Brown Shoe Co. reported net sales decreased 1% in the third quarter to $625.6 million from $631.7 million a year ago. Same-store sales for Famous Footwear increased 4.7% during the quarter and Specialty Retail same-store sales increased 4.1%.
Net earnings attributable to Brown Shoe company, Inc. were $16.3 million, or 38 cents per diluted share, inclusive of charges related to its information technology initiatives of $1.4 million, or $0.04 per diluted share. This compares to net earnings in the third quarter of 2008 of $10.4 million, or 25 cents a share, which included charges of $10.1 million, or 24 cents per diluted share, related to the company’s headquarters consolidation and information technology initiatives.
Ron Fromm, Brown Shoe’s chairman and chief executive officer, stated, "We are pleased that we delivered better-than-expected sales and earnings during the third quarter. Our strategies to offer trend-right product, an enhanced store experience, and the increased reach of our marketing communications helped deliver a strong Back-to-School selling season at Famous Footwear. In addition, improved consumer reaction to our Naturalizer product and our other wholesale brands drove better sell-thrus at retail and, in particular, strong same-store sales results at our Naturalizer stores. This, coupled with our expense and inventory disciplines, drove greater gross margins and improved operating performance in the quarter."
Fromm concluded, "Although the timing of economic recovery remains uncertain, we are continuing these strategies into the fourth quarter and holiday season, as we expect consumers will continue to shop later in the season. In addition, we believe the brands across our portfolio are well-positioned to gain market share, given their strong value propositions to consumers at diverse price points and channels of distribution."
Consolidated Results for Third Quarter 2009:
* Net sales were $625.6 million, a decrease of 1.0%, compared to $631.7 million in the third quarter of 2008.
o Famous Footwear net sales were $389.2 million, an increase of 7.3% from the third quarter of last year, driven by a 4.7% same-store sales increase and operating 10 more stores than in the year-prior period;
o Net sales in the company’s Specialty Retail division increased 1.4% to $66.5 million, reflecting a 4.1% same-store sales increase during the quarter; and
o Net sales at the company’s Wholesale division were $169.9 million, a decrease of 16.5%, in the quarter versus the same period last year, in line with the company’s previous outlook;
* Gross profit rate in the third quarter increased 210 basis points to 41.4% of net sales from 39.3% of net sales in the third quarter of 2008, attributable to several factors, including:
o a 390 basis point improvement in gross profit rate in its Wholesale business, driven primarily by an increase in the mix of higher-margin branded sales and an increase in vertical profit;
o an increase in the mix of the company’s retail business, which generates a higher gross profit rate than Wholesale. Retail net sales represented 73% of consolidated net sales in the third quarter of 2009 versus 68% in the year-ago period; and
o a 350 basis point improvement in gross profit rate in its Specialty Retail division, resulting primarily from higher average prices and lower markdowns at its retail stores;
* Selling and administrative expenses in the third quarter increased by $3.3 million to $222.4 million, or 35.5% of net sales, versus $219.1 million, or 34.7% of net sales, in the same period last year. The year-over-year increase was primarily related to increased incentive compensation costs due to improved performance, the consolidation of the Edelman Shoe, Inc. business, and the impact of the retail facilities costs associated with operating 10 more Famous Footwear stores and the timing of the 21 closings in the quarter. These increases were partially offset by operating eight fewer North American Specialty Retail stores and improved expense management across the enterprise;
* Net restructuring and other special charges were $2.2 million in the third quarter of 2009 and $16.5 million in the third quarter of last year. Charges in 2009 included costs related to the company’s information technology initiatives, while charges in the third quarter of 2008 reflected costs related to its headquarters consolidation and information technology initiatives;
* Operating earnings in the quarter were $34.3 million versus $13.1 million in the third quarter of 2008. Adjusted for restructuring and other special charges, net, operating earnings in the quarter were $36.6 million versus $29.6 million in the year-earlier period;
* Net interest expense in the quarter increased $1.3 million to $4.9 million versus $3.6 million in the year-ago period due to higher average borrowings on the company’s revolving credit facility;
* The company’s effective tax rate in the quarter was 42.1%, due to a greater mix of domestic earnings in the quarter, versus a tax benefit in the year-ago quarter;
* Net earnings were $16.3 million, or 38 cents per diluted share, versus $10.4 million, or 25 cents per diluted share, in the year-ago quarter. Third quarter of 2009 net earnings included charges, net of tax, of $1.4 million, or $0.04 per diluted share, related to the company’s information technology initiatives. Third quarter of 2008 net earnings included charges, net of tax, of $10.1 million, or $0.24 per diluted share, related to its headquarters consolidation and information technology initiatives;
* Inventory at quarter-end was $450.2 million, a 4.1% decrease as compared to $469.3 million at the end of the third quarter of 2008. Average inventory on a per-store basis at Famous Footwear decreased 2.3% in the quarter and average inventory per store at the company’s North American Specialty Retail stores declined 3.1% on a constant dollar basis, as compared to third quarter-end last year. Inventory at its Wholesale division declined 9.4% year-over-year; and
* At quarter-end, the company’s borrowings against its revolving credit facility were $50.0 million with availability of approximately $320 million. Cash and cash equivalents at quarter-end were $34.1 million.
Outlook
Based on third quarter results and the current outlook, the company expects the following:
* Consolidated net sales in the fourth quarter of 2009 are expected to grow in the low- to mid-single digit range versus the fourth quarter of 2008;
* Famous Footwear same-store sales in the fourth quarter of 2009 are expected to be in a range of flat to a low-single digit increase. Famous Footwear expects store openings for the full year of 2009 to total 54, with all openings completed at the end of the third quarter, while closing 55 to 70 stores;
* For its Wholesale division, the company expects a net sales increase in the high-single to low-double digits range for the fourth quarter;
* Selling and administrative expenses as a% of net sales are expected to be in the range of 38.9 to 39.2% for the full year, which includes costs of $9.0 million to $9.5 million related to its information technology initiatives;
* Depreciation and amortization of capitalized software and intangible assets are expected to total $51 million to $53 million for the full year;
* Net interest expense should approximate $20.1 million to $21.0 million for the full year, driven by increased periodic year-over-year borrowings and higher unused line fees on its revolving credit facility;
* The company expects a small tax provision for the full year that will be determined by the final mix of domestic and foreign earnings;
* Purchases of property and equipment and capitalized software are targeted in the range of $51 million to $53 million for the full year; and
* The company expects to generate positive earnings in the fourth quarter, resulting in both positive operating earnings (earnings before interest and taxes) and positive net earnings for the full year of 2009.
BROWN SHOE COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended -------------------- -----------------------(Thousands, except per October 31, November 1, October 31, November 1, share data) 2009 2008 2009 2008---------------------- ---- ---- ---- ----Net sales $625,635 $631,657 $1,675,996 $1,755,367Cost of goods sold 366,692 383,166 1,005,249 1,066,917------------------ ------- ------- --------- ---------
Gross profit 258,943 248,491 670,747 688,450------------ ------- ------- ------- -------
Selling and administrative expenses 222,384 219,065 641,721 638,203Restructuring and other special charges, net 2,222 16,503 6,834 18,250Equity in net (earnings) loss of nonconsolidated affiliate - (198) - 169----------------------------- --- ---- --- ---
Operating earnings 34,337 13,121 22,192 31,828------------------ ------ ------ ------ ------
Interest expense (5,029) (4,137) (15,192) (12,398)
Interest income 52 508 340 1,550--------------- --- --- --- -----
Earnings before income taxes 29,360 9,492 7,340 20,980---------------------------- ------ ----- ----- ------
Income tax (provision) benefit (12,356) 852 (1,623) (1,759)---------------------- ------- --- ------ ------
Net earnings $17,004 $10,344 $5,717 $19,221------------ ------- ------- ------ -------Less: Net earnings (loss) attributable to noncontrolling interests 704 (54) 1,265 (589)------------------------- --- --- ----- ----
------------------------Net earnings attributable to Brown Shoe Company, Inc. $16,300 $10,398 $4,452 $19,810---------------------------- ------- ------- ------ -------
------------------Basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders $0.38 $0.25 $0.10 $0.47----------------- ----- ----- ----- -----Diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders $0.38 $0.25 $0.10 $0.47-------------------- ----- ----- ----- -----
Basic number of shares 41,588 41,547 41,579 41,516Diluted number of shares 41,653 41,600 41,579 41,572