Brown Shoe Company Reports Fourth Quarter and Full Year 2012 Results

Famous Footwear same-store-sales up 4.4% in fourth quarter

Record breaking 52-week sales and operating profit at Famous Footwear


ST. LOUIS--(BUSINESS WIRE)-- Brown Shoe Company, Inc. (NYSE: BWS, brownshoe.com) today reported fourth quarter 2012 financial results, with net sales of $640.2 million versus fourth quarter 2011 net sales of $628.9 million. Results for both the fourth quarter of 2012 and 2011 included sales of $2.8 million and $16.5 million, respectively, from brands and businesses the company has exited. Excluding exited brands, year-over-year net sales were up 4.8% in the quarter.

Net earnings were $4.0 million, or $0.09 per diluted share, in the fourth quarter of 2012 versus a loss of ($8.2) million, or ($0.21) per diluted share, in the prior year. Fourth quarter 2012 results included portfolio realignment costs of $2.9 million, while earnings for the fourth quarter of 2011 included portfolio realignment and integration related costs of $18.5 million. On an adjusted* basis, net earnings of $5.9 million, or $0.14 per diluted share, improved 43.0% compared to $4.1 million, or $0.10 per diluted share, in the prior year.

For full year 2012, net sales of $2,598.1 million compared to $2,582.8 million in 2011. Results for both 2012 and 2011 included sales from exited brands and businesses of $42.5 million and $92.5 million, respectively. Excluding exited brands, 2012 sales were up 2.6% over 2011. Full year 2012 includes 53 weeks, compared to 52 weeks in 2011, with the additional week occurring in the fourth quarter. The 53rd week increased net sales by $21.2 million and had an immaterial impact on fourth quarter 2012 earnings.

Net earnings for 2012 were $27.5 million, or $0.64 per diluted share, versus $24.6 million, or $0.56 per diluted share, in 2011. Earnings for 2012 included portfolio realignment, organization change and integration related costs of $32.9 million, while earnings for 2011 included portfolio realignment and integration related costs of $30.8 million, which were partially offset by a $20.6 million gain on the sale of AND 1. On an adjusted basis, 2012 net earnings of $48.6 million, or $1.13 per diluted share, improved 60.4% compared to $30.3 million, or $0.70 per diluted share, in 2011.

Gross profit margin for the fourth quarter of 2012 improved to 39.3% from 37.9% in 2011. For the full year, it improved to 38.9% from 38.6% in 2011.

"In 2012, we hit several milestones at Famous Footwear, by achieving record-breaking sales for the 52-week year, as well as our highest annual operating profit," said Diane Sullivan, president and chief executive officer of Brown Shoe Company. "We also strengthened our balance sheet, by reducing short term borrowings by nearly $100 million and reduced our SG&A expenses by $18.3 million. Thanks to the hard work of the entire Brown Shoe Company team, we ended 2012 on a high note, as our share price increased by 106% over the course of calendar 2012."

                         

US$M, except per share (unaudited)

  14 Weeks   13 Weeks   4Q   53 Weeks   52 Weeks   FY
  4Q'12   4Q'11   Change   4Q'12   4Q'11   Change
Consolidated net sales   $640.2   $628.9   1.8%   $2,598.1   $2,582.8   0.6%
Famous Footwear   380.1   352.4   7.9%   1,514.3   1,456.3   4.0%
Wholesale Operations   194.5   205.1   (5.2%)   845.2   870.9   (3.0%)
Specialty Retail   65.6   71.4   (8.1%)   238.5   255.6   (6.7%)
Gross profit   251.7   238.6   5.5%   1,010.4   996.6   1.4%
Margin   39.3%   37.9%   140 bps   38.9%   38.6%   30 bps
SG&A   238.5   230.0   3.7%   919.0   937.3   (2.0%)
% of net sales   37.3%   36.6%   70 bps   35.4%   36.3%   - 90 bps
Net restructuring, other special charges   2.7   16.5   (83.5%)   24.0   23.7   1.5%
Impairment of intangible assets   --   --   --   5.8   --   --
Operating earnings (loss)   10.5   (7.9)   n/m   61.6   35.6   73.3%
% of net sales   1.6%   (1.3%)   290 bps   2.4%   1.4%   100 bps
Net interest expense   5.9   5.8   0.4%   23.1   26.5   (13.0%)
Earnings (loss) before income tax   4.6   (13.7)   n/m   38.5   9.1   325.9%
Tax rate   13.7%   50.7%       29.4%   3.6%    
Net earnings (loss) from discontinued operations   --   (1.4)   --   --   15.7   --
Net earnings (loss)   $4.0   ($8.2)   149.1%   $27.5   $24.6   11.8%
Per diluted share   $0.09   ($0.21)   142.9%   $0.64   $0.56   14.3%
Adjusted net earnings   $5.9   $4.1   43.0%   $48.6   $30.3   60.4%
Per diluted share   $0.14   $0.10   40.0%   $1.13   $0.70   61.4%
 

Fourth Quarter Highlights

Famous Footwear reported record fourth quarter 2012 sales of $380.1 million, a 7.9% year-over-year improvement, with good growth in athletic shoes, boat shoes and women's boots. On a 52 week same-store-sales basis, the fourth quarter was up 4.4%over the prior year. During the quarter, the company closed or relocated 18 stores and added 12 new stores, and average revenue per square foot improved 6.9% year-over-year.

Contemporary Fashion platform wholesale sales were up slightly in the fourth quarter, with the company's Sam Edelman and Franco Sarto brands delivering strong performance. In the Healthy Living portfolio, wholesale sales were up 1.8%, with contribution from LifeStride, Ryka and Dr. Scholl's Shoes. Excluding exited brands, Wholesale Operations sales were up 1.6% year-over-year in the fourth quarter.

Consolidated gross profit was up in the fourth quarter, while gross profit margin of 39.3% improved by approximately 140 basis points versus the prior year. SG&A for the fourth quarter was $238.5 million, or 37.3% of net sales, up approximately 70 basis points from 36.6% of net sales in the prior year. For the quarter, adjusted operating earnings improved 39.0% to $13.4 million from $9.7 million in the fourth quarter of 2011.

Inventory at the end of the fourth quarter was $533.3 million, down 5.1% compared to $561.8 million in the prior year. Wholesale inventory was down 21.6%, while Famous Footwear inventory was up 2.3%.

At quarter-end, Brown Shoe Company had $380.6 million in availability under its revolving credit facility and $68.2 million in cash and cash equivalents. The company's debt-to-capital ratio declined to 41.6% from 49.1% in the fourth quarter of 2011.

Full Year Highlights

Famous Footwear reported full year 2012 sales of $1,514.3 million, a 4.0% year-over-year improvement, with adjusted annual operating earnings topping $100 million. On a 52-week basis, same-store-sales in 2012 were up 4.5% over 2011. During the year, the company closed or relocated 89 stores and added 55 new stores, and average revenue per square foot improved to $199.

Contemporary Fashion platform wholesale sales were up 11.0% in 2012, with the company's Sam Edelman brand closing in on the $100 million sales threshold. In the Healthy Living portfolio, wholesale sales were down 3.5%. Excluding exited brands, Wholesale Operations sales were up 1.6% year-over-year in 2012.

Consolidated gross profit was up in 2012, while gross profit margin of 38.9% improved by approximately 30 basis points over 2011. SG&A for 2012 was $919.0 million, or 35.4% of net sales versus 36.3% in the prior year. For 2012, adjusted operating earnings improved 44.6% to $94.5 million from $65.4 million in 2011.

Financial Review and 2013 Outlook

"We're pleased to have wrapped up a strong 2012, with adjusted diluted EPS of $1.13, up more than 60% over the prior year," said Russ Hammer, chief financial officer of Brown Shoe Company. "However, like many other peers, we are beginning to see the effect on our consumers of recent payroll tax changes and other fiscal events. As a result, we remain cognizant about the potential for changes in consumer discretionary spending in 2013 and any related impact on our results."

     
Metric   FY'13
Consolidated net sales   $2.55 to $2.58 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 10 to 40 basis points
SG&A   $900 to $910 million
Non-recurring costs   $1.0 to $2.0 million
Net interest expense   $21 to $23 million
Effective tax rate   33% to 35%
Earnings per diluted share   $1.16 to $1.23
Adjusted earnings per diluted share   $1.18 to $1.25
Depreciation and amortization   $54 to $56 million
Capital expenditures   $50 to $55 million
 

Investor Conference Call

Brown Shoe Company will webcast an investor conference call at 9:00 a.m. ET today, Mar. 15, 2013. The webcast and accompanying slides will be available at investor.brownshoe.com. 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 17574957. 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 17574957 through Mar. 29, 2013.

* 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) the ability to recruit and retain senior management and other key associates; (vii) the ability to attract, retain and maintain good relationships with licensors and protect intellectual property rights; (viii) the ability to secure/exit leases on favorable terms; (ix) the ability to maintain relationships with current suppliers; (x) compliance with applicable laws and standards with respect to lead content in paint and other product safety issues; (xi) the ability to source product at a pace consistent with increased demand for footwear; and (xii) the impact of rising prices in a potentially inflationary global environment. 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.

About Brown Shoe Company

Brown Shoe Company is a $2.6 billion, global footwear company whose shoes are worn by people of all ages, from all walks of life. Our products are available virtually everywhere — in the nearly 1,300 Famous Footwear and Naturalizer retail stores we operate, in hundreds of major department and specialty stores, on 14 branded ecommerce sites, and on many additional third-party retail websites. Through our broad range of products, we serve three key market segments. Our Family brands — Famous Footwear, Famous.com, and shoes.com — are one-stop-shopping destinations for high quality, affordable styles for a family's every occasion. Active people who want comfort, style and performance can look to our Healthy Living brands — Naturalizer, Dr. Scholl's Shoes, LifeStride, Avia and Ryka. Our Contemporary Fashion brands — Via Spiga, Vera Wang, Vince, Sam Edelman, Franco Sarto, Carlos Santana and Fergie Footwear — keep fashionistas in step with the latest trends. At Brown Shoe Company, we inspire people to feel good and live better... feet first!


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SCHEDULE 1        
 
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS            
 
(Unaudited)
14 Weeks Ended   13 Weeks Ended 53 Weeks Ended   52 Weeks Ended
(Thousands, except per share data) February 2, 2013 January 28, 2012 February 2, 2013 January 28, 2012
 
Net sales $ 640,176 $ 628,891 $ 2,598,065 $ 2,582,824
Cost of goods sold   388,477     390,318     1,587,706     1,586,184  
 
Gross profit   251,699     238,573     1,010,359     996,640  
 
Selling and administrative expenses 238,465 229,943 918,957 937,419
Restructuring and other special charges, net 2,730 16,523 24,018 23,671
Impairment of intangible assets   -     -     5,777     -  
 
Operating earnings (loss)   10,504     (7,893 )   61,607     35,550  
 
Interest expense (5,954 ) (6,238 ) (23,382 ) (26,141 )
Loss on early extinguishment of debt - - - (1,003 )
Interest income   86     396     322     644  
 
Earnings (loss) before income taxes from continuing operations   4,636     (13,735 )   38,547     9,050  
 
Income tax (provision) benefit   (633 )   6,968     (11,343 )   (326 )
 
Net earnings (loss) from continuing operations   4,003     (6,767 )   27,204     8,724  
 
Discontinued operations:
Earnings from operations of subsidiary, net of tax of $1,312 in 2011 - - - 1,701
(Loss) gain on sale of subsidiary, net of tax of $474 and $6,670 in 2011, respectively   -     (1,409 )   -     13,965  
 
Net (loss) earnings from discontinued operations   -     (1,409 )   -     15,666  
 
Net earnings (loss)   4,003     (8,176 )   27,204     24,390  
 
Net (loss) earnings attributable to noncontrolling interests   (36 )  
TWX +1.66 72.41

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