Shares of shoe retailer Collective Brands (NYSE:PSS) surged 14% to $17.20 in AH trading Tuesday after the company reported Q3 earnings results ahead of expectations. Q3 was the company's first financial reporting period since Collective Brands bought Stride Rite on August 17. The company posted a drop in Q3 net income to $25.5 million ($0.39/share) from $28.9 million ($0.43) a year ago; income excluding items came in at $33.3 million ($0.51/share), well ahead of analyst expectations of $0.32. Q3 revenue was $830.7 million against $703.4 million in the year-ago quarter. Analysts had forecast revenue of $848 million. "Results in the third quarter show that our hybrid business model gives us strength through diversification even in a challenging business environment," said CEO Matt Rubel. "The Stride Rite integration is progressing well, and we continue to undertake initiatives which will drive long term earnings in our business higher." Collective is projecting a mid-single-digit drop in Q4 comp sales and a 500-600 basis point fall in gross margin. Capex should come to about $175 million and $150 million for 2007 and 2008, respectively. The Stride Rite acquisition is expected to contribute to adjusted EPS in 2008, but not to net EPS.Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.