Brown Shoe Company Reports Third Quarter 2012 Results

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Brown Shoe Company Reports Third Quarter 2012 Results

Record third quarter sales at Famous Footwear, with same-store-sales up 6.8%

Contemporary Fashion and Healthy Living third quarter wholesale sales up 5.2% and 2.1%, respectively


ST. LOUIS--(BUSINESS WIRE)-- Brown Shoe Company, Inc. (NYS: BWS) (brownshoe.com) today reported its third quarter 2012 financial results, with net sales of $732.2 million versus third quarter 2011 net sales of $713.8 million. Results for both the third quarter of 2012 and 2011 included sales of $15.6 million and $25.8 million, respectively, from brands and businesses the company has exited. Excluding exited brands, net sales were up 4.2% year-over-year.

Net earnings were $24.3 million, or $0.56 per diluted share, in the third quarter of 2012 versus $33.7 million, or $0.79 per diluted share, in 2011. Third quarter 2012 results included portfolio realignment charges of $2.6 million. Earnings for the third quarter of 2011 included a $21.6 million gain on the sale of AND 1, which was partially offset by portfolio realignment and integration related costs of $5.6 million. On an adjusted* basis, net earnings of $25.9 million, or $0.60 per diluted share, improved 18.3% compared to $21.9 million, or $0.51 per diluted share, in the prior year. Gross profit margin for the third quarter of 2012 improved to 39.0% from 38.7% in 2011.

"With the third quarter, we delivered not only solid back-to-school results, but also overall strong quarterly same-store-sales growth of 6.8% at Famous Footwear," said Diane Sullivan, president and chief executive officer of Brown Shoe Company. "We also saw improvement in sales for both our contemporary fashion and healthy living brand portfolios, as we continued to deliver trend-right products that are must-haves for consumers."

  

US$M, except per share
(unaudited)

   

13 Weeks

  

39 Weeks

  

52 Weeks

   3Q'12  3Q'11  Change  3Q'12  3Q'11  

Change

  3Q'12  3Q'11  Change 
Consolidated net sales $732.2  $713.8  2.6%$1,957.9  $1,953.9  0.2%$2,586.8  $2,558.5  1.1% 
Famous Footwear 436.8416.24.9%1,134.21,103.92.7%1,486.71,459.41.9% 
Wholesale Operations 232.6233.6(0.4%)650.7665.8(2.3%)855.8839.71.9% 
Specialty Retail 62.864.0(1.8%)172.9184.3(6.2%)244.3259.4(5.8%) 
Gross profit 285.8276.53.4%758.7758.10.1%997.2993.40.4% 
Margin 39.0%38.7%30 bps38.7%38.8%-10 bps38.6%38.8%-20 bps 
SG&A 242.4239.41.2%680.5707.6(3.8%)910.4934.4(2.6%) 
% of net sales 33.1%33.5%

-40 bps

34.7%36.2%-150 bps35.2%36.5%-130 bps 
Net restructuring, other special charges 2.34.7 21.37.1 37.89.6  
Impairment of intangible assets ------5.8----5.8---- 
Operating earnings 41.132.427.1%51.143.417.6%43.249.4(12.5%) 
% of net sales 5.6%4.5%110 bps2.6%2.2%40 bps1.7%1.9%-20 bps 
Net interest expense 5.46.6(17.5%)17.220.6(16.8%)23.026.0(11.3%) 
Earnings before income tax 35.725.838.5%33.922.848.8%20.223.4(13.8%) 
Tax rate 31.9%31.7% 31.6%32.0% 18.5%19.9%  

Net earnings from discontinued operations

 --16.1 --17.1 (1.4)

17.1

  
Net earnings $24.3$33.7(28.0%)$23.5$32.8(28.5%)$15.2$36.2(57.9%) 
Per diluted share $0.56$0.79(29.1%)$0.55$0.75(26.7%)$0.36$0.82(56.1%) 
Adjusted net earnings $25.9$21.918.3%$42.7$26.263.1%$46.8$31.150.5% 
Per diluted share   $0.60  $0.51  17.6%  $1.00  $0.60  66.7%  $1.09  $0.71  53.5% 
 

Third Quarter Highlights

Famous Footwear reported record third quarter 2012 sales of $436.8 million, a 4.9% year-over-year improvement, with good growth in boat shoes, running shoes and accessories. On a same-store-sales basis, the third quarter was up 6.8% over the prior year, with the back-to-school season up 5.5%. During the quarter, the company closed or relocated 11 stores and added 18 new stores, and average revenue per square foot improved 10.3% year-over-year.

Contemporary Fashion platform wholesale sales were up 5.2% in the third quarter, with the company's Sam Edelman, Franco Sarto and Fergie brands all delivering strong performance. In the Healthy Living portfolio, wholesale sales were up 2.1%, with contribution from LifeStride, Ryka and Dr. Scholl's Shoes. Excluding exited brands, Wholesale Operations sales were up 3.3% year-over-year in the third quarter.

Consolidated gross profit was up in the third quarter, while gross profit margin improved by approximately 30 basis points. SG&A for the third quarter was $242.4 million, or 33.1% of net sales down approximately 40 basis points from 33.5% of net sales in the prior year. For the quarter, adjusted operating earnings improved 15.0% to $43.7 million from $38.0 million in the third quarter of 2011.

Inventory at the end of the third quarter was $539.4 million, down 7.0% compared to $580.2 million in the prior year. Wholesale inventory was down 23.0%, while Famous Footwear inventory was flat.

At quarter-end, Brown Shoe Company had approximately $380.9 million in availability under its revolving credit facility and $40.9 million in cash and cash equivalents. The company's debt-to-capital ratio declined to 41.7% from 50.1% in the third quarter of 2011.

Financial Review and 2012 Outlook

"In the third quarter, we continued to deliver against our 2012 guidance, with strong revenue and earnings. As a result, we are raising our adjusted earnings per diluted share guidance range to $1.06 to $1.10 for 2012," said Russ Hammer, chief financial officer of Brown Shoe Company. "While we are confident in our ability to meet the lower end of our guidance range, we remain cautious about the potential impact from political and macroeconomic conditions beyond our control."

  
Metric    FY'12 
Consolidated net sales    $2.57 to $2.59 billion 
Famous Footwear same-store sales  Up low-single digits 
Wholesale Operations net sales  Down low- to mid-single digits, reflecting brand exits 
Gross profit margin  Up 20 to 40 basis points 
SG&A  $917 to $920 million 
Non-recurring costs  ~$34 million 
Net interest expense  $23 to $24 million 
Effective tax rate  32% to 35% 
Earnings per diluted share  $0.55 to $0.59 
Adjusted earnings per diluted share  $1.06 to $1.10 
Depreciation and amortization  $55 to $56 million 
Capital expenditures    $63 to $65 million 
  

Investor Conference Call

Brown Shoe Company will webcast an investor conference call at 9:30 a.m. ET today, Nov. 20, 2012. The webcast and accompanying slides will be available at brownshoe.com/investor. A live conference call will be available at (877) 217-9089 for analysts in North America or (706) 679-1723 for international analysts by using the conference ID 69647407. A replay will be available on the website for a limited period. Investors may also access the replay by dialing (855) 859-2056 in North America or (404) 537-3406 internationally and using the conference ID 69647407 through Dec. 4, 2012.

*Non-GAAP Financial Measures

In this press release, the company's financial results are provided both in accordance with generally accepted accounting principles (GAAP) and using certain non-GAAP financial measures. In particular, the company provides historic and estimated future operating earnings, net earnings and earnings per diluted share adjusted to exclude certain gains, charges and recoveries, which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help identify underlying trends in the company's business and provide useful information to both management and investors by excluding certain items that may not be indicative of the company's core operating results. These measures should not be considered a substitute for or superior to GAAP results.

Definitions

All references in this press release, outside of the condensed consolidated financial statements that follow, unless otherwise noted, related to net earnings (loss) attributable to Brown Shoe Company, Inc. and diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders, are presented as net earnings and earnings per diluted share, respectively.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release contains certain forward-looking statements and expectations regarding the company's future performance and the performance of its brands. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include (i) changing consumer demands, which may be influenced by consumers' disposable income, which in turn can be influenced by general economic conditions; (ii) intense competition within the footwear industry; (iii) rapidly changing fashion trends and purchasing patterns; (iv) customer concentration and increased consolidation in the retail industry; (v) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China, where ASG has manufacturing facilities and both ASG and Brown Shoe Company rely heavily on third-party manufacturing facilities for a significant amount of their inventory; (vi) Brown Shoe Company's ability to utilize its new information technology system to successfully execute its strategies, including integrating ASG's business; (vii) the ability to recruit and retain senior management and other key associates; (viii) the ability to attract, retain and maintain good relationships with licensors and protect intellectual property rights; (ix) the ability to secure/exit leases on favorable terms; (x) the ability to maintain relationships with current suppliers; (xi) compliance with applicable laws and standards with respect to lead content in paint and other product safety issues; (xii) the ability to source product at a pace consistent with increased demand for footwear; (xiii) the impact of rising prices in a potentially inflationary global environment; and (xiv) the ability of Brown Shoe Company to execute its portfolio realignment. The company's reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption Risk Factors in Item 1A of the company's Annual Report on Form 10-K for the year ended January 28, 2012, which information is incorporated by reference herein and updated by the company's Quarterly Reports on Form 10-Q. The company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.

About Brown Shoe Company

Brown Shoe Company is a $2.6 billion, global, footwear company that puts consumers and their needs first, by targeting the strategic Family, Healthy Living and Contemporary Fashion platforms. We have more than 130 years of experience, passion and product innovation and operate more than 1,300 Famous Footwear and Naturalizer retail stores across the United States, Canada and China. We also design, source and market many well-known wholesale shoe brands -- such as Naturalizer, Dr. Scholl's Shoes, LifeStride, Sam Edelman, Franco Sarto, Via Spiga, Vera Wang, Vince, Avia and Ryka -- across multiple distribution channels. In addition to our retail and wholesale operations, we maintain a strong online presence with our ecommerce sites, Famous.com, Naturalizer.com and Shoes.com. Visit brownshoe.com to learn more about us. Brown Shoe Company: feel good and live better... feet first!

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SCHEDULE 1
            
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
13 Weeks Ended39 Weeks Ended52 Weeks Ended
(Thousands, except per share data)October 27, 2012October 29, 2011October 27, 2012October 29, 2011October 27, 2012October 29, 2011
 
Net sales$732,169$713,788$1,957,889$1,953,933$2,586,780$2,558,457
Cost of goods sold 446,387  437,290  1,199,229  1,195,866  1,589,547  1,565,084 
 
Gross profit 285,782  276,498  758,660  758,067  997,233  993,373 
 
Selling and administrative expenses242,317239,422680,492707,476910,435934,401