Collective Brands (NYSE: PSS), a footwear retailer that competes with companies such as Wal-Mart (NYSE: WMT) and Kohl's (NYSE: KSS), issued Q1 results on Wednesday after the bell. The business earned 59 cents per diluted share. That represented a decline over last year's results which, on an adjusted basis, calculated out to 66 cents per share.

That's not the only disappointing news. You also have a sales decline, impacted by currency effects (of course), as well as the expiration of a license related to the Tommy Hilfiger brand. Also, same-store sales dipped by 4.8% on a reported basis, and 3.2% after the exclusion of currency translation. As can be seen, you can look at same-store sales any way you'd like, but in the end, they went down, and that is never healthy for a retailer. A retailer always wants to see rising comps.

DSW (NYSE: DSW) issued a pretty short press release detailing its Q4 earnings on Wednesday. Can't blame management about that. There really wasn't much to say, other than the data did not look appealing.

The footwear business reported a loss of 17 cents per share. In the previous year's Q4, there was a profit of 2 cents per share (I'm sure DSW is looking on that time period with bitter nostalgia). Unfortunately, the market was looking for a loss of only 12 cents per share according to this.

Collective Brands (NYSE: PSS - option chain) shares have moved higher today after the company, which includes Payless Shoe Source and Stride Rite reported a third-quarter profit of $47.5 million, or 75 cents per share, on revenue of $862.7 million. PSS's adjusted profit of 42 cents per share met analysts' estimates of 42 cents per share on revenue of $840.7 million. In this environment, merely meeting estimates warrants a 20+% jump in stock price. It seems that PSS is keeping up its profits the same way discounters like Family Dollar (NYSE: FDO) have by taking advantage of cost-conscious consumers. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on PSS.

PSS opened this morning at $7.76. So far today the stock has hit a low of $7.68 and a high of $9.70. As of 12:00, PSS is trading at $9.11, up $1.85 (25.5%). The chart for neutral and S&P gives PSS a 3 STARS (out of 5) hold ranking.

For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $5 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 19.0% return in just three and a half months as long as PSS is above $5 at March expiration. Collective would have to fall by more than 45% before we would start to lose money. Learn more about this type of trade here.

PSS hasn't been below $5 at all except for one day in the past year and has shown support around $6.50 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in PSS or FDO.

Collective Brands (NYSE: PSS), operator of Payless ShoeSource and owner of the Stride Rite brand, reported Q1 earnings on Wednesday. Revenues increased 28% to $932 million. Pretty cool increase. Adjusting earnings per share for a litigation charge and an inventory issue, net income came in at $0.71 per share versus the $0.59 per share booked a year ago.

That's decent growth, but there are a couple things to consider here. First, the top line wasn't fully organic, as it includes the Stride Rite acquisition (remember that Payless ShoeSource bought out Stride Rite and became Collective Brands). Second, same-store sales did not confirm any sort of underlying healthy trend. Comps declined a nasty 6.5%. So, even though earnings expectations were beat by a wide margin according to MarketWatch (analysts seemed to think the shoe concern would do about $0.56 per share), I'm not fully impressed.

And let's go back to that litigation thing. The earnings release discusses the risk involved with an unfavorable ruling vis-a-vis the retailer's battle with Adidas. That's another strike against the company for me. From a price-action perspective, Collective Brands' stock has been rather weak as of late, and it currently sits much closer to the 52-week low than it does to the 52-week high.

Collective Brands (NYSE: PSS) is a global footwear and lifestyle brand holding company, formed by the August merger of Payless ShoeSource and Stride Rite. Its Payless ShoeSource division is the largest specialty family footwear retailer in the Western Hemisphere. Its Stride Rite division sells athletic branded footwear and high-quality children's shoes, primarily through wholesaling arrangements. Its Collective Licensing International unit specializes in brand management and global licensing of an expanding portfolio of youth, lifestyle and fashion athletic brands. Foot Locker (NYSE: FL) and Wal-Mart (NYSE: WMT) are major competitors.

The company pleased investors earlier in the month, when it reported Q3 EPS of 39 cents. That was seven cents better than the average analyst estimate. Q3 revenues rose 18% (y/y) to $830.7 million. The CEO attributed strength to diversification and the new hybrid business model. Caris & Company subsequently upgraded the stock to "above average" and boosted its price target to $22.

MOST NOTEWORTHY: FreeSeas, Nektar, Altus Pharmaceuticals and AbitibiBowater were today's noteworthy initiations:

• Cantor initiated shares of FreeSeas (NASDAQ: FREE) with a Buy rating and $10 target, as they expect the company to benefit from the continued strength in the dry bulk market.
  
• JP Morgan resumed coverage of Nektar (NASDAQ: NKTR) with an Overweight rating, as they view weakness from the discontinuation of Exubera as a buying opportunity given the company's base royalty business and pipeline opportunities.
  
• Altus Pharmaceuticals (NASDAQ: ALTU) was initiated with a Buy rating and $19 target at Jefferies. The firm expects news flow from the company's two lead products over the next 6-12 months that should act as catalysts.
  
• AbitibiBowater (NYSE: ABH) was initiated with a Sell rating and $18 target at Banc of America, as they are cautious on newsprint trends; the firm recommends reducing existing positions.

OTHER INITIATIONS:

• Caris initiated Collective Brands (NYSE: PSS) with an Average rating and $18 target and Under Armour (NYSE: UA) with an Above Average rating.
  
• Stifel started shares of Patriot Coal (NYSE: PCX) with a Hold rating.
  
• PetroChina (NYSE: PTR) was initiated with a Sell rating at Goldman.

MOST NOTEWORTHY: Wal-Mart (WMT), Coldwater Creek (CWTR), Select Comfort (SCSS) and Anadys Pharma (ANDS) were today's noteworthy downgrades:

• Merrill downgraded Wal-Mart (NYSE: WMT) to Sell from Neutral citing expectations of margin erosion.

• Brean Murray cut Coldwater Creek (NASDAQ: CWTR) to Hold from Buy following their disappointing Q2 report and outlook.

• Select Comfort (NASDAQ: SCSS) was cut to Strong Sell from Hold at Matrix based on weak performance and high risk characteristics.

• Anadys Pharma (NASDAQ: ANDS) was downgraded to Neutral from Outperform at Cowen, citing pipeline setbacks over the last 12 months, and lack of near-term catalysts...

OTHER DOWNGRADES:

• Collective Brands (NYSE: PSS) was cut to Hold from Aggressive Buy.

• Sigma Designs (NASDAQ: SIGM) was cut to Hold from Buy at Needham.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Collective Brands (NYSE: PSS) is the company that formed as a result of Payless Shoe Source's acquisition of Stride Rite. The boring, innocuous name aside, CEO Matt Rubel has pretty ambitious plans. According to the Associated Press, Collective aims to become a "a brand-building powerhouse, injecting a heavy dose of marketing savvy into a stubbornly fragmented and sleepy industry". More acquisitions are believed to be on the way.

Why is this interesting for investors? As I wrote in a recent piece, there are a a lot of very cheap-looking shoe stocks on the market right now. I have found several manufacturers and a few retailers trading at what appear to be very cheap valuations. Their cheapness combined with Collective's acquisitiveness could lead to more deals at nice premiums for investors.

While I'm not a fan of buying on essentially blind speculation of buyouts, these stocks look cheap on their own merits, and may well be good investments even without industry consolidation. But the rise of Collective Brands could make them more timely.