Famous Footwear First Quarter Athletic Gets Boost from Toning

 

Store conversion rate was up in the high-single digits and average unit retails increased mid-single digits. Traffic was up low-single digits. Pairs-per-transaction were down slightly, largely attributable to fewer promotional weeks. Trailing twelve months sales per square foot improved to $174 from $165.

 

The big winner was toning. Excluding toning, comps would have been up 8% to 9% overall and down 1.2% in athletics. Among categories, women's registered a mid-teens comp gain, driven by sandals, athletic and toning. Men's saw a low-single digit increase, led by athletics.  Kids achieved a mid-teens increase, led by casual. Accessories, while small, racked up a 50% comp gain.

 

On a conference call with analysts, Diane Sullivan, president and COO of Brown Shoe Co., parent of Famous Footwear, said toning represented 8% to 9% of its total business in Q1 and is expected to become a bigger part of the business in Q2 and possibly even bigger in Q3. She added that men's toning “continues to gain some momentum.”

 

To support this “healthy living momentum,” approximately 50 Mind Body Sole in-store shops were rolled out in the quarter. Ali Vincent, the first woman to win NBC's “The Biggest Loser,” will also make 20 in-store appearances in key markets from now through July. Said Sullivan, “We are going to fuel it. We believe we ought to drive it.”

 

Famous will primarily look to Skechers and Reebok rather than newer brands to driving innovation in the category. Said Sullivan, “We remain encouraged. We think it's going to eventually evolve in to even beyond toning and fitness but become more of a casual component of the business.”

 

Asked about any cannibalization given the 1.2% athletics decline without toning, Sullivan said, “There was some cannibalization within that business, but again it's too early. It's hard to judge whether were trading one-for-one. But we are keeping obviously a very close eye on that. So right now, not significant. Still, all-in-all, a very strong performance.”

 

The quarter's performance also was attributed to the rollout of its “Make Today Famous” campaign. Marketing expenses are expected to increase 30% company-wide this year, largely due to investments in national cable advertising for Famous.

 

Gross margins in the quarter grew to 45.3% of sales from 43.0% in Q1 last year, reflecting strong sales in the higher margin categories of fitness, accessories, and boots. Famous also reduced its promotions and dropped two weeks of planned BOGO deals during April. As a result, Famous had 22% less promotion.

Selling and administrative expenses were down 450 basis points on a percent of sales due to sales leverage.

 

Inventory at the quarter's close was up 15.9% on an average per-store basis, consistent with its sales expectations and reflecting its commitment to the higher-priced toning category.  Aged inventory “continues to be in great shape,” added Sullivan.

 

Looking ahead, Famous' comps are expected to grow in the high single digit range for the full year. Second quarter comps are expected the grow in the low- to mid-teens.

 

Overall, Brown Shoe reported sales increased 10.9% to 597.7 million in the quarter. Earnings reached $10 million, or 23 cents a share, compared with a net loss of $7.6 million, or 18 cents, a year ago. The company reiterated its estimate of an increase in annual comparable store sales of approximately 6% to 8% and annual diluted EPS of approximately $1.65 to $1.75 for fiscal 2010.  The estimated year-over-year earnings increase is expected to occur in the first six months of fiscal 2010.