ST. LOUIS, MISSOURI, February 25, 2004 -- Brown Shoe Company, Inc. (NYSE: BWS) today announced net earnings of $2.52 per diluted share for the 52-week fiscal year ended January 31, 2004, even with last year's diluted net earnings per share of $2.52. Net earnings were $46.9 million versus $45.2 million in fiscal 2002. Fiscal 2003 net earnings included special charges of $2.7 million after-tax, or $0.14 per diluted share, to close Brown Shoe's last Canadian footwear factory, and $2.0 million after-tax, or $0.11 per diluted share, related to the Redfield class action litigation. Excluding those charges, net earnings were $51.6 million or $2.77 per diluted share. Fiscal 2002 net earnings included after-tax gains from the recovery of reserves established in fiscal 2001, of $0.5 million, or $0.03 per diluted share, to close under-performing Naturalizer retail stores and $0.7 million, or $0.04 per diluted share, from the severance reserve established to implement a new shared services platform. Excluding these recoveries, net earnings were $44.0 million, or $2.45 per diluted share.
Excluding all special charges and recoveries, Brown Shoe net earnings per share for fiscal 2003 rose 13.1% versus 2002. Sales for the 52 weeks of fiscal 2003 were $1.832 billion, a decrease of 0.5% from $1.841 billion for the 52 weeks of fiscal 2002.
"Overall, fiscal 2003 was a good year for Brown Shoe as operating earnings increased by 14.4% at Famous Footwear, and by 2.3% at Wholesale, which includes the costs to close our last remaining Canadian factory," said Ron Fromm, Brown Shoe Chairman and CEO. "Furthermore, our 2003 results reflect significant investments we made in several key areas: new systems, updating our stores, marketing and talent, which will help pave the way for future growth of the Company."
"Looking ahead, we expect to continue investing in our operating platform, which will lead to added growth opportunities and result in enhanced shareholder value," Fromm said. "We remain committed to driving traffic at our Famous Footwear stores, building greater preference for our wholesale brands, and integrating the Bass brand into our wholesale portfolio, as well as investing in a new enterprise-wide initiative to improve our global supply chain."
Called Project ExCEL (Exceeding Customer Expectations through Leadership), the new supply chain initiative will standardize product development processes, implement capacity and demand planning functions, and improve product flow - - incorporating its Test + Learn model - for internal and external retail partners. While this initiative will require significant investment in 2004 and 2005 (already reflected in the Company's prior guidance for those periods), Brown Shoe believes material benefits will be achieved in 2006 and beyond.
Full-Year Results for Famous Footwear
As a result of higher gross margins and continuing operating improvements, Famous Footwear achieved a 14.4% increase in its full-year operating earnings to $53.0 million, versus $46.3 million for fiscal 2002. Sales were $1.074 billion in fiscal 2003 versus $1.075 billion in fiscal 2002. This 0.1% decrease reflected 12 fewer average stores and a 2.4% decrease in same-store sales, due primarily to lower traffic counts throughout most of the year. However, because of an improved mix of trend-right, in-season product, both margin levels and the percentage of customers making purchases improved.
In fiscal 2003, 57 stores were opened and 82 were closed, leaving the division with 893 stores at year-end. The new stores averaged about 8,000 square feet each, while the closed stores averaged about 5,000 square feet. Accordingly, total square footage increased slightly to 6.2 million feet at the end of fiscal 2003. For 2004, plans are to open about 70 stores and close about 50 stores.
"The Famous Footwear management team has done an outstanding job as evidenced by the strong margins, improved product assortments and well controlled inventories that were $16 million below year-end 2002," said Fromm. "In 2004, we believe we can improve store traffic levels and look to achieve same-store sales improvements of 1% to 2% over 2003."
Full-Year Results for Wholesale Division
Wholesale sales were $561.3 million, down 0.9% from the $566.4 million recorded a year ago due to sales difficulties at certain of its customers and accelerated shipments to customers in 2002 in anticipation of a West Coast dock workers strike. Operating earnings were $55.6 million including the special charge of $4.3 million to close the Canadian manufacturing facility. Excluding this charge, operating earnings for the Wholesale Division were $59.9 million, a 10% increase over operating earnings of $54.4 million for fiscal 2002.
Gains in operating earnings were achieved by the Company's Naturalizer, LifeStride and Men's & Athletic footwear businesses.
Sales of the Company's flagship Naturalizer brand declined 1.2%, after rising 17.8% last year and 28.6% the year before. Despite this decline, Naturalizer continued to gain market share in U.S. department stores, capturing 4.9% of market share in 2003, up from 4.5% in 2002. For each of the past four months, Naturalizer has been the number two brand in U.S. department stores, up from number three for fiscal 2002. In 2001, the brand was in fourth position and was sixth in 2000. [Note: All market share data is based on independent research from The NPD Group, Inc.]
Sales of the Company's LifeStride brand rose 17.5% in 2003, as this brand earned 2.2% of department store market share versus 1.9% in 2002, and improved to 9th place in market share rankings for dollar-sales-volume, up from 11th place in 2002.
"Our Wholesale divisions turned in a strong performance in a challenging retail environment," Fromm added. "Importantly, Brown Shoe had five of the top ten best-selling shoes in U.S. department stores in 2003 - three styles from Naturalizer, and one each from LifeStride and Original Dr. Scholl's. This clearly illustrates our commitment to delivering shoes with compelling style and value to our wholesale partners - footwear that helps build their businesses."
Full-Year Results for Naturalizer Retail
Naturalizer Retail stores, located throughout the U.S. and Canada, posted sales of $189.2 million in 2003, versus $195.4 million last year. Four stores were opened in 2003; 15 were closed. An operating loss of $4.0 million was incurred in 2003 compared to operating earnings of $1.4 million in 2002. These results reflect a 4.1% same-store sales decline and lower margins at the 170 Canadian stores, and lower than expected store productivity within the 208 U.S. Naturalizer stores. Same-store sales in the U.S. stores rose 1.1% in 2003.
At year's end, there were 378 Naturalizer Retail stores, compared to 389 at the end of fiscal 2002. Plans are to open about 16 stores and close about 16 stores in fiscal 2004.
"Our Naturalizer retail segment had a disappointing year, both domestically and in Canada," said Fromm. "In Canada we took significant markdowns to clear inventories as we transition from Canadian-produced Naturalizer footwear to more fashionable imports, including a substantive mix of the U.S. product line. Going forward, we believe we have now created the opportunity to materially enhance our product in Canada, and in the U.S. we are resolved to improve the productivity of our stores."
Fourth Quarter Results
Sales for the fourth quarter of fiscal 2003 were $433.8 million, a 4.0% decrease compared to sales of $452.1 million in the fourth quarter of fiscal 2002. Fourth quarter 2003 earnings were $5.1 million or $0.27 per diluted share, versus $9.3 million, or $0.51 per diluted share in fourth quarter 2002. All special charges and recoveries, outlined above, were taken in the fourth quarters of 2003 and 2002. Excluding those items, fourth quarter 2003 net earnings were $9.8 million, or $0.52 per diluted share, compared to $8.1 million, or $0.45 per diluted share in 2002.
Fourth quarter results for the operating divisions were as follows: Sales at Famous Footwear were $242.0 million versus $242.3 million for the year-ago quarter, with same-store sales down 2.3%. Operating earnings for Famous Footwear were $6.1 million even with last year. For Wholesale, sales were $142.3 million versus $162.6 million in the year-ago period, reflecting difficulties at certain of its customers and accelerated shipments in the fourth quarter of 2002 in anticipation of a West Coast dock workers strike. Operating earnings for Wholesale were $14.7 million versus $17.4 million last year. Excluding the charge for closing the Canadian factory, which was taken in the fourth quarter of 2003, operating earnings for the Wholesale division were $19.0 million. Sales at the Naturalizer Retail U.S. and Canadian stores were $46.9 million versus $46.1 million in the year-ago fourth quarter. Naturalizer Retail had an operating loss of $1.4 million for the quarter, reflecting a same-store sales decline of 2.0% in the Canadian stores and a 0.4% same-store sales gain in the U.S. stores, which had a lower gross profit rate and higher expenses than last year. This compares to operating earnings of $1.2 million last year that included the recoveries outlined above of $0.9 million.
Financial Position and Forward-Looking Guidance
The Company's financial position remains strong. Net cash provided by operating activities in fiscal 2003 was $87.8 million. Total debt decreased to $119.5 million from $152.5 million at year-end in 2002. Net interest expense was down 21.3% to $9.3 million. The debt-to-capital ratio improved to 25.2% from 34.0% last year.
Looking ahead, the company estimates net earnings per diluted share of $3.15 for fiscal year 2004. Net earnings for the first quarter, despite the current unshipped Wholesale order position of 11% over last year, are planned down compared to 2003 -- within the range of $0.30 to $0.35 per diluted share versus $0.49 in 2003. The expected decrease in the first quarter is primarily due to transition costs associated with the new Bass footwear business and with consulting costs associated with the company's new EXCEL supply chain initiatives.
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 its fiscal 2003 and 2002 net earnings and net earnings per diluted share excluding certain 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 indicate underlying trends in the Company's business and provide useful information to both management and investors by excluding certain items that are not indicative of the Company's core operating results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. The non-GAAP financial measures included in this press release have been reconciled to the nearest GAAP measure.
Fourth Quarter Earnings and Conference Call
A conference call to discuss fourth quarter results will be held this morning at 9:00 a.m. EST. 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 www.companyboardroom.com. At the website, type in the BWS ticker symbol to locate the broadcast.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This press release contains certain forward-looking statements, including without limitation, the statements under the caption "Financial Position and Forward-Looking Guidance." Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These include (i) general economic conditions and the consumer's preferences and purchasing patterns, which may be influenced by consumers' disposable income; (ii) the uncertainties of currently pending litigation; (iii) intense competition within the footwear industry; and (iv) 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 relating to such factors. The Company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.
Brown Shoe is a $1.8 billion footwear company with worldwide operations. The Company operates the 900-store Famous Footwear chain, which sells brand name shoes for the family. 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 and Buster Brown; it also markets licensed brands including Dr. Scholl's, Bass and Carlos by Carlos Santana for adults, and Barbie, Superman, Supergirl, Loony Tune and Bob-the-Builder character footwear for children. Brown Shoe press releases are available on the Company's web site at www.brownshoe.com.
(Thousands)
2004 | 2003 | ||||
| ASSETS | |||||
| Cash and Cash Investments | $ | 55,657 | $ | 32,121 | |
| Receivables, Net | 81,930 | 82,486 | |||
| Inventories, Net | 376,210 | 392,584 | |||
| Other Current Assets | | 15,888 | 20,978 | ||
| Total Current Assets | 529,685 | 528,169 | |||
| Property, Plant and Equipment - - Net | 85,548 | 84,813 | |||
| Other Assets | | 104,097 | 101,894 | ||
| $ | 719,330 | $ | 714,876 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
| Notes Payable | $ | 19,500 | $ | 29,000 | |
| Trade Accounts Payable | 116,677 | 129,209 | |||
| Accrued Expenses | 96,707 | 100,801 | |||
| Income Taxes | 2,960 | 5,352 | |||
| Current Maturities of Long-Term Debt | | - | 20,000 | ||
| Total Current Liabilities | 235,844 | 284,362 | |||
| Long-Term Debt and Capitalized Leases | 100,000 | 103,493 | |||
| Other Liabilities | 28,358 | 30,414 | |||
| Shareholders' Equity | 355,128 | 296,607 | |||
| $ | 719,330 | $ | 714,876 | ||
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share data)
2004 | 2003 | 2004 | 2003 | ||||||||||
| Net Sales | $ | 433,847 | $ | 452,132 | $ | 1,832,108 | $ | 1,841,443 | |||||
| Cost of Goods Sold | 252,885 | 268,423 | 1,073,442 | 1,100,654 | |||||||||
| Gross Profit | 180,962 | 183,709 | 758,666 | 740,789 | |||||||||
| - % of Sales | 41.7% | 40.6% | 41.4% | 40.2% | |||||||||
| Selling & Administrative Expenses | 170,268 | 169,670 | 681,585 | 667,456 | |||||||||
| - % of Sales | 39.2% | 37.5% | 37.2% | 36.2% | |||||||||
| Provision for Litigation Costs | 3,107 | - | 3,107 | - | |||||||||
| Operating Earnings | 7,587 | 14,039 | 73,974 | 73,333 | |||||||||
| Interest Expense, Net | 1,958 | 2,603 | 9,319 | 11,834 | |||||||||
| Earnings Before Income Taxes | 5,629 | 11,436 | 64,655 | 61,499 | |||||||||
| Income Tax Provision | (494 | ) | (2,088 | ) | (17,761 | ) | (16,327 | ) | |||||
| NET EARNINGS | $ | 5,135 | $ | 9,348 | $ | 46,894 | $ | 45,172 | |||||
| Basic Net Earnings per Common Share | $ | .29 | $ | .54 | $ | 2.65 | $ | 2.60 | |||||
| Diluted Net Earnings per Common Share | $ | .27 | $ | .51 | $ | 2.52 | $ | 2.52 | |||||
| Basic Number of Shares | 17,808 | 17,421 | 17,677 | 17,367 | |||||||||
| Diluted Number of Shares | 18,863 | 18,157 | 18,616 | 17,939 | |||||||||
See Notes to Condensed Consolidated Statements of Earnings.
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED CASH FLOWS
(Unaudited)
(Thousands)
2004 | 2003 | |||||
| OPERATING ACTIVITIES: | ||||||
| Net earnings | $ | 46,894 | $ | 45,172 | ||
| Adjustments to reconcile net earnings to net cash | ||||||
| Provided (used) by operating activities: | ||||||
| Depreciation and amortization | 25,472 | 24,179 | ||||
| Share based compensation expense | 4,773 | 2,071 | ||||
| Tax benefit related to share based plans | 1,543 | - | ||||
| Loss on disposal or impairment of facilities and equipment | 5,409 | 5,081 | ||||
| Provision (recoveries) for losses on accounts receivable | (194 | ) | 652 | |||
| Changes in operating assets and liabilities: | ||||||
| Receivables | 750 | (14,833 | ) | |||
| Inventories | 16,374 | 3,643 | ||||
| Prepaid expenses and other current assets | 5,090 | 18,260 | ||||
| Trade payables and accrued expenses | (15,291 | ) | 21,794 | |||
| Income taxes | (2,392 | ) | 4,802 | |||
| Other, net | (674 | ) | (7,062 | ) | ||
| Net cash provided by operating activities | 87,754 | 103,759 | ||||
| INVESTING ACTIVITIES: | ||||||
| Capital expenditures | (29,467 | ) | (25,648 | ) | ||
| Other | 486 | 148 | ||||
| Net cash used by investing activities | (28,981 | ) | (25,500 | ) | ||
| FINANCING ACTIVITIES: | ||||||
| Decrease in short-term notes payable | (9,500 | ) | (35,250 | ) | ||
| Debt issuance costs | - | (265 | ) | |||
| Repayments of long-term debt | (23,500 | ) | (28,550 | ) | ||
| Proceeds from stock options exercised | 4,926 | 2,259 | ||||
| Dividends paid | (7,163 | ) | (7,044 | ) | ||
| Net cash used by financing activities | (35,237 | ) | (68,850 | ) | ||
| Increase in cash and cash equivalents | 23,536 | 9,409 | ||||
| Cash and cash equivalents at beginning of year | 32,121 | 22,712 | ||||
| Cash and cash equivalents at end of period | $ | 55,657 | $ | 32,121 | ||
| Note: Certain prior period amounts have been reclassified in the Condensed Consolidated Statements of Earnings, Balance Sheets and Cash Flows to conform to current period presentation. These reclassifications did not affect net earnings. | ||||||
NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Earnings | EPS | Earnings | EPS | ||||
| As reported | $ 5,135 | $ 0.27 | $ 9,348 | $ 0.51 | |||
| Special charges & (recoveries) | |||||||
| -Canadian factory closing | 2,676 | 0.14 | - | - | |||
| -Provision for litigation costs | 2,019 | 0.11 | - | - | |||
| -Naturalizer Retail excess store closing reserve | - | - | (500) | (0.02) | |||
| -Excess severance reserve | - | - | (715) | (0.04) | |||
| Net earnings before special charges and recoveries | $ 9,830 | $ 0.52 | $ 8,133 | $ 0.45 | |||
Earnings | EPS | Earnings | EPS | ||||
| As reported | $ 46,894 | $ 2.52 | $ 45,172 | $ 2.52 | |||
| Special charges & (recoveries) | |||||||
| -Canadian factory closing | 2,676 | 0.14 | - | - | |||
| -Provision for litigation costs | 2,019 | 0.11 | - | - | |||
| -Naturalizer Retail excess store closing reserve | - | - | (500) | (0.03) | |||
| -Excess severance reserve | - | - | (715) | (0.04) | |||
| Net earnings before special charges and recoveries | $ 51,589 | $ 2.77 | $ 43,957 | $ 2.45 | |||
