Brown Shoe Co., the parent of Famous Footwear, reported earnings before special items more than doubled in the second quarter, exceeding internal expectations. Famous Footwear delivered record second quarter sales and operating profit with comps ahead 6.8 percent. Its wholesale platforms – Healthy Living and Contemporary Fashion – reported double-digit increases in sales.

Net sales reached $621.7 million, up 10.1 percent versus second quarter 2012 net sales of $564.9 million, excluding sales from discontinued operations for both quarters. Results for the second quarter of 2013 and 2012 included sales of $1.0 million and $2.8 million, respectively, from brands and businesses the company has exited.

On a GAAP basis, the company reported net earnings of $15.4 million, or 35 cents per diluted share, in the second quarter of 2013 versus a loss of $2.5 million, or 6 cents per diluted share, in the prior year. Second quarter 2013 results included $1.8 million of pre-tax costs associated with portfolio realignment efforts ($1.2 million of income on an after-tax basis, or $0.02 per diluted share). The second quarter of 2012 included $14.6 million of costs related to the portfolio realignment and for other organizational changes ($9.3 million on an after-tax basis, or $0.22 per diluted share).

On an adjusted(1) basis, second quarter net earnings of $14.2 million, or 33 cents per diluted share, improved 108.3 percent compared to $6.8 million, or $0.16 per diluted share, in the prior year. Gross profit margin for the second quarter of 2013 improved to 41.0 percent from 40.3 percent in 2012.

“For the second quarter, we exceeded expectations with an improvement in adjusted EPS of over 100 percent. While consolidated net sales were up $57 million in the quarter – or 10 percent year-over-year – approximately $22 million of this amount was timing related, due to a shift in sales to the second quarter from the third quarter,” said Diane Sullivan, president and chief executive officer of Brown Shoe Company. “Both retail and wholesale contributed to this quarter’s success, with Famous delivering record second quarter sales and operating profit and both of our wholesale platforms — Healthy Living and Contemporary Fashion — reporting double-digit increases in sales.”
                        

US$M, except per share (unaudited)



13 Weeks
2Q


2Q’13
 
 2Q’12
Change

Consolidated net sales
 
 
$621.7
 
$564.9
 
10.1%

Famous Footwear
 
 
388.2
 
350.3
 
10.8%

Wholesale Operations
 
 
180.5
 
160.6
 
12.4%

Specialty Retail
 
 
53.0
 
54.0
 
(1.8%)

Gross profit
 
 
254.6
 
227.6
 
11.8%
Margin
 
 
 41.0%
 
 40.3%
 
 70 bps

SG&A
 
 
231.1
 
211.7
 
9.1%
% of net sales
 
 
 37.2%
 
 37.5%
 
 (30 bps)

Restructuring and other special charges, net
 
 
0.7
 
7.3
 
(89.9%)

Operating earnings
 
 
22.8
 
8.6
 
164.6%
% of net sales
 
 
 3.7%
 
 1.5%
 
 220 bps

Net interest expense
 
 
5.1
 
5.5
 
(8.2%)

Earnings from continuing operations before income taxes
 
 
17.7
 
3.1
 
479.6%

Tax rate
 
 
 23.1%
 
 40.6%
 
 —

Net earnings (loss) from discontinued operations
 
 
1.7
 
(4.5)
 
136.7%

Net earnings (loss)
 
 
$15.4
 
($2.5)
 
705.8%
Per diluted share
 
 
 $0.35
 
 ($0.06)
 
 683.3%

Adjusted net earnings
 
 
$14.2
 
$6.8
 
108.3%
Per diluted share
 
 
 $0.33
 
 $0.16
 
 106.3%









 


Second Quarter Highlights

Famous Footwear second quarter 2013 sales of $388.2 million were up 10.8 percent year-over-year, while same-store-sales were up 6.8 percent. The strong performance was led by good sales growth in running, sandal and canvas shoe styles. During the quarter, the company closed or relocated 14 stores and added 19 new stores, as average revenue per square foot continued to improve.

Wholesale sales of $180.5 million were up 12.4 percent in the second quarter, excluding sales from discontinued brands. For the Healthy Living platform, wholesale sales of $106.1 million were up 14.4 percent, excluding sales from discontinued brands, reflecting double-digit sales growth at Naturalizer, LifeStride and Dr. Scholl’s. The company’s Contemporary Fashion wholesale sales of $73.4 million were up 10.2 percent in the second quarter, excluding sales from discontinued brands, with good growth from Sam Edelman and Franco Sarto. Wholesale gross margin of 31.0 percent expanded by 20 basis points over the previous second quarter, due to improved initial margins and reductions in markdown and allowance provisions.

Consolidated gross profit of $254.6 million was up 11.8 percent in the second quarter, while gross margin of 41.0 percent improved by approximately 70 basis points versus the prior year. SG&A for the second quarter was $231.1 million, or 37.2 percent of net sales, which was down approximately 30 basis points from 37.5 percent of net sales in the prior year. For the quarter, operating margins improved 220 basis points to 3.7 percent.

Inventory at the end of the second quarter was $615.9 million, up from $586.0 million in the prior year. Wholesale inventory was up 4.3 percent, while Famous Footwear inventory was up 3.4 percent.

At quarter-end, Brown Shoe Company had $498.1 million in availability under its revolving credit facility and $53.1 million in cash and cash equivalents. The company’s debt-to-capital ratio improved to 34.2 percent from 43.6 percent in the second quarter of 2012.

Financial Review and 2013 Outlook

“Despite uneven weather patterns and a decline in retail traffic, our performance in the first half of the year exceeded expectations. As a result, we are increasing our adjusted EPS guidance to $1.27 to $1.32 for fiscal 2013,” said Russ Hammer, chief financial officer of Brown Shoe Company. “However, approximately $22 million of back-to-school and wholesale sales — or approximately $0.09 of adjusted EPS — shifted to the second quarter from the third quarter this year, and those sales have already been accounted for in our second quarter results. For the back half of the year, we are maintaining a realistic but cautious stance, as we continue to monitor the macro retail environment.”
         



 
 
Metric

FY’13

Consolidated net sales
 
 
$2.53 to $2.56 billion

Famous Footwear same-store sales
 
 
Up low-single digits

Wholesale Operations net sales
 
 
Up low- to mid-single digits for continuing operations

Gross profit margin
 
 
Flat for continuing operations

SG&A
 
 
$910 to $915 million

Non-recurring costs
 
 
$31 million

Net interest expense
 
 
$21 to $22 million

Effective tax rate, on adjusted basis
 
 
31% to 32%

Earnings per diluted share
 
 
$0.73 to $0.78

Adjusted earnings per diluted share
 
 
$1.27 to $1.32

Depreciation and amortization
 
 
$54 to $56 million

Capital expenditures
 
 
$55 to $57 million