Brown Shoe Company, Inc. announced a series of moves to further strengthen its flagship Naturalizer brand, which recently achieved the No. 2 position among women's fashion footwear brands in U.S. department stores.

“The Naturalizer turnaround has been a great success story,” said Ron Fromm, Chairman and CEO of Brown Shoe. “Over the last six years, we have rejuvenated the Naturalizer brand, lowering the average age of our customer by 15-20 years, and we've more than doubled Naturalizer's market share in department stores. Now, to take Naturalizer to the next level, we have added talent to our wholesale organization and are refining our store portfolio.”

The Naturalizer plan includes:

  • Closing approximately 80 underperforming stores – 60 in the United States and 20 in Canada. (This is in addition to the 10 stores closed during the first quarter 2005.)
  • Opening 30 new outlet stores in the United States and Canada over the next two to three years.
  • Consolidating into its St. Louis headquarters all buying, merchandise planning, and allocation functions for its U.S. and Canadian stores; and consolidating within its Madison, Wis., offices all retail accounting and IS support.
  • Strengthening and streamlining its Naturalizer Wholesale operations, adding talent in the sales, marketing and product development areas. The Company has recruited new leadership in each of these functions over the past three months.

As a result of these initiatives, Brown Shoe expects to realize an additional $5 million in pretax operating earnings on an annual basis, or 15 cents per share, primarily by improving the performance of its Specialty Retail segment. This reflects the elimination of losses incurred by the stores and reduced overhead cost, partially offset by the loss of upstream profit earned at the Naturalizer Wholesale division.

“With these retail and wholesale moves, we: 1) focus our stores in high- traffic fashion and outlet malls where our Naturalizer customer shops; 2) continue to increase our ability to bring customers 'the perfect balance of style and comfort' in their Naturalizer footwear, and 3) initiate new marketing to communicate the brand's essence and image,” Fromm said. “These initiatives now lay the groundwork for the brand's next step forward with consumers.”

The closing of the underperforming stores is expected to be completed by April, 2006, resulting in a Specialty Retail division with approximately 300 stores, 275 of which are Naturalizer stores. The 30 outlet stores will add to that total over the next two to three years.

In addition, Brown Shoe said it will test customer reactions to a new store prototype in fiscal 2005. Additional growth and remodeling will hinge on the outcome of these tests.

The Company anticipates the cost to implement this plan will be about $14 to $17 million pretax, or $0.45 to $0.55 per diluted share, for lease buyouts, severance, and inventory markdowns. Costs are expected to be recognized primarily over the remainder of fiscal 2005, as arrangements are made with landlords and stores are closed.

These actions are expected to be approximately cash neutral as the costs to exit the stores will be substantially offset by the cash generated from liquidating inventories carried in the stores.

“This plan results in a more productive store base. It adds talent to our wholesale organization. And it positions the Naturalizer brand to continue to build brand preference among consumers whether they shop in department stores, specialty stores or our Naturalizer stores,” Fromm said.

Updated Financial Guidance

As a result of these charges and costs, the earnings guidance issued on May 25, 2005 of $2.30 to $2.45 per diluted share, changes to $1.75 to $2.00 per share for fiscal 2005. This 2005 earnings guidance includes the Naturalizer charges of $0.45 to $0.55 for lease buyouts, severance, and inventory markdowns, and also, as previously reported, $0.55 per share to repatriate foreign earnings.

For the second quarter, the Company now estimates earnings per share guidance in the range of 11 cents to 18 cents, which includes approximately 14 cents to 16 cents in charges related to these actions.

“With this move and our acquisition of Bennett Footwear, we believe we have significantly increased the earnings potential of Brown Shoe on a go- forward basis,” said Fromm. “Beginning in 2006, these two initiatives combined should add 45 cents per diluted share to our earnings.”