Brown Shoe Reports Earnings for Second Quarter 2003
Earnings Per Share Rise 55% to $0.62 Versus $0.40 Last Year
Reiterates Full Year Earnings Per Share Guidance of $2.75
ST. LOUIS, MO, August 19, 2003 - Brown Shoe Company, Inc. (NYSE: BWS) reported net earnings increased 61.2 percent to $11,556,000 for the second fiscal quarter ended August 2, 2003, compared to year-ago earnings of $7,169,000. Earnings per diluted share for the period were up 55.0 percent to $0.62, from $0.40 per diluted share last year.
Consolidated net sales for the second quarter of 2003 were $458,384,000, compared to $456,255,000 in last year's second quarter, an increase of 0.5 percent.
For the first half of fiscal 2003, net earnings were up 38.9 percent, to $20,559,000 or $1.11 per diluted share, from $14,802,000, or $0.83 per diluted share, the year before. Sales increased 0.2 percent during the six months to $904,828,000, compared with $902,993,000 last year.
"Our second quarter results were driven by our ability to realize strong gross margins while maintaining tight expense controls," said Brown Shoe Chairman and CEO Ron Fromm. "This performance allowed us to exceed the expectations we set at the beginning of the quarter. Our strategy, which relied less on promotions and more on delivering fashion-trend-right assortments, proved highly successful in an environment where declines in consumer traffic were reported across the country."
Famous Footwear nearly doubled its operating earnings, more than offsetting the decline in operating earnings at wholesale. For the first half of 2003, operating margins at Famous Footwear improved to 4.4 percent from 3.3 percent for the year-ago period.
"Our wholesale results were affected by a retail environment that became over-inventoried, and by our planned investments in marketing and footwear design talent," said Fromm. "Our brands, however, continued to win market share in this tough environment. Among the top selling styles at U.S. department stores throughout the last five months, according to NPD, were Naturalizer, LifeStride and Original Dr. Scholl's."
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Second Quarter Retail Results
As previously reported, total sales at Famous Footwear, the company's 909-store family footwear chain, were $268,931,000 for the quarter, versus $270,756,000 for the same 13-week period last year. Same-store sales for the period were down 2.9 percent. Operating earnings for the chain improved to $12,904,000, versus year-ago operating earnings of $6,861,000, an increase of 88.1 percent.
Famous Footwear continues to benefit from buying, merchandising and inventory initiatives begun in 2001. These initiatives have led to higher margins, and are generating record-high purchase ratios, despite a decline in retail traffic.
"As we enter the third quarter's important back-to-school period -a time when millions of consumers come through our doors- the chain will maximize the seasonal opportunity to reintroduce consumers to our improved product assortments and updated store format by increasing its marketing spend," Fromm said.
Naturalizer Retail, the company's 386-store chain selling the Naturalizer brand of women's shoes in both the U.S. and Canada, posted combined second quarter sales of $49,673,000 compared to $50,204,000 for the same period last year, on a base of 26 fewer stores. Same-store sales increased 4.5 percent during the quarter for the 213 U.S.-based stores, and decreased 1.0 percent for the 173 Canadian stores. Operating loss for the quarter was $1,012,000 compared to an operating profit of $33,000 a year-ago, primarily due to the promotional environment and same-store sales decrease in the Canadian retail business.
Year-to-date, Famous Footwear has opened 32 new stores and closed 41 stores that were in less desirable locations; Naturalizer U.S. has opened 2 new stores and closed 6; and Naturalizer Canada opened 1 new store.
Second Quarter Wholesale Results
Wholesale sales for the quarter were $137,903,000, up 2.8 percent versus $134,207,000 last year. Wholesale sales for the LifeStride brand were up 26 percent. While wholesale sales for Naturalizer were down 4 percent versus the year ago quarter, both brands gained market share in the department store channel as measured by NPD.
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Operating earnings for the wholesale businesses were $12,568,000 compared to $13,168,000 for the prior-year quarter, a decrease of 4.6 percent. Improvements in wholesale gross margins were offset by increased investment spending in marketing and talent to support the further building of wholesale brands and licenses. Also impacting performance was the highly promotional U.S. department store environment, as well as difficult market conditions and lower wholesale margins in Canada.
At the end of the quarter, unshipped wholesale orders were up 3 percent versus quarter-end last year.
"As we look ahead, we remain excited by the opportunities afforded us by our combined wholesale and retail model and strengthened operating platform. Purchase ratios validate that we have improved the Famous Footwear shopping experience. Our ability to consistently deliver wholesale shoes, which rank among the top ten patterns, demonstrates the benefits of our product testing capabilities and our more closely allied product development teams. In addition, further efficiencies created by our IMPACT initiatives continue to allow for interest savings as we run the business with lower inventory levels," Fromm said.
Forward-Looking Guidance:
With respect to forward-looking guidance for fiscal 2003, Brown Shoe reiterates its earnings per share estimate of $2.75, which compares favorably to fiscal 2002 earnings per share of $2.52. This guidance is predicated upon the continuing positive low-single-digit same-store retail performance achieved with early back-to-school business, but anticipates a highly promotional marketplace. Therefore, looking toward the second half of 2003, the Company expects:
"In summary, increased investment spending in marketing and in stores at Famous Footwear is expected to offset our strengthening business at Wholesale. We believe these planned investments are necessary and will result in many years of sustained growth for our Company. Brown Shoe therefore estimates earnings per share will be in the range of $1.00 to $1.10 for the third quarter versus $1.18 for the year-ago quarter," Fromm said.
Second Quarter Earnings and Conference Call
Brown Shoe will hold a conference call to discuss these results today at 4:30 p.m. Eastern Time. While the question-and-answer session of the call will be limited to institutional analysts and investors, retail brokers and individual investors are invited to attend via a live web-cast to be hosted at http://www.companyboardroom.com.At the website, type in BWS to locate the broadcast.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements that are subject to various risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, without limitation, the risks detailed in the Company's Annual Report on Form 10-K, and those described in other documents and reports filed from time to time with the Securities and Exchange Commission, press releases and other communications. These risks include, but are not limited to, risks related to general economic conditions and the consumers preferences and purchasing patterns, which may be influenced by consumers' disposable income; intense competition within the footwear industry, particularly in the area of style, price and quality, and the Company's ability to anticipate and respond to changing merchandise and fashion trends; the uncertainties of pending litigation and other matters, as described in the Company's reports as well as the expense and diversion of management time and attention, regardless of the outcome; and political and economic conditions or other threats to continued and uninterrupted flow of inventory from Brazil and China, where the Company relies heavily on third-party manufacturing facilities for a significant amount of its inventory. The Company's reports to the Securities and Exchange Commission contain detailed information related to such factors.
Brown Shoe is a $1.84 billion footwear company with worldwide operations. The company operates the 900-store Famous Footwear chain, which sells brand name shoes for less. It also operates 400 Naturalizer stores in the U.S. and Canada that sell the Naturalizer brand of shoes and accessories. Brown Shoe, through its wholesale divisions, owns and markets leading footwear brands including Naturalizer, LifeStride, Connie, Buster Brown; it also markets licensed brands including Dr. Scholl's and Carlos by Carlos Santana for adults, and Barbie, Spider-Man and Bob-the-Builder character footwear for children. Brown Shoe press releases are available on the company's web site at www.brownshoe.com.
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BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
2003 | 2002 | 2003 | 2002 | |||||||||
| Net Sales | 458,384 | 456,255 | 904,828 | 902,993 | ||||||||
| Cost of Goods Sold | 270,519 | 278,418 | 531,836 | 544,550 | ||||||||
| Gross Profit | 187,865 | 177,837 | 372,992 | 358,443 | ||||||||
| Selling & Administrative Expenses | 169,274 | 163,336 | 338,823 | 328,571 | ||||||||
| Operating Earnings | 18,591 | 14,501 | 34,169 | 29,872 | ||||||||
| Interest Expense | 2,517 | 3,038 | 5,423 | 6,666 | ||||||||
| Other (Income) Expense | (129 | ) | 1,335 | 16 | 1,945 | |||||||
| Earnings Before Income Taxes | 16,203 | 10,128 | 28,730 | 21,261 | ||||||||
| Income Tax Provision | 4,647 | 2,959 | 8,171 | 6,459 | ||||||||
| NET EARNINGS | 11,556 | 7,169 | 20,559 | 14,802 | ||||||||
| Basis Net Earnings per Common Share | .66 | .41 | 1.17 | .85 | ||||||||
| Diluted Net Earnings per Common Share | .62 | .40 | 1.11 | .83 | ||||||||
| Basic Number of Shares | 17,631 | 17,368 | 17,570 | 17,326 | ||||||||
| Diluted Number of Shares | 18,532 | 18,096 | 18,463 | 17,902 | ||||||||
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BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
2003 | 2002 | |||||
| ASSETS | ||||||
| Cash and Cash Investments | $ | 50,406 | $ | 40,507 | ||
| Receivables, Net | 75,271 | 73,516 | ||||
| Inventories, Net | 417,731 | 410,167 | ||||
| Other Current Assets | 26,405 | 34,622 | ||||
| Total Current Assets | 569,813 | 558,812 | ||||
| Property, Plant and Equipment - Net | 87,599 | 83,433 | ||||
| Other Assets | 97,678 | 97,711 | ||||
| $ | 755,090 | $ | 739,956 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
| Notes Payable | $ | 19,000 | $ | 36,200 | ||
| Trade Accounts Payable | 174,541 | 177,558 | ||||
| Accrued Expenses | 90,653 | 93,975 | ||||
| Income Taxes | 12,422 | 3,839 | ||||
| Current Maturities of Long-Term Debt | 10,000 | 20,000 | ||||
| Total Current Liabilities | 306,616 | 331,572 | ||||
| Long-Term Debt and Capitalized leases | 103,494 | 113,492 | ||||
| Other Liabilities | 24,207 | 26,787 | ||||
| Shareholders' Equity | 320,773 | 268,105 | ||||
| $ | 755,090 | $ | 739,956 | |||
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BROWN SHOE COMPANY, INC.
CONSOLIDATED CASH FLOWS
(Unaudited)
(Thousands)
2003 | 2002 | |||||
| OPERATING ACTIVITIES: | ||||||
| Net earnings | $ | 20,559 | $ | 14,802 | ||
| Adjustments to reconcile Net earnings to | ||||||
| Net cash provided by operating activities: | ||||||
| Depreciation and amortization | 12,869 | 11,700 | ||||
| Changes in operating assets and liabilities: | ||||||
| Receivables | 7,215 | (5,211 | ) | |||
| Inventories | (25,147 | ) | (13,940 | ) | ||
| Prepaid expenses and other current assets | (5,427 | ) | 4,616 | |||
| Trade payables and accrued expenses | 35,184 | 63,430 | ||||
| Income taxes | 7,070 | 3,289 | ||||
| Other, net | 2,075 | (1,932 | ) | |||
| Net cash provided by operating activities | 54,398 | 76,754 | ||||
| INVESTING ACTIVITIES: | ||||||
| Capital expenditures | (16,146 | ) | (10,159 | ) | ||
| Other | 248 | - | ||||
| Net cash used by investing activities | (15,898 | ) | (10,159 | ) | ||
| FINANCING ACTIVITIES: | ||||||
| Decrease in short-term notes payable | (10,000 | ) | (28,050 | ) | ||
| Debt issuance costs | - | (265 | ) | |||
| Repayments for long-term debt | (10,000 | ) | (18,550 | ) | ||
| Proceeds from issuance of common stock | 3,342 | 1,581 | ||||
| Dividends paid | (3,557 | ) | (3,516 | ) | ||
| Net cash used by financing activities | (20,215 | ) | (48,800 | ) | ||
| Increase in cash and cash equivalents | 18,285 | 17,795 | ||||
| Cash and cash equivalents at beginning of year | 32,121 | 22,712 | ||||
| Cash and cash equivalents at end of period | $ | 50,406 | $ | 40,507 | ||
Note: Certain prior period amounts have been reclassified in the Consolidated Statements of Earnings, Balance Sheets and Cash Flows to conform to current period presentation. These reclassifications did not affect net earnings. | ||||||
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