Brown Shoe Returns to Profitability in Q1; Famous Footwear’s Comps Climb 15.5%

On an adjusted basis, excluding charges related to the company's information technology initiatives, net earnings were $11.2 million, or 26 cents per share, compared with a net loss of $5.9 million, or 14 cents per diluted share, in the first quarter of 2009. 

Ron Fromm, Brown Shoe's Chairman and Chief Executive Officer, said, “We are very pleased with our first quarter results, which significantly exceeded our original expectations. Our strong sales momentum from the back-half of 2009 continued into the first quarter, as we capitalized on consumer lifestyle shifts and key product trends, supported by compelling consumer marketing.  The sales performance was broad-based across our multi-channel portfolio, with exceptional growth in our Famous Footwear, Naturalizer, and contemporary fashion brands.  Moreover, our retail sales momentum has continued into the second quarter and we see strengthening wholesale order placements due to improved sell-through as well as retailers placing orders earlier and farther out as Far East factory capacity tightens.”

Fromm concluded, “The steps we've taken the last four years have driven our recent success through our cost-reduction programs, store productivity and real estate portfolio initiatives, infrastructure enhancements, and our investments in marketing and talent.  All of our segments generated improved gross margins and operating earnings in the quarter and we will continue to drive our business momentum with increased inventory support and marketing investments to generate sustainable growth while improving profits to higher return levels.”

Consolidated Results for the First Quarter of 2010

Net sales were a first quarter record of $597.7 million, increasing 10.9% versus $538.7 million in the year-earlier quarter. Famous Footwear net sales were also a first quarter record, improving 14.0% to $362.2 million, driven by a 15.5% same-store sales increase. Net sales in the Wholesale division rose 3.5% to $174.7 million. Net sales in the Specialty Retail division were $60.8 million, reflecting a 16.2% same-store sales increase.

Gross profit rate climbed 280 basis points to 41.4% of net sales versus the year-ago level of 38.6%.

The key driver was a 230 basis point improvement in gross profit rate in the Famous Footwear division versus the same period last year, reflecting improved sell-through associated with its sharper focus on trend-right merchandise across all categories as well as fewer promotional weeks than in the year-ago period.

Additionally, the Wholesale division achieved a 310 basis point improvement in gross profit rate, attributable primarily to lower markdowns and allowances, resulting from improved sell-through rates at retail, and the growth of higher-margin brands.  The Specialty Retail division generated a 150 basis point improvement, resulting from strong product styling and more full-priced selling.

Selling and administrative expenses in the first quarter of 2010 increased $11.8 million to $224.5 million.  As a% of net sales, expenses were 37.5%, a decrease of 190 basis points resulting from expense leverage from the company's improved net sales performance.  The year-over-year increase in expense was principally related to higher incentive compensation costs due to improved performance.  These increases were partially offset by operating 62 fewer stores across the retail portfolio and expense controls across the enterprise.

Net restructuring and other special charges were $1.7 million in the first quarter of 2010 and $2.6 million in the first quarter of 2009.  Charges in both years were related to the company's information technology initiatives.

Operating earnings improved to $21.3 million, contrasted with an operating loss of $7.2 million in the first quarter of 2009.

Net interest expense was $4.5 million, a decrease of $0.6 million from the year-ago period, primarily due to lower average borrowings on the company's revolving credit facility.

The company's tax rate in the first quarter of 2010 was 37.4%, driven by the greater mix of earnings from the retail divisions, which operate in taxing jurisdictions that have higher tax rates than the Wholesale division.

Net earnings were $10.0 million, or $0.23 per diluted share, versus a net loss of $7.6 million, or $0.18 per diluted share, in the year-ago quarter.  First quarter of 2010 net earnings included after-tax charges of $1.2 million, or $0.03 per diluted share, related to the company's information technology initiatives.  First quarter of 2009 net loss included after-tax charges of $1.7 million, or $0.04 per diluted share, related to the company's information technology initiatives.

Inventory at quarter-end was $431.5 million, a 5.6% increase from the year-ago level of $408.5 million.  Average inventory on a per-store basis at Famous Footwear increased 15.9% at quarter-end, reflecting recent sales trend and near-term outlook including its investment in higher-priced categories.  Inventory at its Wholesale division decreased 3.0% year-over-year.

At quarter-end, the company had no borrowings against its revolving credit facility and had $59.5 million in cash and cash equivalents.

Outlook

Based on the current outlook, the company expects the following: