Collective Brands (NYSE:PSS) is putting a good foot forward in integrating a major acquisition of Stride Rite, but it took a few steps back this quarter thanks to the weak economy and a hefty litigation charge. Total sales managed a 28% improvement with the help of Stride Rite's results, but same-store sales fell 6.5% on a tougher retailing environment.

Sperry's Top-Sider boat shoes and Saucony brands (both from the Stride Rite deal) are experiencing plenty of near-term popularity. International sales also moved firmly ahead, with Payless international sales up 14% on particular strength in Latin America, echoing the global strength that rivals such as Wolverine World Wide (NYSE:WWW), Skechers (NYSE:SKX), and Nike (NYSE:NKE) are seeing these days.

Collective Brands is also still finding plenty of ways to cut costs as it integrates Stride Rite. During the earnings conference call, management mentioned the ability to eliminate redundancies to the tune of $1.7 million on staffing and other reductions, as well as the purchasing clout that goes with being a bigger footwear company. Collective also closed a Topeka, Kan., distribution center and was able to offset the impact of higher freight costs that came about because of record oil prices.

Unfortunately, on May 5, Collective was hit with a $305 million judgment, which stems from a legal spat with German footwear giant adidas. By the looks of it, Collective was blindsided by the verdict, describing it as "excessive, unjustified and the product of legal error." It is fighting the judgment and took a related $30 million charge for the quarter.

Excluding the litigation charge and a minor inventory adjustment, Collective's first-quarter earnings were $0.67 per share, well past analyst expectations. Cash flow generation also improved, but it doesn't look like the rest of the year has as much upside potential, given the weaker domestic economy. As a result, management expects near-term comps to run below its long-term goal of growth in the low single digits. Throw in uncertainty on the legal front and a hefty debt load from the Stride Rite purchase, and it may be best to leave this stock on the shelves for now.   

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