Brown Shoe Company, Inc. raised its EPS guidance for the year as robust back-to-school sales at Famous Footwear, healthy sales at its Contemporary Fashion and Healthy Living brand portfolios, and early benefits from its portfolio realignment strategy supported a better-than-expected third quarter.

Still, getting much of the attention was management’s indication that it had no plans to ramp up promotions this holiday season to drive sales.
 
On a conference call with analysts, Richard Ausick, division president, Famous, noted that in viewing Black Friday ads, the $19.99 boot promotion “seems to be now worldwide.” But he said Famous’ team doesn’t “feel like it’s worth the time and execution to do for a low margin business,” and is planning promotions “about the same” as last year.

He also noted that Famous’ traffic wasn’t overly hurt the prior year when the boot promotions first arrived and the chain has other ways to draw its shoppers’ interest.

“We have some items we think are great items that we will have values on in our stores that are already part of our digital effort,” said Ausick. “We are doing a digital tab this versus a paper tab which is the first time we have done that on a event like this. So we will see how that goes. But we believe it will be fine.”

In the third quarter, sales rose 2.6 percent to $732.2 million. Excluding exited brands, sales were up 4.2 percent year-over-year. Results for both the third quarter of 2012 and 2011 included sales of $15.6 million and $25.8 million, respectively, from brands and businesses the company has exited.

Net earnings fell to $24.3 million, or 56 cents per share, from $33.7 million, or 79 cents, in 2011. The latest quarter included portfolio realignment charges of $2.6 million. The third quarter of 2011 included a $21.6 million gain on the sale of AND 1, which was partially offset by realignment and integration costs of $5.6 million.

On an adjusted basis, net earnings improved 18.3 percent to $25.9 million, or 60 cents per share. Earnings came in well ahead of Wall Street’s consensus estimate of 46 cents a share.

Gross margins for the quarter improved to 39.0 percent from 38.7 percent in 2011. SG&A margin was down 40 basis points to 33.1 percent.

By segment, Famous Footwear’s revenues increased 4.9 percent to $436.8 million. Same-store sales ran ahead 6.8 percent, with the back-to-school season up 5.5 percent and the momentum continuing in October. In the year-ago quarter, comps had declined 0.4 percent.

Adjusted operating earnings at Famous improved 26.5 percent to $35.9 million, benefiting from the top-line growth, flattish margins, and reduced expenses from underperforming stores closed or relocated. The chain had 60 fewer stores year-over-year, and Famous remains on track to close or relocate 90 stores this year while opening 55. Also helping profitability is ongoing rent renegotiations. The adjusted gross margin rate was 42.7 percent, slightly down from 42.8 percent a year ago.

On the call, Diane Sullivan, president and CEO, said beyond BTS, the shift to digital offers from paper tabs helped drive a 2 percent gain in same store traffic at Famous. Conversions were up 3.4 percent and footewar AUR was up 1.3 percent.

“We had positive same store comps across channels and geographies from coast to coast and border to border, regardless of climate,” said Sullivan.

Among categories, running was up 13.4 percent; boat shoes vaulted 118 percent; and sandals were up slightly over 8 percent. Women’s boots were up 13.4 percent in the quarter “and we feel good about casual boot sales for the fourth quarter” said Sullivan. Accessories also sold well.

Average revenue per square foot improved 10.3 percent year-over-year in the quarter. Stores opened in the first nine months of the year are averaging sales of more than $205 square foot, better than internal expectations.

Hurricane Sandy is expected to have a little more than $2.5 million impact on fourth quarter sales. About 230 stores were closed although all but four were up and running within nine days.

In its Wholesale Operations segment, sales slipped 0.4 percent to $232.6 million. Excluding exited brands, Wholesale Operations sales were up 3.3 percent year-over-year. Operating profits on an adjusted basis jumped 21.2 percent, to $17.0 million. Adjusted gross margins were up slightly, to 30.7 percent from 30.5 percent a year ago.

Contemporary Fashion platform wholesale sales were up 5.2 percent in the third quarter, with Sam Edelman, Franco Sarto and Fergie brands all delivering strong performance. In the Healthy Living portfolio, wholesale sales were up 2.1 percent, with double-digit gains from LifeStride and Ryka and continued improvement from Dr. Scholl’s. Sullivan noted that Ryka “had profitable growth in the quarter as it benefited from expanded distribution of key new styles.” Other athletic brands in the segment include Avia and Nevados.

In its Specialty Retail segment, which includes its Naturalizer chain, famous.com and shoes.com, sales declined 1.8 percent to $62.8 million; operating income on an adjusted basis improved to $2.1 million from $53,000 a year ago. Gross margins reached 44.7 percent from $43.6 percent. External e-commerce site sales were up 50 percent while its famous.com site was up 25 percent. Same store sales at its Naturalizer retail stores were up 8.4 percent.

Inventory at the end of the third quarter was $539.4 million, down 7.0 percent compared to $580.2 million in the prior year. Wholesale inventory was down 23.0 percent, while Famous Footwear inventory was flat.

For the full year, Brown raised its adjusted EPS guidance range to $1.06 to $1.10 for 2012, up from a range of 85 cents to 95 cents given in late August. Same store sales at Famous Footwear are expected to rise in the low single digits. Net sales at wholesale operations are projected to be down low to mid-single digits, reflecting business exits. Gross profit margin is projected to improve 20 to 40 basis points.