits estimates a swift kick in the shin last night. This morning, it's running away with Mr. Market's lunch money -- shooting 14% higher on earnings that bested the consensus by 12%.

So what: Somehow, Collective Brands took a mere 2% increase in third-quarter sales and transformed it into a 32% hike in profits. Nice!

Now what: Wholesale sales drove CB's revenue gains, but that's where the good news ends. Same-store sales for the quarter slipped 3%. So basically the quarter would've been a bust if not for marquee brand names like Saucony and Stride Rite, which CB sells through distributors like Dick's Sporting Goods (NYSE: DKS  ) , Foot Locker (NYSE: FL  ) , and Finish Line (Nasdaq: FINL  ) .

Conclusion: Some-where down the supply chain, some-one was buying those CB-branded shoes. It clearly wasn't at Payless, so it must have been at one of the other retailers. Now sounds like a good time to start shoe shopping for value at the shoe hawkers.

An alternative play: Strong sales of CB's shoes could bode well for shoe sales overall, or they could suggest market share loss at rivals like Nike (NYSE: NKE  ) and Under Armour (NYSE: UA  ) . Be alert for possible weakness in their sales numbers.

Want to keep closer track of Collective Brands' ups and downs? Add it to your watchlist.

Fool contributor Rich Smith does not have any position in any company named above. The Motley Fool has a disclosure policy

Nike is a Motley Fool Stock Advisor pick. Under Armour has been recommended by Motley Fool Rule Breakers and Motley Fool Hidden Gems, and The Fool owns shares of Under Armour. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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