Brown Shoe Company Reports First Quarter 2013 Results

Brown Shoe Company Reports First Quarter 2013 Results

Consolidated gross margin improves 160 basis points, driven by both wholesale and retail

Famous Footwear reports record first quarter operating profit


ST. LOUIS--(BUSINESS WIRE)-- Brown Shoe Company, Inc. (NYSE: BWS, brownshoe.com) today reported first quarter 2013 financial results, with net sales of $588.7 million versus first quarter 2012 net sales of $598.2 million, reflecting an adjustment for discontinued operations. However, results for the first quarter of 2013 and 2012 also included sales of $0.2 million and $10.2 million, respectively, from brands and businesses the company has exited. Excluding exited brands, year-over-year net sales were up slightly in the quarter.

On a GAAP basis, the company reported a net loss of ($10.8) million, or ($0.26) per diluted share, in the first quarter of 2013 versus earnings of $1.7 million, or $0.04 per diluted share, in the prior year. First quarter 2013 results included $28.8 million of costs associated with our ongoing portfolio realignment efforts, while earnings for the first quarter of 2012 included $12.8 million of portfolio realignment and ASG integration costs.

On an adjusted(1)basis, net earnings of $13.8 million, or $0.32 per diluted share, improved 37.7% compared to $10.0 million, or $0.23 per diluted share, in the prior year. Gross profit margin for the first quarter of 2013 improved to 40.8% from 39.2% in 2012.

"In addition to stronger-than-expected adjusted EPS of $0.32, we reported record first quarter operating profit of $29 million at Famous Footwear, as we saw improved consumer conversion related to our strategic real estate, inventory and omni-channel efforts," said Diane Sullivan, president and chief executive officer of Brown Shoe Company. "At wholesale, we refined our portfolio, with the recent sale of Avia and Nevados, and we intend to use the related proceeds in our 2013 debt reduction efforts. In the first quarter, prior to the divestiture, we reduced our short-term borrowings by $39 million."

US$M, except per share (unaudited)

13 Weeks

1Q

1Q'13

1Q'12

Change

Consolidated net sales

$588.7

$598.2

(1.6%)

Famous Footwear

352.3

347.1

1.5%

Wholesale Operations

181.6

194.9

(6.8%)

Specialty Retail

54.8

56.1

(2.5%)

Gross profit

240.0

234.3

2.5%

Margin

40.8%

39.2%

160 bps

SG&A

213.8

211.5

1.1%

% of net sales

36.3%

35.4%

90 bps

Restructuring and other special charges, net

5.2

10.2

(49.2%)

Operating earnings

21.0

12.6

66.5%

% of net sales

3.6%

2.1%

150 bps

Net interest expense

5.7

6.0

(5.0%)

Earnings from continuing operations before income taxes

15.3

6.6

130.6%

Tax rate

51.9%

39.4%

1250 bps

Net (loss) from discontinued operations

(18.2)

(2.4)

659.9%

Net (loss) earnings

($10.8)

$1.7

(734.9%)

Per diluted share

($0.26)

$0.04

(750.0%)

Adjusted net earnings

$13.8

$10.0

37.7%

Per diluted share

$0.32

$0.23

39.1%

First Quarter Highlights

Famous Footwear first quarter 2013 sales of $352.3 million were up 1.5% year-over-year, with good growth in athletic and canvas shoe styles as the quarter progressed. Same-store-sales(2)were up 1.1%over the prior year, as strong same-store-sales of 14.2% in April helped offset weather related weakness in February and March. During the quarter, the company closed or relocated 13 stores and added 12 new stores, as average revenue per square foot continued to improve.

Wholesale sales were down 2.9% in the first quarter, excluding discontinued and exited brands. The company's Contemporary Fashion wholesale sales were down 2.5% in the first quarter, while Healthy Living wholesale sales were down 3.1%, both excluding exited brands. Wholesale gross margin of 31.8% expanded by 310 basis points during the quarter. Both the Contemporary Fashion and Healthy Living platforms contributed to the improvement, due to a more profitable brand mix, higher initial margins and lower inventory markdown requirements.

Consolidated gross profit of $240.0 million was up 2.5% in the first quarter, while gross margin of 40.8% improved by approximately 160 basis points versus the prior year. SG&A for the first quarter was $213.8 million, or 36.3% of net sales, up approximately 90 basis points from 35.4% of net sales in the prior year. For the quarter, operating margins improved 150 basis points to 3.6%.

Inventory at the end of the first quarter was $485.9 million, up 2.2% compared to $475.6 million in the prior year. Wholesale inventory was up 2.4%, while Famous Footwear inventory was up 1.3%.

At quarter-end, Brown Shoe Company had $413.8 million in availability under its revolving credit facility and $44.7 million in cash and cash equivalents. The company's debt-to-capital ratio improved to 39.1% from 43.9% in the first quarter of 2012.

Financial Review and 2013 Outlook

"Despite uncooperative weather in February and March, we were able to deliver better than expected results for the quarter," said Russ Hammer, chief financial officer of Brown Shoe Company. "To reflect our strong performance in the first quarter, we are raising our full-year adjusted EPS guidance to $1.22 to $1.29. However, due to the timing of back-to-school, our biggest sales quarter remains the third quarter."

Metric

FY'13

Consolidated net sales

$2.54 to $2.57 billion

Famous Footwear same-store sales

Up low-single digits

Wholesale Operations net sales

Up low-single digits, excluding brand exits

Gross profit margin

Up 30 to 50 basis points

SG&A

$900 to $910 million

Non-recurring costs

$32 to $34 million

Net interest expense

$21 to $22 million

Effective tax rate, on adjusted basis

32% to 33%

Earnings per diluted share

$0.63 to $0.70

Adjusted earnings per diluted share

$1.22 to $1.29

Depreciation and amortization

$54 to $56 million

Capital expenditures

$50 to $55 million

Investor Conference Call

Brown Shoe Company will webcast an investor conference call at 9:00 a.m. ET today, May 29, 2013. The webcast and slides will be available at investor.brownshoe.com/news/events. 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 70291031.

A replay will be available at investor.brownshoe.com/news/events/archive 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 70291031 through June 12, 2013.

(1) 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 gross profit, 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. Reconciliations to the applicable GAAP financial measures have been included in the attached schedules.

(2) Same-Stores-Sales

For comparability purposes, same-store-sales for the first quarter of 2013 is calculated based on retail sales for weeks 1 through 13 in 2013 as compared to weeks 2 through 14 in 2012. This adjustment is due to the impact of the 53rd week of sales in the fourth quarter of fiscal 2012. The calculation for the first quarter of 2013 appropriately reflects the change in same-store-sales on a true retail calendar basis.

Definitions

All references in this press release, outside of the condensed consolidated financial statements that follow, unless otherwise noted, related to net earnings 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 Brown Shoe Company relies heavily on manufacturing facilities for a significant amount of their inventory; (vi) the ability to recruit and retain senior management and other key associates; (vii) the ability to attract, retain and maintain good relationships with licensors and protect intellectual property rights; (viii) the ability to secure/exit leases on favorable terms; (ix) the ability to maintain relationships with current suppliers; (x) compliance with applicable laws and standards with respect to lead content in paint and other product safety issues; (xi) the ability to source product at a pace consistent with increased demand for footwear; and (xii) the impact of rising prices in a potentially inflationary global environment. 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 Feb. 2, 2013, 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 whose shoes are worn by people of all ages, from all walks of life. Our products are available virtually everywhere — in the nearly 1,300 Famous Footwear and Naturalizer retail stores we operate, in hundreds of major department and specialty stores, on 14 branded ecommerce sites, and on many additional third-party retail websites. Through our broad range of products, we serve three key market segments. Our Family brands — Famous Footwear, Famous.com, and shoes.com — are one-stop-shopping destinations for high quality, affordable styles for a family's every occasion. Active people who want comfort, style and performance can look to our Healthy Living brands — Naturalizer, Dr. Scholl's Shoes, LifeStride and Ryka. Our Contemporary Fashion brands — Via Spiga, Vince, Sam Edelman, Franco Sarto, Carlos Santana and Fergie Footwear — keep fashionistas in step with the latest trends. At Brown Shoe Company, we inspire people to feel good and live better... feet first!

SCHEDULE 1

BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

13 Weeks Ended

(Thousands, except per share data)

May 4, 2013

April 28, 2012

Net sales

$

588,656

$

598,179

Cost of goods sold

348,640

363,925

Gross profit

240,016

234,254

Selling and administrative expenses

213,879

211,475

Restructuring and other special charges, net

5,179

10,188

Operating earnings

20,958

12,591

Interest expense

(5,721

)

(6,036

)

Interest income

68

83

Earnings before income taxes from continuing operations

15,305

6,638

Income tax provision

(7,946

)

(2,616

)

Net earnings from continuing operations

7,359

4,022

Discontinued operations:

Loss from discontinued operations, net of tax of $3,583 in 2013 and $1,623 in 2012

(5,637

)

(2,394

)

Impairment charge on net assets of discontinued operations, net of tax of $0

(12,554

)

-

Net loss from discontinued operations

(18,191

)

(2,394

)

Net (loss) earnings

(10,832

)

1,628

Net loss attributable to noncontrolling interests

(70

)

(67

)

Net (loss) earnings attributable to Brown Shoe Company, Inc.

$

(10,762

)

$

1,695

Basic earnings (loss) per common share:

From continuing operations

$

0.18

$

0.10

From discontinued operations

(0.44

)

(0.06

)

Basic (loss) earnings per common share attributable to

Brown Shoe Company, Inc. shareholders

$

(0.26

)

$

0.04

Diluted earnings (loss) per common share:

From continuing operations

$

0.18

$

0.10

From discontinued operations

(0.44

)

(0.06

)

Diluted (loss) earnings per common share attributable to

Brown Shoe Company, Inc. shareholders

$

(0.26

)

$

0.04

Basic number of shares

41,070

40,422

Diluted number of shares

41,268

40,744

SCHEDULE 2

BROWN SHOE COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Thousands)

May 4, 2013

April 28, 2012

February 2, 2013

ASSETS

Cash and cash equivalents

$

44,669

$

39,792

$

68,223

Receivables, net

96,734

115,911

111,392

Inventories, net

485,923

475,557

503,688

Prepaid expenses and other current assets

43,167

41,375

42,016

Current assets - held for sale

12,496

-

-

Current assets - discontinued operations

39,159

65,515

47,109

Total current assets

722,148

738,150

772,428

Property and equipment, net

137,299

124,551

144,856

Goodwill and intangible assets, net

68,442

81,975

82,504

Other assets

115,591

137,479

119,695

Non current assets - discontinued operations

51,227

58,667

51,776

Total assets

$

1,094,707

$

1,140,822

$

1,171,259

LIABILITIES AND EQUITY

Borrowings under revolving credit agreement

$

66,000

$

124,000

$

105,000

Trade accounts payable

188,948

172,894

213,660

Other accrued expenses

118,632

129,852