| | Contacts: Media and Investors Peggy Reilly Tharp, Brown Shoe Company (314) 854-4134, ptharp@brownshoe.com |
Brown Shoe Company Reports Third Quarter 2011 Results
Net sales of $713.8 million
GAAP net earnings per diluted share of $0.79
Adjusted net earnings per diluted share of $0.51
ST. LOUIS, Nov. 21, 2011 – Brown Shoe Company, Inc. (NYSE: BWS, brownshoe.com) today reported its third quarter 2011 financial results, with net sales of $713.8 million, a decrease of 0.3% compared to third quarter 2010 net sales of $716.1 million.
The company reported net earnings of $33.7 million, or $0.79 per diluted share, compared to $18.6 million, or $0.42 per diluted share, in the third quarter of 2010. On an adjusted* basis, net earnings were $21.9 million, or $0.51 per diluted share, compared to $19.8 million, or $0.45 per diluted share in the third quarter of 2010. Gross profit margin in the third quarter of 2011 was 38.7% versus 39.4% in the third quarter of 2010.
“We recently completed the first phase of our previously announced portfolio review and have made determinations about some of our assets,” said Diane Sullivan, president and chief executive officer of Brown Shoe Company. “As a result, we will be exiting several businesses, including all of children’s wholesale and some women’s specialty and private brands. In addition, we have accelerated our real estate review and now plan to close between 70 and 75 Famous Footwear stores in fiscal 2011 and 2012, for a total of approximately 145 stores. We will also be closing all of our Brown Shoe Closet and F.X. LaSalle stores. These changes are in addition to the sale of AND 1 and the closing of our Sun Prairie, Wis., Retail distribution center.”
“In total, the first phase of our portfolio realignment is expected to result in a $200 million reduction in annual revenue, approximately $80 million of related SG&A cost savings, and approximately $20 million of cash and non-cash costs over the next several quarters,” continued Sullivan. “While our efforts to date have been focused on eliminating underperforming or poorly aligned assets, this is not our sole focus. We are determined to expand our portfolio over the long-term and to deliver enhanced growth through our focus on the strategic consumer platforms of Family, Healthy Living and Contemporary Fashion.”
| US$M, except per share (unaudited) | 13 Weeks | 39 Weeks | 52 Weeks |
| 3Q’11 | 3Q’10 | Chg. | 3Q’11 | 3Q’10 | Chg. | 3Q’11 | 3Q’10 | Chg. |
| Famous Footwear | 416.2 | 421.5 | -1.3% | 1,103.9 | 1,131.0 | -2.4% | 1,459.4 | 1,473.7 | -1.0% |
| Wholesale Operations | 233.6 | 227.1 | 2.9% | 665.8 | 580.5 | 14.7% | 839.7 | 731.5 | 14.8% |
| Specialty Retail | 64.0 | 67.4 | -5.2% | 184.3 | 188.1 | -2.0% | 259.4 | 260.3 | -0.4% |
| Consolidated net sales | $713.8 | $716.1 | -0.3% | $1,953.9 | $1,899.6 | 2.9% | $2,558.5 | $2,465.5 | 3.8% |
| Gross profit | 276.5 | 282.2 | -2.0% | 758.1 | 768.2 | -1.3% | 993.4 | 1,000.6 | -0.7% |
| Margin | 38.7% | 39.4% | -70 bps | 38.8% | 40.4% | -160 bps | 38.8% | 40.6% | -180 bps |
| SG&A expenses | 239.4 | 247.0 | -3.1% | 707.6 | 696.0 | 1.6% | 934.4 | 914.0 | 2.2% |
| % of net sales | 33.5% | 34.5% | -100 bps | 36.2% | 36.6% | -40 bps | 36.5% | 37.1% | -60 bps |
Net restructuring, other special charges | 4.7 | 1.9 | 154.6% | 7.1 | 5.5 | 30.9% | 9.6 | 10.5 | -9.0% |
| Operating earnings | 32.4 | 33.3 | -2.8% | 43.4 | 66.7 | -34.9% | 49.4 | 76.1 | -35.1% |
| % of net sales | 4.5% | 4.6% | -10 bps | 2.2% | 3.5% | -130 bps | 1.9% | 3.1% | -120 bps |
| Net interest expense | (6.6) | (4.9) | 35.3% | (20.6) | (14.1) | 46.3% | (26.0) | (19.1) | 36.0% |
Earnings before income tax | 25.8 | 28.4 | -9.3% | 22.8 | 52.6 | -56.7% | 23.4 | 57.0 | -58.9% |
| Tax rate | 31.7% | 34.9% | -320 bps | 32.0% | 35.7% | -370 bps | 19.9% | 32.4% | n/m |
| Discontinued operations | 16.1 | -- | n/m | 17.1 | -- | n/m | 17.1 | -- | n/m |
| Net earnings | $33.7 | $18.6 | 81.6% | $32.8 | $33.9 | -3.2% | $36.2 | $38.9 | -7.1% |
| Per share | $0.79 | $0.42 | 88.1% | $0.75 | $0.77 | -2.6% | $0.82 | $0.89 | -7.9% |
| Adjusted per share | $0.51 | $0.45 | 13.3% | $0.60 | $0.86 | -30.2% | $0.71 | $1.04 | -31.7% |
Highlights
Famous Footwear reported a year-over-year decline in third quarter net sales of (1.3%). The decrease was due in part to the continued expected weakness in year-over-year toning sales, which was only partially offset by strength in running, sandal and boot sales. In the third quarter, same store sales at Famous Footwear decreased (0.4%) versus a record setting 10.6% gain in 2010. During the quarter, the company closed 12 underperforming stores and added 17 new stores. On a year-over-year basis, the total number of stores increased to 1,121 from 1,118.
Wholesale Operations net sales improved 2.9% over the third quarter of 2010, as a result of the ASG acquisition completed in February of 2011. Legacy Wholesale Operations were down 11.8% versus a 33.7% improvement in the third quarter of last year, as the company began the work to exit some of its Wholesale brands and also due to lower sales of Dr. Scholl’s Shoes. This decline was partially offset by a year-over-year improvement in Contemporary Fashion, which was led by the Sam Edelman, Franco Sarto, Via Spiga and Vera Wang brands.
Consolidated gross profit decreased (2.0%) in the third quarter, while gross profit margin declined (70) basis points. The reduction in gross margin, when compared to the third quarter of 2010, was primarily due to both lower sales and a decline in gross margin at Famous Footwear. Wholesale Operations contributed positively to gross margin, due to better gross margin performance in the company’s legacy Wholesale Operations and as a result of the ASG acquisition. For the third quarter, Retail and Wholesale Operations net sales were 67% and 33%, respectively, compared to 69% and 31% in the third quarter of 2010.
Third quarter 2011 GAAP earnings per diluted share of $0.79 included a $0.37 benefit from the sale of AND 1, ($0.07) of costs associated with exiting various Wholesale Operations brands, and ($0.02) of ASG integration related costs. Excluding these items, adjusted earnings were $0.51 per diluted share. For the third quarter of 2010, GAAP earnings per diluted share of $0.42 included ($0.03) of costs related to the company’s IT initiatives. Excluding these costs, adjusted earnings were $0.45 per diluted share.
Inventory at the end of the third quarter was $580.2 million, up 7.5% compared to $539.9 million in the third quarter of 2010. Famous Footwear inventory was down, while Wholesale Operations inventory was up, with the majority of the year-over-year increase at Wholesale due to the ASG acquisition. At quarter-end, Brown Shoe Company had approximately $300.0 million in availability under its revolving credit facility and $42.0 million in cash and cash equivalents.
Financial Review and Outlook
“The third quarter decline in net sales to $713.8 million was versus a strong year-over-year comparison and during a time of economic uncertainty for our consumers,” said Mark Hood, chief financial officer of Brown Shoe Company. “Adjusted EPS of $0.51 for the third quarter was up 13.3% over the prior year and included $0.07 of SAP related costs. This brings year-to-date SAP related costs to a total of $0.22 per diluted share.”
“For fiscal 2011, we now expect earnings per diluted share of $0.73 to $0.85, reflecting a generally cautious outlook for the holiday shopping season, the full-year impact of approximately $0.26 of SAP related costs, and an expected decline in sales from the brands we are exiting,” concluded Hood.
| Metric | FY’11 |
| Consolidated net sales | $2.60 to $2.62 billion |
| Famous Footwear same-store sales | Down 1% |
| Wholesale Operations net sales, excluding ASG | Down 2% |
| Gross profit margin | Down 100 to 140 basis points |
| Net interest expense | $26 to $27 million |
| Effective tax rate | 31.0% to 32.0% |
| Earnings per diluted share | $0.73 to $0.85 |
| Adjusted earnings per diluted share | $0.73 to $0.85 |
| Depreciation and amortization | $59 to $61 million |
| Capital expenditures | $43 to $45 million |
Investor Conference Call
Brown Shoe Company will webcast an investor conference call at 4:30 p.m. ET today, Nov. 21, 2011. The webcast 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 26752005. 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 26752005 through Dec. 5, 2011.
* 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 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 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 future 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) potential disruption to Brown Shoe Company’s business and operations as it integrates ASG into its business; (iii) potential disruption to Brown Shoe Company’s business and operations as it implements its information technology initiatives; (iv) Brown Shoe Company’s ability to utilize its new information technology system to successfully execute its strategies, including integrating ASG’s business; (v) intense competition within the footwear industry; (vi) rapidly changing fashion trends and purchasing patterns; (vii) customer concentration and increased consolidation in the retail industry; (viii) 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; (ix) the ability to recruit and retain senior management and other key associates; (x) the ability to attract and retain licensors and protect intellectual property rights; (xi) the ability to secure/exit leases on favorable terms; (xii) the ability to maintain relationships with current suppliers; (xiii) compliance with applicable laws and standards with respect to lead content in paint and other product safety issues; (xiv) the ability to source product at a pace consistent with increased demand for footwear; (xv) the impact of rising prices in a potentially inflationary global environment; and (xvi) the ability of Brown Shoe Company to execute on the first phase of 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 29, 2011, 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.
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About Brown Shoe Company, Inc.
Brown Shoe Company is a global footwear company. Brown Shoe Company’s Retail division operates Famous Footwear, a leading family branded footwear destination with over 1,100 stores nationwide and e-commerce site FamousFootwear.com, approximately 260 specialty retail stores in the U.S., Canada, and China primarily under the Naturalizer brand name, and footwear e-tailer shoes.com. Through its wholesale divisions, Brown Shoe Company designs and markets leading fashion and athletic footwear brands including Naturalizer, Dr. Scholl's, LifeStride, Sam Edelman, Franco Sarto, Via Spiga, Vince, Etienne Aigner, Vera Wang, Avia and rykä. Brown Shoe Company press releases are available at brownshoe.com.
