An increase in stores and marketing activity failed to counter slower consumer spending at Famous Footwear in the third quarter ended Nov. 1, 2008. Net sales for the footwear chain were $362.7 million, a 0.5% increase, compared to $361.0 million last year. Same-store sales decreased by 5.0% in the quarter, as compared to a decrease of 2.6% in the comparable 2007 period. Gross margins declined 70 basis points, as Famous Footwear increased promotional activity to maintain market share and manage inventory.
Famous Footwears parent company, Brown Shoe, lowered its fiscal 2008 guidance to reflect the weakening economic outlook and its decision to scrap a headquarters redevelopment plan that had been expected to generate gains. Consolidated net sales expectations have been lowered to $2.27 billion to $2.29 billion for the full year and $515 million to $538 million for the fourth quarter. Famous Footwear same-store sales are expected to be -5.1% to -4.4% for the full year and -5.0% to -7.0% in the fourth quarter. Earnings are predicated to be in the range of 9 cents to 18 cents per diluted share for the full year. This includes aggregate nonrecurring items of 33 cents per diluted share, 43 cents related to transitioning to a new headquarters, 5 cents for an ERP project offset by 15 cents in insurance recoveries back in the first quarter.
While traffic was down 6.9% from last year and conversion was down 2%, Famous Footwears pairs per transaction were up 2.3%. On a same-store sales basis the athletic business posted a relatively flat performance with sales comping down just at 0.3%. The womens business was down 10.2%, men's business down 9.8% and the kids business was down 12.3% during the quarter. Famous Footwears accessory business achieved a 4.1% increase in comp sales.
Famous Footwear opened 18 new stores and closed seven during the quarter, resulting in 1,138 stores open at the end of the quarter, compared to 1,060 during the year-ago period. Inventory at quarter-end was $469.3 million, as compared to $440.9 million at the end of the third quarter of 2007. The year-over-year increase was due primarily to the 78 net additional stores at Famous Footwear. Average inventory on a per store basis was flat during the quarter. The company now expects to open 89 new Famous Footwear stores and close 25 stores for the full year.
BWS has reduced its new store opening plans for 2009 to a net of 25 Famous Footwear stores and reduced the number of store remodels.. BWS continues on-pace and on-budget with its logistics and information technology initiatives, as they are both strategically important and are expected to generate significant operating efficiencies when completed. In total, BWS expects to reduce its capital spending plan for the 2009 to 2011 timeframe by $72 million.
“Our portfolio is shifting toward higher-margin brands and away from low-margin private-label,” commented BWS Chairman and CEO Ron Froom. “We see this as positive movement that will be accelerating in the years ahead In doing so we will change the pace of expenditures for new stores and major capital projects. We have dramatically cut our store expansion plans for the 2009-2011 timeframe.
Total inventory at quarter end was $469.3 million, up 6.5% from $440.9 million at third-quarter end last year. Inventory at Famous Footwear was up 9% to $352.4 million but was flat on a per-store basis, which President Joe Wood attributes to the 78 net new stores open since the third quarter of last year.
As BWS enters the holiday shopping season, the company has not reduced marketing spending. “We believe this effort will enable us to gain market share,” commented Wood. “Given the more than 6 million loyalty members in our rewards program, we actively communicate with this group by e-mail, direct mail and through CRM. We will also maintain our marketing in other channels such as print and media to ensure that Famous Footwear remains a key destination for holiday. This holiday season we will continue to maintain our strict inventory discipline, making sure that we position Famous for first quarter receipts of next year.”
