Brown Shoe’s Q4 Earnings Slide on Higher Sourcing Costs

Net sales for the full year 2010 increased 11.7% versus the prior year, to a
record $2.5 billion.  For the full year 2010, net earnings attributable to
Brown Shoe company, Inc. were $37.2
million, or 85 cents per diluted share, compared to net earnings of $9.5 million,
or 22 cents per diluted share, in 2009.  On an adjusted basis, net earnings
were $42.5 million, or 97 cents per diluted share, compared to net earnings of
$17.0 million, or 40 cents per diluted share in 2009.

Diane Sullivan, Brown Shoe's president and chief operating officer, stated,
“2010 represented a very solid year of growth for our company.  We
generated double-digit sales gains and more than doubled our earnings from last
year while setting several records in the process. The year included a terrific
performance at Famous Footwear and our Wholesale brands delivered nearly a 20%
sales improvement from the prior year.  We were pleased to deliver this
improvement even as we faced challenges in the second half related to sourcing
and supply chain inefficiencies as well as the systems migration within our
Wholesale business in the fourth quarter.  As a result of these pressures,
Wholesale gross margins declined 320 basis points for the full year.  We
are intently focused on correcting the systems and supply chain issues that we
faced and are well on our way to identifying and implementing solutions to
reach these objectives.”

Sullivan continued, “Looking forward, we are confident in the core
strength of our business and our strategic direction as well as the long-term
opportunities for value creation afforded by our systems enhancements. 
Our brands continue to improve their connection with consumers through
innovative marketing, enhanced product styling and assortments, and we continue
to achieve greater productivity in our retail portfolio.  We are excited
to add American Sporting Goods' athletic and outdoor brands to our portfolio
and believe these brands represent a great strategic fit and will bolster our
position in the healthy living market.  We expect our momentum to continue
into 2011, despite planning our legacy Wholesale business more cautiously in
the near-term as we work through our systems conversion, with consolidated net
sales growth expected in the low double digits and adjusted EPS growth of
approximately 22%, excluding anomalous costs of $0.19 per share in 2010.”

Full Year and Fourth Quarter Highlights:

    * Record consolidated net sales results for the full year;
    * Record fourth quarter and full year net sales for Famous
Footwear driven by a full year same-store sales increase of 10.5%, including
its best ever Back-to-School and Black Friday performances;
    * Famous Footwear more than doubled its operating profit
performance in 2010 from the prior year to a record $90.4 million;
    * Ecommerce full year net sales exceeded $120 million,
increasing by 21% for both the year and the fourth quarter, with double-digit percentage
increases across all of its businesses for the year and the fourth quarter,
including a 14.4% increase at Shoes.com;
    * Naturalizer net sales increased 14.4% and 11.9% for the
full year and fourth quarter, respectively, across its multi-channel business,
including a 7.2% same-store sales increase for the full year;
    * Wholesale net sales increased 19.4% and 15.1% for the full
year and fourth quarter, respectively;
    * Acquired the remaining interest in Edelman Shoe, Inc. in
June;
    * Acquired American Sporting Goods Corporation (ASG) in
February 2011, further strengthening the company's healthy living platform.


Fourth Quarter 2010 Results:

Net Sales

In the fourth quarter of 2010, consolidated net sales rose 6.8% to $604.5
million from $566.0 million in the year-ago period.

    * Famous Footwear net sales were up 3.7% to $355.5 million,
driven by a 4.9% same-store sales increase, which follows a 9.0% same-store
sales gain in the fourth quarter of 2009, with positive performances across all
genders, channels, and geographies.  Store productivity continued to
improve during the quarter, with sales per square foot increasing to $187 on a
trailing four quarter basis, versus $167 in the year-ago period.  During
the quarter, Famous Footwear opened 10 stores and closed 18, ending the year
with 1,110 stores;
    * Net sales in the Wholesale division rose 15.1% to $173.9
million, with increases across the majority of its brands and channels of
distribution;
    * Net sales in the Specialty Retail division were $75.1
million, reflecting a 3.2% same-store sales increase; and
    * The increase in retail sales in the fourth quarter was
supported by a 21.1% increase in company-wide ecommerce net sales, including
record results for Thanksgiving Day, Black Friday, and Cyber Monday.

Gross Profit

Gross profit increased by $2.9 million versus the year-ago period to $235.3
million.  As a% of net sales, gross profit was 38.9% versus 41.1% last
year reflecting several factors:

    * Famous Footwear's gross profit rate increased by 50 basis
points to 44.6% of net sales and Specialty Retail's gross profit rate increased
by 30 basis points to 40.6% of net sales.  The higher gross profit rate at
Famous Footwear reflects the strong performance of higher-margin categories,
such as boots, and 33% fewer store BOGO days than in the year-ago period.
    * Offsetting the strong retail performance was a decrease in
Wholesale gross profit rate to 26.6% of net sales in the quarter from 34.6% in
the year-ago period.  This was driven by several factors, including:
          o A continuation of
industry-wide sourcing and supply chain issues that led to increased delivery
costs and disruption in the timing of deliveries, leading to lower initial
margins and greater markdowns and allowances; and
          o Order fulfillment was
further aggravated by the business process changes, data conversion, and
learning curves associated with the company's systems transition that went live
in December.
    * Additionally, the Wholesale division, which carries a
lower gross margin rate than the retail division, represented approximately 29%
of consolidated net sales in the quarter versus approximately 27% in the
previous year;  

Selling and Administrative Expenses

Selling and administrative expenses increased to $226.9 million from $218.0
million in the year-ago period, attributable primarily to a 16% increase in
marketing expense as well as increased selling and merchandising expenses to
support investments in increased hours at Famous Footwear stores during the
holiday season.  As a% of net sales, selling and administrative expenses
were 37.5%, a decrease of 110 basis points.  For the full year, selling
and administrative expenses were impacted by an increase of approximately $29
million in marketing and incentive compensation costs.

Net Restructuring and Other Special Charges

Net restructuring and other special charges in the fourth quarter of 2010 were
$2.5 million, or $0.03 per diluted share on an after-tax basis, related to the company's
information technology initiatives and transaction costs associated with the company's
recently announced acquisition of ASG.  The fourth quarter of 2009
included net restructuring and other special charges of $5.1 million, or $0.07
per diluted share on an after-tax basis, related to information technology
initiatives and organizational changes, partially offset by a reduction of
reserves for headquarters consolidation.

Operating Earnings

Operating earnings were $5.9 million, or 1.0% of net sales, compared to $9.3
million, or 1.6% of net sales, in the fourth quarter of 2009.  

Net Interest and Tax

Net interest expense was $5.3 million and the company recognized a $2.6 million
tax benefit in the quarter.

Net Earnings

Net earnings were $3.4 million, or 8 cents per diluted share, versus net earnings
of $5.0 million, or 12 cents per diluted share, in the year-ago
quarter.    


Balance Sheet

In January 2011, the company amended and restated its $380 million credit
agreement that extended its senior secured asset-based revolving credit
facility to January 2016.  At quarter-end, the company had $171.6 million
in availability under its revolving credit facility and had $126.5 million in
cash and cash equivalents.  In February 2011, the company acquired ASG for
$145 million in cash plus assumed net debt.  The acquisition was funded
through its revolving credit facility that has been upsized by $150 million to
$530 million, by exercising the designated event accordion, while still
providing access to an additional $150 million accordion.  

Inventory at quarter-end was $524.3 million versus $456.7 million in the
year-ago period, increasing 14.8%, including a 7.8% increase in inventory at
Famous Footwear.  Inventory at Wholesale increased 51.6%, reflecting a
shift forward in deliveries to mitigate cost inflation and sourcing
constraints, shipping challenges from systems conversion, and investments in
growing brands.    


Full Year 2011 Guidance

The company is updating previously issued guidance to reflect its recent
acquisition of ASG and ongoing challenges associated with its fourth quarter
systems conversion.  The company now expects to generate earnings per
diluted share of $1.25 to $1.32 for the full year 2011.  This estimate
includes $0.10 to $0.12 in accretion from the ASG brands, and also includes the
impact of inventory purchase accounting on 2011 cost of goods sold as well as
transaction and integration costs that are expected to be in the range of $0.12
to $0.15.  The flow of earnings in 2011 will be more weighted to the back-half
than normal as the company both anniversaries a strong first half in 2010 and
incurs integration costs related to ASG and systems start-up issues in its
legacy wholesale business.

Consolidated net sales for 2011 are expected to increase in the low double-digit
range, which assumes an increase in same-store sales at Famous Footwear in the
low- to mid-single digit range, an increase in legacy Wholesale net sales in
the low- to mid-single digit range, and sales from ASG brands of more than $200
million.  Famous Footwear is expected to open five net new stores in 2011
(45 openings and 40 closings).  In the first quarter of 2011, consolidated
net sales are expected to increase in the high-single digit range, which
includes an increase in same-store sales at Famous Footwear in the low-single
digit range and an increase in Wholesale net sales in the high teens range,
which includes sales from ASG brands.