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| | Investors |
| | Peggy Reilly Tharp, Brown Shoe Company |
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| | Media |
| | Kelly Malone, Brown Shoe Company |
| | (314) 854-4093, kmalone@brownshoe.com |
Brown Shoe Company Reports Second Quarter 2012 Results
Consolidated net sales of $599 million with record sales and operating earnings at Famous Footwear
Operating cash flow improved to $119 million, up $76 million year-over-year
ST. LOUIS, Aug. 28, 2012 – Brown Shoe Company, Inc. (NYSE: BWS, brownshoe.com) today reported its second quarter 2012 financial results, with net sales of $599.3 million versus second quarter 2011 net sales of $620.6 million. Results for both the second quarter of 2012 and 2011 included sales of $8.5 million and $25.8 million, respectively, from brands and businesses the company has exited over the past nine months. Excluding exited sales, net sales were down 0.7% year-over-year.
The second quarter net loss of ($2.5) million, or ($0.06) per diluted share, improved when compared to ($4.6) million, or ($0.11) per diluted share, in 2011. The second quarter 2012 loss included portfolio realignment charges of $12.4 million and $2.3 million of charges related to a previously announced organizational change. On an adjusted* basis, net earnings of $6.8 million, or $0.16 per diluted share, improved compared to a loss of ($2.7) million, or ($0.06) per diluted share, in the prior year. Gross profit margin for the second quarter of 2012 was 39.0% versus 37.6% in 2011.
“For the second quarter, we delivered record setting sales and operating earnings at Famous Footwear, which was coupled with strong performance from our Contemporary Fashion brands,” said Diane Sullivan, president and chief executive officer of Brown Shoe Company. “We also continued to see leverage from our strategic portfolio realignment efforts, and this quarter’s results are another positive proof point we are delivering against our commitment to drive shareholder value.”
| US$M, except per share (unaudited) | 13 Weeks | 26 Weeks | 52 Weeks |
| | 2Q’12 | 2Q’11 | Change | 2Q’12 | 2Q’11 | Change | 2Q’12 | 2Q’11 | Change |
| Famous Footwear | 350.3 | 344.9 | 1.6% | 697.4 | 687.7 | 1.4% | 1,466.1 | 1,464.7 | – |
| Wholesale Operations | 195.0 | 215.2 | (9.4%) | 418.2 | 432.1 | (3.2%) | 856.9 | 833.2 | 2.8% |
| Specialty Retail | 54.0 | 60.5 | (10.8%) | 110.1 | 120.3 | (8.5%) | 245.4 | 262.9 | (6.6%) |
| Consolidated net sales | $599.3 | $620.6 | (3.4%) | $1,225.7 | $1,240.1 | (1.2%) | $2,568.4 | $2,560.8 | 0.3% |
| Gross profit | 233.8 | 233.6 | 0.1% | 472.9 | 481.6 | (1.8%) | 987.9 | 999.1 | (1.1%) |
| Margin | 39.0% | 37.6% | 140 bps | 38.6% | 38.8% | -20 bps | 38.5% | 39.0% | -50 bps |
| SG&A | 219.3 | 233.9 | (6.3%) | 438.2 | 468.1 | (6.4%) | 907.5 | 942.1 | (3.70%) |
| % of net sales | 36.5% | 37.7% | -120 bps | 35.8% | 37.7% | -190 bps | 35.3% | 36.8% | -150 bps |
| Net restructuring, other special charges | 7.4 | 0.7 | n/m | 18.9 | 2.4 | n/m | 40.2 | 6.7 | n/m |
| Impairment of intangible assets | 5.8 | – | n/m | 5.8 | – | n/m | 5.8 | – | n/m |
| Operating earnings (loss) | 1.3 | (1.0) | n/m | 10.0 | 11.1 | (9.9%) | 34.4 | 50.3 | (31.5%) |
| % of net sales | 0.2% | (0.2%) | 40 bps | 0.8% | 0.9% | -10 bps | 1.3% | 2.0% | -70 bps |
| Net interest expense | 5.7 | 7.5 | (23.8%) | 11.8 | 14.1 | (16.5%) | 24.1 | 24.3 | (0.3%) |
| Earnings (loss) before income tax | (4.4) | (8.5) | 48.0% | (1.8) | (3.0) | 40.6% | 10.3 | 26.0 | (60.6%) |
| Tax rate | 38.3% | 35.5% | | 38.8% | 29.6% | | 5.1% | 24.6% | |
| Net earnings from discontinued operations | – | 0.7 | n/m | – | 1.0 | n/m | 14.7 | 1.0 | n/m |
| Net earnings (loss) | ($2.5) | ($4.6) | 45.0% | ($0.8) | ($0.9) | 8.8% | $24.7 | $21.0 | 17.4% |
| Per diluted share | ($0.06) | ($0.11) | 45.5% | ($0.02) | ($0.02) | -- | $0.58 | $0.47 | 23.4% |
| Adjusted operating earnings | $15.9 | $1.2 | n/m | $37.4 | $17.7 | 111.2% | $85.0 | $61.2 | 38.9% |
| Per diluted share | $0.16 | ($0.06) | n/m | $0.39 | $0.09 | 333.3% | $1.00 | $0.65 | 53.8% |
Second Quarter Highlights
Famous Footwear reported record second quarter 2012 sales of $350.3 million, a 1.6% year-over-year improvement, with both running and sandals contributing, up 12.8% and 3.7%, respectively. On a same-store-sales basis, the second quarter was up 3.9% over the prior year. During the quarter, the company closed or relocated 26 stores and added 14 new stores, and average revenue per square foot improved 6.7% year-over-year.
The company’s Contemporary Fashion platform was up 11.7% in the second quarter, with continued strong growth from the Sam Edelman brand. In the Healthy Living portfolio, the company’s LifeStride brand delivered double-digit sales growth in the second quarter. Excluding brands the company exited over the past nine months, Wholesale Operations sales were down 3.1% year-over-year in the second quarter.
Consolidated gross profit was flat in the second quarter, while gross profit margin improved by 140 basis points. The company continued to target SG&A reduction, resulting in a decline of $14.6 million to 36.5% of net sales. For the quarter, adjusted operating earnings improved to $15.9 million from $1.2 million in the second quarter of 2011.
Inventory at the end of the second quarter was $621.1 million, down 1.1% compared to $627.9 million in the prior year. Wholesale inventory was down 2.8%, while Famous Footwear inventory was flat.
At quarter-end, Brown Shoe Company had approximately $405.0 million in availability under its revolving credit facility and $47.4 million in cash and cash equivalents. The company’s debt-to-capital ratio declined to 43.6% from 53.4% in the second quarter of 2011.
Financial Review and 2012 Outlook
“While we’re encouraged by our performance in both the second quarter and the first half -- including the continued successful execution of our ongoing portfolio realignment efforts -- we remain cautious about the overall macroeconomic environment,” said Russ Hammer, chief financial officer of Brown Shoe Company. “As a result, while we are raising the bottom of our adjusted EPS guidance range to $0.85, we are maintaining the top of the range at $0.95.”
| 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 | $920 to $925 million |
| Non-recurring costs | ~$34 million |
| Net interest expense | $23 to $25 million |
| Effective tax rate | 38% to 40% |
| Earnings per diluted share | $0.34 to $0.44 |
| Adjusted earnings per diluted share | $0.85 to $0.95 |
| Depreciation and amortization | $56 to $57 million |
| Capital expenditures | $58 to $63 million |
Investor Conference Call
Brown Shoe Company will webcast an investor conference call at 9:00 a.m. ET today, Aug. 28, 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 20401315. 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 20401315 through Sept. 11, 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.
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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 , 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!
