Brown Shoe Reports Third Quarter Financial Results
Third Quarter 2009 Results
-- Net sales were $625.6 million, a decrease of 1.0 percent, compared to $631.7 million in the year-ago quarter;
-- Same-store sales for Famous Footwear increased 4.7 percent during the quarter and Specialty Retail same-store sales increased 4.1 percent;
-- Gross profit rate increased by 210 basis points to 41.4 percent of net sales;
-- Operating earnings of $34.3 million; and
-- Net earnings attributable to Brown Shoe Company, Inc. (hereafter "net earnings") were $16.3 million, or $0.38 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 $0.25 per diluted share, which included charges of $10.1 million, or $0.24 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 percent, compared to
$631.7 million in the third quarter of 2008.
-- Famous Footwear net sales were $389.2 million, an increase of 7.3
percent from the third quarter of last year, driven by a 4.7 percent
same-store sales increase and operating 10 more stores than in the
year-prior period;
-- Net sales in the Company's Specialty Retail division increased 1.4
percent to $66.5 million, reflecting a 4.1 percent same-store sales
increase during the quarter; and
-- Net sales at the Company's Wholesale division were $169.9 million, a
decrease of 16.5 percent, 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 percent of net sales from 39.3 percent of net sales in the third
quarter of 2008, attributable to several factors, including:
-- 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;
-- 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 percent of consolidated net sales in the third
quarter of 2009 versus 68 percent in the year-ago period; and
-- 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 percent of net sales, versus
$219.1 million, or 34.7 percent 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 percent, 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 $0.38 per diluted share, versus
$10.4 million, or $0.25 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 percent 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
percent in the quarter and average inventory per store at the Company's
North American Specialty Retail stores declined 3.1 percent on a
constant dollar basis, as compared to third quarter-end last year.
Inventory at its Wholesale division declined 9.4 percent 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 percent of net sales are
expected to be in the range of 38.9 to 39.2 percent 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.
Participation in Investor Conference
The Company will be presenting at the J.P. Morgan 11th Annual SMid Cap Conference, held at the J.P. Morgan Conference Center in New York City on Wednesday, December 2, at 11:45 a.m. Eastern Time. Ron Fromm, Chairman and Chief Executive Officer, and Mark Hood, Chief Financial Officer, will host the presentation, which will be webcast live along with the question-and-answer portion at www.brownshoe.com/investor.
Definitions
Consistent with new guidance issued by the FASB on noncontrolling interests in consolidated financial statements, 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.
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 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.
Conference Call
A conference call to discuss third quarter 2009 results will be held today at 9:00 a.m. ET. While participation in 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 at www.brownshoe.com/investor or www.earnings.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 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 include (i) changing consumer demands, which may be influenced by consumers' disposable income, which in turn can be influenced by general economic conditions; (ii) the timing and uncertainty of activities and costs related to the Company's information technology initiatives, including software implementation and business transformation; (iii) potential disruption to the Company's business and operations as it implements its information technology initiatives; (iv) the Company's ability to utilize its new information technology system to successfully execute its strategies; (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 continued and uninterrupted flow of inventory from China and Brazil, where the Company relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (ix) the Company's ability to attract and retain licensors and protect its intellectual property; (x) the Company's ability to secure/exit leases on favorable terms; (xi) the Company's ability to maintain relationships with current suppliers; (xii) compliance with applicable laws and standards with respect to lead content in paint and other product safety issues; and (xiii) the Company's ability to successfully execute its international growth strategy. 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 31, 2009, 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.
About Brown Shoe Company, Inc.
Brown Shoe is a $2.2 billion footwear company with global operations. Brown Shoe's Retail division operates Famous Footwear, the more than 1,100-store chain that sells brand name shoes for the family, approximately 300 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 markets leading footwear brands including Naturalizer, Dr. Scholl's, Franco Sarto, LifeStride, Etienne Aigner, Via Spiga, Sam Edelman and Buster Brown. Brown Shoe press releases are available on the Company's website at www.brownshoe.com.
SCHEDULE 1
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__ $1,755,367
Cost 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__ 638,203
Restructuring and other
special charges, net__ 2,222__ 16,503__ 6,834__ 18,250
Equity 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__ 41,516
Diluted number of shares__ 41,653__ 41,600__ 41,579__ 41,572
SCHEDULE 2
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 31, November 1, January 31,
(Thousands)__ 2009__ 2008__ 2009
---- ---- ----
ASSETS
Cash and cash equivalents__ $34,102__ $35,977__ $86,900
Receivables__ 84,884__ 99,615__ 84,252
Inventories__ 450,156__ 469,338__ 466,002
Prepaid expenses and other current assets__ 25,116__ 24,113__ 44,289
----------------------------------------- ------ ------ ------
Total current assets__ 594,258__ 629,043__ 681,443
-------------------- ------- ------- -------
Other assets__ 117,304__ 105,184__ 103,137
Investment in nonconsolidated affiliate__ -__ 6,472__ -
Goodwill and intangible assets, net__ 78,919__ 211,008__ 84,000
Property and equipment, net__ 149,254__ 155,781__ 157,451
--------------------------- ------- ------- -------
Total assets__ $939,735 $1,107,488 $1,026,031
------------ -------- ---------- ----------
LIABILITIES AND EQUITY
Borrowings under revolving credit
agreement__ $50,000__ $24,000__ $112,500
Trade accounts payable__ 136,977__ 168,273__ 152,339
Accrued expenses__ 128,336__ 116,472__ 137,307
---------------- ------- ------- -------
Total current liabilities__ 315,313__ 308,745__ 402,146
------------------------- ------- ------- -------
Long-term debt__ 150,000__ 150,000__ 150,000
Deferred rent__ 40,186__ 44,676__ 41,714
Other liabilities__ 30,639__ 42,285__ 29,957
Total Brown Shoe Company, Inc.
shareholders' equity__ 394,219__ 560,114__ 394,104
Noncontrolling interests__ 9,378__ 1,668__ 8,110
------------------------ ----- ----- -----
Total equity__ 403,597__ 561,782__ 402,214
------------ ------- ------- -------
Total liabilities and equity__ $939,735 $1,107,488 $1,026,031
---------------------------- -------- ---------- ----------
SCHEDULE 3
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine Weeks Ended
-----------------------
October 31, November 1,
(Thousands)__ 2009__ 2008
---- ----
OPERATING ACTIVITIES:
Net earnings__ $5,717__ $19,221
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation__ 27,454__ 30,228
Amortization of capitalized software__ 6,084__ 5,929
Amortization of intangibles__ 5,081__ 5,133
Amortization of debt issuance costs__ 1,646__ 1,110
Share-based compensation expense__ 3,168__ 967
Loss on disposal of facilities and equipment__ 756__ 933
Impairment charges for facilities and equipment__ 2,928__ 1,337
Deferred rent__ (1,528)__ 3,261
Provision for doubtful accounts__ 529__ 496
Foreign currency transaction (gains) losses__ (119)__ 115
Undistributed loss of nonconsolidated affiliate__ -__ 169
Changes in operating assets and liabilities:
Receivables__ (1,102)__ 16,658
Inventories__ 17,646__ (36,748)
Prepaid expenses and other current assets__ 19,446__ 2,023
Trade accounts payable__ (15,709)__ (4,208)
Accrued expenses__ (9,270)__ (526)
Other, net__ (4,461)__ (4,585)
---------- ------ ------
Net cash provided by operating activities__ 58,266__ 41,513
----------------------------------------- ------ ------
INVESTING ACTIVITIES:
Purchases of property and equipment__ (22,201)__ (47,568)
Capitalized software__ (17,924)__ (13,593)
-------------------- ------- -------
Net cash used for investing activities__ (40,125)__ (61,161)
-------------------------------------- ------- -------
FINANCING ACTIVITIES:
Borrowings under revolving credit agreement__ 644,400__ 369,000
Repayments under revolving credit agreement__ (706,900)__ (360,000)
Proceeds from stock options exercised__ -__ 313
Tax impact of share-based plans__ (31)__ 118
Dividends paid__ (9,007)__ (8,891)
-------------- ------ ------
Net cash (used for) provided by financing
activities__ (71,538)__ 540
----------------------------------------- ------- ---
Effect of exchange rate changes on cash__ 599__ (4,716)
--------------------------------------- --- ------
Decrease in cash and cash equivalents__ (52,798)__ (23,824)
Cash and cash equivalents at beginning of period__ 86,900__ 59,801
------------------------------------------------ ------ ------
Cash and cash equivalents at end of period__ $34,102__ $35,977
------------------------------------------ ------- -------
SCHEDULE 4
BROWN SHOE COMPANY, INC.
Reconciliation of Operating Earnings, Net Earnings and Diluted Earnings
Per Share (GAAP Basis) to Adjusted Operating Earnings, Net Earnings and
Diluted Earnings Per Share (Non-GAAP Basis)
3rd Quarter 2009__ 3rd Quarter 2008
---------------- ----------------
Net__ Net
Earnings__ Earnings
Attributable__ Attributable
(Thousands__ to__ Diluted__ to__ Diluted
Except__ Brown Shoe__ Earnings__ Brown Shoe Earnings
Per share__ Operating__ Company,__ Per__ Operating__ Company,__ Per
data)__ Earnings__ Inc. Share__ Earnings__ Inc. Share
-------- ---- ----- -------- ---- -----
GAAP
Earnings__ $34,337__ $16,300__ $0.38__ $13,121__ $10,398__ $0.25
Charges /
Other
Items:
IT Initiatives__ 2,222__ 1,437__ 0.04__ 932__ 598__ 0.01
Headquarters
Consolidation__ -__ -__ -__ 15,571__ 9,514__ 0.23
--- --- --- ------ ----- ----
Total
Charges
/ Other
Items__ 2,222__ 1,437__ 0.04__ 16,503__ 10,112__ 0.24
----- ----- ---- ------ ------ ----
Adjusted
Earnings__ $36,559__ $17,737__ $0.42__ $29,624__ $20,510__ $0.49
=======__ =======__ =====__ =======__ =======__ =====
Nine Months 2009__ Nine Months 2008
---------------- ----------------
Net__ Net
Earnings__ Earnings
Attributable__ Attributable
(Thousands__ to__ Diluted__ to__ Diluted
Except__ Brown Shoe__ Earnings__ Brown Shoe Earnings
Per share__ Operating__ Company,__ Per__ Operating__ Company,__ Per
data)__ Earnings__ Inc. Share__ Earnings__ Inc. Share
-------- ---- ----- -------- ---- -----
GAAP
Earnings__ $22,192__ $4,452__ $0.10__ $31,828__ $19,810__ $0.47
Charges /
Other
Items:
IT Initiatives__ 6,834__ 4,402__ 0.10__ 1,396__ 896__ 0.02
Insurance
Recoveries,
Net__ -__ -__ -__ (10,166)__ (6,210)__ (0.15)
Headquarters
Consolidation__ -__ -__ -__ 27,020__ 16,508__ 0.40
--- --- --- ------ ------ ----
Total Charges
/ Other
Items__ 6,834__ 4,402__ 0.10__ 18,250__ 11,194__ 0.27
----- ----- ---- ------ ------ ----
Adjusted
Earnings__ $29,026__ $8,854__ $0.20__ $50,078__ $31,004__ $0.74
=======__ ======__ =====__ =======__ =======__ =====
SCHEDULE 5
BROWN SHOE COMPANY, INC.
OPERATING RESULTS BY SEGMENT
Famous__ Wholesale__ Specialty
Footwear__ Operations__ Retail
-------- ---------- ------
3rd__ 3rd__ 3rd__ 3rd__ 3rd__ 3rd
Quarter Quarter Quarter Quarter__ Quarter Quarter
($ millions)__ 2009__ 2008__ 2009__ 2008__ 2009__ 2008
---- ---- ---- ---- ---- ----
Net Sales__ $389.2__ $362.7__ $169.9__ $203.4__ $66.5__ $65.6
Gross Profit__ $171.1__ $160.1__ $57.8__ $61.1__ $30.0__ $27.3
Gross Profit Rate__ 44.0%__ 44.1%__ 34.0%__ 30.1%__ 45.1%__ 41.6%
Operating Earnings
(Loss)__ $28.6__ $20.0__ $16.6__ $18.5__ $(1.4)__ $(3.0)
Operating Earnings
(Loss) %__ 7.3%__ 5.5%__ 9.8%__ 9.1%__ (2.0)%__ (4.6)%
Same-store Sales %__ 4.7%__ (5.0)%__ -__ -__ 4.1%__ (6.7)%
Number of Stores__ 1,148__ 1,138__ -__ -__ 294__ 303
Famous__ Wholesale__ Specialty
Footwear__ Operations__ Retail
-------- ---------- ------
Nine__ Nine__ Nine__ Nine__ Nine__ Nine
Months__ Months__ Months__ Months__ Months__ Months
($ millions)__ 2009__ 2008__ 2009__ 2008__ 2009__ 2008
---- ---- ---- ---- ---- ----
Net Sales__ $1,020.9__ $1,007.7__ $480.7__ $561.1__ $174.4__ $186.6
Gross Profit__ $441.9__ $442.8__ $153.6__ $166.6__ $75.3__ $79.0
Gross Profit Rate__ 43.3%__ 43.9%__ 31.9%__ 29.7%__ 43.2%__ 42.3%
Operating Earnings
(Loss)__ $30.8__ $38.9__ $30.4__ $38.8__ $(11.9) $(10.8)
Operating Earnings
(Loss) %__ 3.0%__ 3.9%__ 6.3%__ 6.9%__ (6.8)%__ (5.8)%
Same-store Sales %__ (2.1)%__ (5.1)%__ -__ -__ (1.2)%__ (4.3)%
SOURCE: Brown Shoe Company, Inc.
Originally published by Brown Shoe Company, Inc..
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