Athlete's Foot Stores Inc. paid $1.5 million to buy back seven of its Washington-area franchises from Diversified Retail Group Inc. of Rockville, which is reorganizing after a U.S. Bankruptcy Court filing in August.

The stores, four of which are in the District, will become corporate operations.

The Atlanta-based company already runs a dozen stores in the area. The remainder of the 26 local Athlete's Foot stores are run by a number of different franchisees.

No layoffs are planned in the switch and company officials said they will renovate and restock the stores in the next few months.

"We did not want to lose our place in the marketplace," said Glenn Hemmerle, president and chief executive of Athlete's Foot. "With the negative publicity after the bankruptcy of Diversified, we felt it was important to keep these profitable stores going."

Diversified, which also operates other specialty stores such as Stride Rite shoes and Flair Graphics, continues to hold nine other Athlete's Foot store franchises in the area. But sources say the company is seeking to sell six to another retail group and will convert the three others from Athlete's Foot stores to another name.

Diversified Chairman Leonard Briskman said his company will operate the remaining Athlete's Foot stores for now, using the cash from the sale to improve operations.

"We feel the sale will take us a long way to getting back on our feet," said Briskman. "We plan on purchasing more products for stores and improving our overall financial picture."

Diversified stumbled this summer in the face of a softening retail environment, coming just after a costly expansion. At the time, Briskman blamed a tightening of credit by banks as the main cause of his publicly held company's filing for protection from its creditors in bankruptcy court.

Retail analysts also cited increased competition from department stores and other aggressive specialty operations such as Foot Locker.