Brown Shoe Company, Inc. reported net earnings increased 61.2 percent to $11,556,000 for the second fiscal quarter ended August 2, 2003, compared to year-ago earnings of $7,169,000. Earnings per diluted share for the period were up 55.0 percent to $0.62, from $0.40 per diluted share last year.
Consolidated net sales for the second quarter of 2003 were $458,384,000, compared to $456,255,000 in last year's second quarter, an increase of 0.5 percent.
For the first half of fiscal 2003, net earnings were up 38.9 percent, to $20,559,000 or $1.11 per diluted share, from $14,802,000, or $0.83 per diluted share, the year before. Sales increased 0.2 percent during the six months to $904,828,000, compared with $902,993,000 last year.
“Our second quarter results were driven by our ability to realize strong gross margins while maintaining tight expense controls,” said Brown Shoe Chairman and CEO Ron Fromm. “This performance allowed us to exceed the expectations we set at the beginning of the quarter. Our strategy, which relied less on promotions and more on delivering fashion-trend-right assortments, proved highly successful in an environment where declines in consumer traffic were reported across the country.”
Famous Footwear nearly doubled its operating earnings, more than offsetting the decline in operating earnings at wholesale. For the first half of 2003, operating margins at Famous Footwear improved to 4.4 percent from 3.3 percent for the year-ago period.
“Our wholesale results were affected by a retail environment that became over-inventoried, and by our planned investments in marketing and footwear design talent,” said Fromm. “Our brands, however, continued to win market share in this tough environment. Among the top selling styles at U.S. department stores throughout the last five months, according to NPD, were Naturalizer, LifeStride and Original Dr. Scholl's.”
The Company maintained its strong balance sheet position. Inventories at quarter end were current. Cash flow from operating activities remained strong, and the debt to capital ratio at the end of the quarter improved to 29.2 percent from 38.8 percent at the end of the year-ago quarter.
Second Quarter Retail Results
As previously reported, total sales at Famous Footwear, the company's 909-store family footwear chain, were $268,931,000 for the quarter, versus $270,756,000 for the same 13-week period last year. Same-store sales for the period were down 2.9 percent. Operating earnings for the chain improved to $12,904,000, versus year-ago operating earnings of $6,861,000, an increase of 88.1 percent.
Famous Footwear continues to benefit from buying, merchandising and inventory initiatives begun in 2001. These initiatives have led to higher margins, and are generating record-high purchase ratios, despite a decline in retail traffic.
“As we enter the third quarter's important back-to-school period — a time when millions of consumers come through our doors — the chain will maximize the seasonal opportunity to reintroduce consumers to our improved product assortments and updated store format by increasing its marketing spend,” Fromm said.
Naturalizer Retail, the company's 386-store chain selling the Naturalizer brand of women's shoes in both the U.S. and Canada, posted combined second quarter sales of $49,673,000 compared to $50,204,000 for the same period last year, on a base of 26 fewer stores. Same-store sales increased 4.5 percent during the quarter for the 213 U.S.-based stores, and decreased 1.0 percent for the 173 Canadian stores. Operating loss for the quarter was $1,012,000 compared to an operating profit of $33,000 a year-ago, primarily due to the promotional environment and same-store sales decrease in the Canadian retail business.
Year-to-date, Famous Footwear has opened 32 new stores and closed 41 stores that were in less desirable locations; Naturalizer U.S. has opened 2 new stores and closed 6; and Naturalizer Canada opened 1 new store.
Second Quarter Wholesale Results
Wholesale sales for the quarter were $137,903,000, up 2.8 percent versus $134,207,000 last year. Wholesale sales for the LifeStride brand were up 26 percent. While wholesale sales for Naturalizer were down 4 percent versus the year ago quarter, both brands gained market share in the department store channel as measured by NPD. Sales gains also were achieved at the Buster Brown & Co. children's division and in the men's and athletic footwear group. Brown Shoe's wholesale businesses sell branded, private label and licensed footwear for women, men and children in the U.S., Canada and several international markets.
Operating earnings for the wholesale businesses were $12,568,000 compared to $13,168,000 for the prior-year quarter, a decrease of 4.6 percent. Improvements in wholesale gross margins were offset by increased investment spending in marketing and talent to support the further building of wholesale brands and licenses. Also impacting performance was the highly promotional U.S. department store environment, as well as difficult market conditions and lower wholesale margins in Canada.
At the end of the quarter, unshipped wholesale orders were up 3 percent versus quarter-end last year.
“As we look ahead, we remain excited by the opportunities afforded us by our combined wholesale and retail model and strengthened operating platform. Purchase ratios validate that we have improved the Famous Footwear shopping experience. Our ability to consistently deliver wholesale shoes, which rank among the top 10 patterns, demonstrates the benefits of our product testing capabilities and our more closely allied product development teams. In addition, further efficiencies created by our IMPACT initiatives continue to allow for interest savings as we run the business with lower inventory levels,” Fromm said.
Forward-Looking Guidance:
With respect to forward-looking guidance for fiscal 2003, Brown Shoe reiterates its earnings per share estimate of $2.75, which compares favorably to fiscal 2002 earnings per share of $2.52. This guidance is predicated upon the continuing positive low-single-digit same-store retail performance achieved with early back-to-school business, but anticipates a highly promotional marketplace. Therefore, looking toward the second half of 2003, the Company expects:
- Famous Footwear, to increase its investment in its stores and marketing in order to capitalize on traffic flow that develops with the back-to-school and holiday seasons.
- Wholesale operating earnings to increase, even as difficult comparisons exist versus the fourth quarter of 2002, when concerns about labor issues at West Coast ports caused some retailers to shift certain spring 2003 receipts into fourth quarter 2002.
“In summary, increased investment spending in marketing and in stores at Famous Footwear is expected to offset our strengthening business at Wholesale. We believe these planned investments are necessary and will result in many years of sustained growth for our Company. Brown Shoe therefore estimates earnings per share will be in the range of $1.00 to $1.10 for the third quarter versus $1.18 for the year-ago quarter,” Fromm said.
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share)
Thirteen Weeks Ended Twenty-six Weeks Ended
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
Net Sales $458,384 $456,255 $904,828 $902,993
Cost of Goods Sold 270,519 278,418 531,836 544,550
Gross Profit 187,865 177,837 372,992 358,443
Selling & Administrative
Expenses 169,274 163,336 338,823 328,571
Operating Earnings 18,591 14,501 34,169 29,872
Interest Expense 2,517 3,038 5,423 6,666
Other (Income) Expense (129) 1,335 16 1,945
Earnings Before
Income Taxes 16,203 10,128 28,730 21,261
Income Tax Provision 4,647 2,959 8,171 6,459
NET EARNINGS $ 11,556 $ 7,169 $ 20,559 $ 14,802
Basis Net Earnings per
Common Share $ .66 $ .41 $ 1.17 $ .85
Diluted Net Earnings per
Common Share $ .62 $ .40 $ 1.11 $ .83
