Brown Shoe Co. reported a loss of $8.2 million, or 21 cents a share, in the fourth quarter against earnings of $3.4 million, or 4 cents, a year ago. On an adjusted basis, net earnings were $4.1 million,
or 10 cents per share, compared to $5.0 million, or 11 cents, in the fourth quarter of 2010.
Gross profit margin in the
fourth quarter of 2011 was 37.9 percent versus 38.9 percent in the prior year.
Revenues in the quarter increased 4.0 percent to $628.9 million from $604.5 million a year ago.
For the full year, net sales were $2.6 billion, an increase compared to 2010 net sales of $2.5 billion. Full year net earnings of $24.6 million, or 56 cents per diluted share, were down compared to $37.2 million, or 85 cents per diluted share, in 2010. On an adjusted basis, net earnings were $30.3 million, or 70 cents per diluted share, compared to $42.5 million, or 97 cents per diluted share, in the prior year. Gross profit margin for 2011 was 38.6 percent versus 40.1 percent in 2010.
On Nov. 21, when it released third-quarter results, Brown Shoe lowered its EPS guidance for 2011 due to plans to exit some
of its wholesale brands, IT implementation expenses, and eroding sales
trends at retail. The new forecast called for EPS of 73 to 85 cents for
2011, down from a range of 85 cents to 97 cents provided in late August.
The company also revealed plans to shutter about 13 percent of its
Famous Footwear store base and license out its Buster Brown, Sam Edelman
and Avia wholesale children’s brands.
“With the fourth quarter, we concluded a challenging year by continuing to execute against our previously announced portfolio realignment efforts, and this included evaluating and reducing the indirect costs associated with the businesses we have exited,” said Diane Sullivan, president and chief executive officer of Brown Shoe Company. “Since our third quarter 2011 earnings call, we have closed our factory in JiangXi, China, developed plans for the closure of our distribution center in Sikeston, Mo., and worked to identify an additional 15 Famous Footwear locations to be closed in 2012.”
“For 2011, in addition to delivering revenue of $2.6 billion and adjusted earnings of $0.70, we made significant headway in setting the stage for an improved 2012 and accelerated our ability to more quickly deliver stronger returns to our shareholders,” continued Sullivan. “For 2012, we will build on these efforts, while delivering great product — on time and on quality — and executing against expectations.”
US$M, except per share (unaudited) 13 Weeks 52 Weeks
4Q'11 4Q'10 Change 4Q'11 4Q'10 Change
Famous Footwear 352.4 355.5 (0.9%) 1,456.3 1,486.5 (2.0%)
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Wholesale Operations 205.1 173.9 17.9% 870.9 754.4 15.4%
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Specialty Retail 71.4 75.1 (5.0%) 255.6 263.2 (2.9%)
------------------------------------------------------------ ======= ====== -------- =========== ======== ========
Consolidated net sales $628.9 $604.5 4.0% $2,582.8(1) $2,504.1 3.1%
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Gross profit 238.6 235.3 1.4% 996.6 1,003.6 (0.7%)
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Margin 37.9% 38.9% -100 bps 38.6% 40.1% -150 bps
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
SG&A expenses 230.0 226.9 1.3% 937.3 923.0 1.6%
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
% of net sales 36.6% 37.5% -90 bps 36.3% 36.9% -60 bps
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Net restructuring, other special charges 16.5 2.5 n/m 23.7 7.9 n/m
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Operating earnings (loss) (7.9) 5.9 (233.2%) 35.6 72.7 (51.1%)
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
% of net sales (1.3%) 1.0% -230 bps 1.4% 2.9% -150 bps
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Net interest expense (5.8) (5.3) 9.8% (26.5) (19.5) 36.3%
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Earnings (loss) from continuing operations before income tax (13.7) 0.6 n/m 9.1 53.2 (83.0%)
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Discontinued operations (1.4) - n/m 15.7 - n/m
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Net earnings (loss) (8.2) 3.4 (345.2%) 24.6 37.2 (34.0%)
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Per share ($0.21) $0.08 (362.5%) $0.56 $0.85 (34.1%)
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
Adjusted per share $0.10 $0.11 (9.1%) $0.70 $0.97 (27.8%)
------------------------------------------------------------ ------- ------ -------- ----------- -------- --------
(1) Excludes $19.7 million from discontinued operations
Full Year Highlights
Famous Footwear reported a year-over-year decline in 2011 net sales of (2.0 percent), which was the result of a (48.6 percent) decrease in toning sales. Excluding toning, net sales were up 0.9 percent, due to strength in running and sandal sales. For 2011, same store sales at Famous Footwear decreased (1.2 percent) versus a 10.5 percent gain in 2010. During the year, the company closed 70 stores — which included both relocations and underperforming locations — while adding 49 new stores. On a year-over-year basis, the total number of stores decreased to 1,089 from 1,110.
Wholesale Operations net sales improved 15.4 percent compared to 2010, as a result of the ASG acquisition completed in February of 2011. Legacy Wholesale Operations net sales were down (2.5 percent) versus growth of 19.4 percent in 2010, as the company's Dr. Scholl's Shoes brand continued to feel pressure from a year-over-year decline in toning sales.
Consolidated gross profit was down slightly in 2011, while gross profit margin declined 150 basis points versus the prior year. The reduction in gross margin, when compared to 2010, was primarily due to both lower sales and a decline in gross margin at Famous Footwear related to a decrease in toning sales and lower prices for toning shoes. Gross margins were also negatively impacted by mix shift. For 2011, retail and wholesale net sales were 66 percent and 34 percent, respectively, compared to 70 percent and 30 percent in 2010.
GAAP earnings per diluted share for 2011 of $0.56 included a $0.04 gain from portfolio realignment efforts — including a $0.32 gain from the sale of AND 1, partially offset by ($0.28) of costs associated with exiting various Wholesale Operations brands — ($0.16) of ASG acquisition and integration related costs and a ($0.02) loss on early extinguishment of debt. Excluding these items, adjusted earnings were $0.70 per diluted share. For 2010, GAAP earnings per diluted share of $0.85 included ($0.10) of costs related to the company's IT initiatives and ($0.02) of acquisition costs. Excluding these items, adjusted earnings were $0.97 per diluted share.
Fourth Quarter Highlights
Famous Footwear reported a year-over-year decline in fourth quarter net sales of (0.9 percent), as growth of 39.1 percent in running and 14.8 percent in sandals sales was unable to offset a (59.3 percent) decrease in toning and a (5.7 percent) decrease in boot sales. In the fourth quarter, same store sales at Famous Footwear decreased (0.8 percent) versus a 4.9 percent gain in 2010. During the quarter, the company closed 38 stores — including both relocations and underperforming locations — and added six new stores.
Wholesale Operations net sales improved 17.9 percent over the fourth quarter of 2010, primarily due to the ASG acquisition. Legacy Wholesale Operations net sales were up 1.7 percent versus a 15.1 percent improvement in the fourth quarter of the prior year. The company saw continued growth in its Contemporary Fashion portfolio, during the fourth quarter of 2011, led by the Sam Edelman, Franco Sarto and Vera Wang brands.
Consolidated gross profit increased 1.4 percent in the fourth quarter, while gross profit margin declined 100 basis points. The reduction in gross margin, when compared to the fourth quarter of 2010, was primarily due to increased promotional activity at Famous Footwear during the quarter. In Wholesale Operations, the acquisition of ASG — together with strong performance from the company's Sam Edelman, Franco Sarto, LifeStride and Vera Wang brands — contributed positively to gross margin in the fourth quarter of 2011. Gross margins were, however, negatively impacted by mix shift. Retail and wholesale net sales were 67 percent and 33 percent, respectively, in the fourth quarter of 2011, compared to 71 percent and 29 percent in the prior year.
For the fourth quarter of 2011, the company reported a loss per diluted share of ($0.21) on a GAAP basis, which included ($0.27) of portfolio realignment costs — including costs associated with exiting various Wholesale Operations brands and a ($0.04) adjustment on the gain on the sale of AND 1 — and ($0.04) of ASG acquisition and integration related costs. Excluding these items, adjusted earnings were $0.10 per diluted share. For the fourth quarter of 2010, GAAP earnings per diluted share of $0.08 included ($0.02) of costs related to the company's IT initiatives and ($0.01) of acquisition costs. Excluding these items, adjusted earnings were $0.11 per diluted share.
Inventory at the end of the fourth quarter was $561.8 million, up 7.2 percent compared to $524.3 million in the fourth quarter of 2010. Famous Footwear inventory was down, while Wholesale Operations inventory was up, with the majority of the year-over-year increase a result of the ASG acquisition. At quarter-end, Brown Shoe Company had approximately $296.7 million in availability under its revolving credit facility and $47.7 million in cash and cash equivalents.
Financial Review and 2012 Outlook
“For 2012, while we expect to recover a portion of our 2011 SAP costs, and believe any potential impact from toning will be manageable, we are nonetheless planning cautiously and expect to see adjusted EPS of $0.78 to $0.92,” said Mark Hood, chief financial officer of Brown Shoe Company. “We expect results to be more heavily weighted toward the third and fourth quarters, as the portfolio realignment work we are completing in the first and second quarters will begin to deliver in the back half of the year.”
Metric FY'12
Consolidated net sales $2.55 to $2.58 billion
---------------------------------------------------- ----------------------------------------------
Famous Footwear same-store sales Flat to up low single-digits
---------------------------------------------------- ----------------------------------------------
Wholesale Operations net sales Down low single-digits, reflecting brand exits
---------------------------------------------------- ----------------------------------------------
Gross profit margin Up 70 to 100 basis points
---------------------------------------------------- ----------------------------------------------
SG&A $925 to $930 million
---------------------------------------------------- ----------------------------------------------
Non-recurring costs related to portfolio realignment $12 to $15 million
---------------------------------------------------- ----------------------------------------------
Net interest expense $23 to $25 million
---------------------------------------------------- ----------------------------------------------
Effective tax rate 37% to 38%
---------------------------------------------------- ----------------------------------------------
Earnings per diluted share $0.57 to $0.75
---------------------------------------------------- ----------------------------------------------
Adjusted earnings per diluted share $0.78 to $0.92
---------------------------------------------------- ----------------------------------------------
Depreciation and amortization $59 to $61 million
---------------------------------------------------- ----------------------------------------------
Capital expenditures $56 to $58 million
---------------------------------------------------- ----------------------------------------------
