Brown Shoe reported sales in the third quarter dipped 0.3 percent to $713.8 million from $716.1 million a year ago. The company reported net earnings of $33.7 million, or 79 cents per share, compared to $18.6 million, or 42 cents, in the third quarter of 2010, although profits were only up slightly after excluding special items.

On an adjusted basis, net earnings were $21.9 million, or 51 cents per diluted share, compared to $19.8 million, or 45 cents per diluted share in the third quarter of 2010. Gross profit margin in the third quarter of 2011 was 38.7 percent versus 39.4 percent in the third quarter of 2010.

“We recently completed the first phase of our previously announced portfolio review and have made determinations about some of our assets,” said Diane Sullivan, president and chief executive officer of Brown Shoe Company. “As a result, we will be exiting several businesses, including all of children’s wholesale and some women’s specialty and private brands. In addition, we have accelerated our real estate review and now plan to close between 70 and 75 Famous Footwear stores in fiscal 2011 and 2012, for a total of approximately 145 stores. We will also be closing all of our Brown Shoe Closet and F.X. LaSalle stores. These changes are in addition to the sale of AND 1 and the closing of our Sun Prairie, Wis., Retail distribution center.”

“In total, the first phase of our portfolio realignment is expected to result in a $200 million reduction in annual revenue, approximately $80 million of related SG&A cost savings, and approximately $20 million of cash and non-cash costs over the next several quarters,” continued Sullivan. “While our efforts to date have been focused on eliminating underperforming or poorly aligned assets, this is not our sole focus. We are determined to expand our portfolio over the long-term and to deliver enhanced growth through our focus on the strategic consumer platforms of Family, Healthy Living and Contemporary Fashion.”

Famous Footwear reported a year-over-year decline in third quarter net sales of (1.3%). The decrease was due in part to the continued expected weakness in year-over-year toning sales, which was only partially offset by strength in running, sandal and boot sales. In the third quarter, same store sales at Famous Footwear decreased (0.4%) versus a record setting 10.6% gain in 2010. During the quarter, the company closed 12 underperforming stores and added 17 new stores. On a year-over-year basis, the total number of stores increased to 1,121 from 1,118.

Wholesale Operations net sales improved 2.9% over the third quarter of 2010, as a result of the ASG acquisition completed in February of 2011. Legacy Wholesale Operations were down 11.8% versus a 33.7% improvement in the third quarter of last year, as the company began the work to exit some of its Wholesale brands and also due to lower sales of Dr. Scholl’s Shoes. This decline was partially offset by a year-over-year improvement in Contemporary Fashion, which was led by the Sam Edelman, Franco Sarto, Via Spiga and Vera Wang brands.

Consolidated gross profit decreased (2.0%) in the third quarter, while gross profit margin declined (70) basis points. The reduction in gross margin, when compared to the third quarter of 2010, was primarily due to both lower sales and a decline in gross margin at Famous Footwear. Wholesale Operations contributed positively to gross margin, due to better gross margin performance in the company’s legacy Wholesale Operations and as a result of the ASG acquisition. For the third quarter, Retail and Wholesale Operations net sales were 67% and 33%, respectively, compared to 69% and 31% in the third quarter of 2010.

Third quarter 2011 GAAP earnings per diluted share of $0.79 included a $0.37 benefit from the sale of AND 1, ($0.07) of costs associated with exiting various Wholesale Operations brands, and ($0.02) of ASG integration related costs. Excluding these items, adjusted earnings were $0.51 per diluted share. For the third quarter of 2010, GAAP earnings per diluted share of $0.42 included ($0.03) of costs related to the company’s IT initiatives. Excluding these costs, adjusted earnings were $0.45 per diluted share.

Inventory at the end of the third quarter was $580.2 million, up 7.5% compared to $539.9 million in the third quarter of 2010. Famous Footwear inventory was down, while Wholesale Operations inventory was up, with the majority of the year-over-year increase at Wholesale due to the ASG acquisition. At quarter-end, Brown Shoe Company had approximately $300.0 million in availability under its revolving credit facility and $42.0 million in cash and cash equivalents.

“The third quarter decline in net sales to $713.8 million was versus a strong year-over-year comparison and during a time of economic uncertainty for our consumers,” said Mark Hood, chief financial officer of Brown Shoe Company. “Adjusted EPS of $0.51 for the third quarter was up 13.3% over the prior year and included $0.07 of SAP related costs. This brings year-to-date SAP related costs to a total of $0.22 per diluted share.”

“For fiscal 2011, we now expect earnings per diluted share of $0.73 to $0.85, reflecting a generally cautious outlook for the holiday shopping season, the full-year impact of approximately $0.26 of SAP related costs, and an expected decline in sales from the brands we are exiting,” concluded Hood.