June 4 - Footwear retailer Collective Brands Inc (PSS.N) posted a first-quarter profit that topped market estimates as lower expenses offset a drop in sales, but said it expects a challenging sales environment in the second quarter.

Stacey Bendet, Lela Rose and Laura Poretsky model their latest shoe creations for Payless ShoeSource

The company also said the license agreement for the Tommy Hilfiger adult footwear business which expired on December 31 would affect its performance in the current financial year.

"As a result, $54 million of sales and $9 million in operating profit will not recur in the remaining three quarters of 2009," Chief Administrative Officer Douglas Treff said in a conference call with analysts.

Collective Brands, which is the holding company of Payless ShoeSource, Stride Rite and Collective Licensing International, earned $38.0 million, or 59 cents a share, for the quarter ended May 2, compared with $19.7 million, or 30 cents a share, a year earlier.

"During the first quarter, we increased our market share, we lowered our operating cost structure, and we generated stronger cash flows," Chief Executive Matthew Rubel said in a statement.

Sales fell 7.5 percent to $862.9 million hurt by expiration of the Tommy Hilfiger license and foreign-currency exchange rates.

Analysts were expecting earnings of 46 cents a share, before items, on revenue of $884 million, according to Reuters Estimates.

Selling, general and administrative expenses fell 5 percent to $249.3 million in the quarter.

Shares of the Topeka, Kansas-based company were up 4 percent at $16.60 in trading after the bell. They closed at $15.89 Wednesday 3 June on the New York Stock Exchange.

(Reporting by Renju Jose in Bangalore; Editing by Deepak Kannan, Vinu Pilakkott)