Brown Shoe Company said results exceeded expectations in its fiscal first quarter ended May 2 thanks to strong sales of canvas, boot and sandal sales at Famous Footwear, growth at its Naturalizer, Striderite, Bzees and other Healthy Living brands and a less than expected hit to sales and margins from delays at West Coast ports.

“First quarter exceeded our expectations virtually across the board – including sales, margin and earnings – despite a late start to spring and caution around potential west coast port delays,” said BSW CEO, President and Chairman Diane Sullivan said May 27.

BWS raised its EPS guidance about 5 percent May 27 after reporting net earnings rose nearly 25 percent on a 1.9 percent increase in sales compared with the fiscal first quarter ended May 2, 2014. Net earnings came in at $19.3 million, or 44 cents per diluted share, up 24.8 percent from the prior year and 9 cents more than analysts had expected.

Famous Footwear rides canvas trend
At Famous Footwear, sales reached $360.0 million, up 1.5 percent year-over-year, excluding Shoes.com, which was sold in December of 2014. Same-store-sales were up 3.1 percent, with performance driven by continued strength in canvas, residual boot sales, and spring sandals. Sale per square foot rose 3.2 percent to $216 on a trailing 12 month basis. Famous Footwear ended the quarter with 1,040 stores, or six more than a year earlier.
While sales were flat in February, they improved alongside the weather in March. Sales of canvas shoes continued to strengthen and sandals performed well despite the late start to spring.

 “Our best-performing categories in the quarter, like canvas, are where we've invested for back-to-school; and our results to date leave us in good position for this key selling season,” said BWS CEO, President and Chairman Diane Sullivan.

Famous Footwear ended the quarter with higher conversion rates, average unit retail, and pairs per transaction across all regions. The extended winter, particularly in the Northeast, resulted in strong boot sales that enabled the company to  residual boot inventory at “a fairly nice margin.”

Gross margins grew 160 basis points to 46.7 percent, with about 60 percent of the increase coming from higher merchandise margins. Operating margins rose 50 basis points to 7.8 percent.

“Obviously we're in a cycle where some of our key vendors and the brands with the canvas business and the lifestyle business are trending very strongly, and those businesses have a tendency to be higher margins than some of the athletic performance businesses,” noted Famous Footwear President Rick Ausick.

One of the few areas of weakness was along the U.S.-Mexican border where the reduced purchasing power of the peso has resulted in lower sales at about two dozen Famous Footwear stores.

“The difference from over the last year is starting to get pretty aggressive on the decrease in traffic in those areas,” said Ausick.

Healthy Living brands drive wholesale business
At BWS's Brand Portfolio segment sales grew faster but margins eroded due to higher spending and latest deliveries. Sales grew 7.9 percent to  $242.3 million, driven by 9.1 percent growth in Healthy Living. Sales at Naturalizer grew 5.0 percent, while Dr. Scholl's and Lifestride posted low-double-digit gains along with related operating margin improvements.

Bzees such as the Flawless Slip-On shoe pictured above ($59), are made with molded, low density, EVA soles that have
micro-cellular air bubbles trapped within that enables them to be
lightweight, extremely soft and bouncy resulting in excellent
flexibility and cushioning.

“Every component of our Naturalizer brand family did well, whether it was Naturalizer or Natural Sole or BZees,” said Sullivan. “Right now, BZees is basically a sell-out everywhere.”

She added that effort to improve productivity at Naturalizer's retail business remains a work in progress.  Overall sandal sales were up in the low-single digits during the quarter, but have since slowed in a reversal of last year when a much later spring delayed sandal sales until May and June.  Still, sandal inventories are below their level of a year ago.

At Contemporary Fashion, sales grew 4.9 percent to $92.4 million compared to the year earlier quarter.
While the Brand Portfolio segment did have to accelerate markdowns on some brands due to late deliveries caused by the labor dispute at West Coast ports, they were less significant than expected. Segment gross margin fell 110 basis points to 33.2 percent while operating margins slipped 40 basis points to 4.6 percent. Same-store sales declined 2.5 percent on top of a 5.6 percent decline in the fiscal first quarter of 2014.

Better margins trigger upgrade
On a consolidated basis, BWS reported gross margin reached 41.3 percent, up approximately 30 basis points year-over-year. SG&A rose 20 basis points to 36.3 percent of net sales, reflecting expanded digital outreach at Famous Footwear and at some brands such as Sam Edelman. For the quarter, operating margins improved approximately 10 basis points year-over-year to 5.0 percent. Net earnings came in at $19.3 million, or $0.44 per diluted share, up 24.8 percent from the prior year.

Inventory at the end of the first quarter was $498.5 million, down 2.8 percent from $512.8 million in the prior year. Famous Footwear inventory was down 1.2 percent, excluding Shoes.com, while Brand Portfolio inventory was up 1.0 percent. BWS ended the quarter with no borrowings against its revolving credit facility and had $66.3 million of cash and equivalents. The company’s debt-to-capital ratio improved to 26.4 percent from 28.8 percent in the first quarter of 2014.

The performance prompted BWS to raise its diluted EPS guidance for 2015 by about 5 percent to $1.84 to $1.94. It also raised its gross margin guidance by approximately 15 basis points. The company still expects consolidated net sales of $2.61-to-$2.63 billion and same-store sales at Famous Footwear to rise in the low-single digits, with reported sales roughly flat year over year due to the sale of Shoes.com at the end of 2014. Net sales for the brand portfolio segment are expected to rise in the mid-single digits.

Executives said they see the canvas trend continuing through at least the third quarter and expect shearling boots to remain strong again this fall.

Caleres name takes effect Thursday
The forecast helps explain why the company will change its name on Thursday, May 28, to Caleres. The new name is derived  from the Latin word “calere,” which means “to be hot with passion, inflamed, active or driven.”
“When you think about the name Brown Shoe, it conjures up a certain image in your mind that really doesn't reflect the company that we are today,” Sullivan said.

Ausick acknowledged there may be pricing pressure between now and July 4 from off-price retailers like T.J. Maxx and DSW, which have scooped up spring merchandise at deep discounts thanks to delays at West Coast ports.  But he said he can't see that affecting the company's canvas and athletic sales, which comprise more than half Famous Footwear's sales.

“I think you're talking about a relatively small portion of our inventory, or our business that will be impacted, if at all,” he said.