Hurt by lower sales and a highly promotional climate, Famous Footwear's fourth quarter operating earnings fell 40% to $13.4 million from $22.5 million a year ago. On a conference call with analysts, Joe Wood, president, Brown Shoe Retail, noted that roughly half of the earnings drop reflected an extra week in the year-ago period. But he also attributed it to “a slow consumer spending environment and a fashion footwear lull…This affected footwear sales and prompted higher promotional activity at Famous and across the industry.”


Given the tough retail conditions, Famous Footwear also said it now plans to open between 100 to 110 stores in 2008, down from an original plan for 130.


Parent company Brown Shoe Company also lowered Q1 and fiscal 2008 earnings guidance to a range well below Wall Street's estimates. The company anticipates Q1 earnings in a range of 7 cents to 11 cents, down from analysts' consensus estimate of 21 cents.  For the full year, BWS expects $1.52 to $1.62 per share compared to Wall Street's consensus estimate of $1.72 a share.


Fourth quarter revenues at Famous Footwear declined 3% to $311 million, reflecting a 13-week period versus 14 weeks a year ago.  Adjusting for the non-comparable week, sales rose almost 3%. Same-store sales slid 1.7%.  Traffic declined 1.9%, average unit retails in footwear were down 3.7% and its conversion rate declined 1.7%. By category, comps declined 6% in men's and slid 3% in athletics, while the women's business was basically flat.  Strong gains were seen in accessories, up 9% on a comp basis, and kids, up 7%.


Inventory declined in line with sales on a per-store basis due to aggressive promotional efforts, helping Famous end the quarter with aged inventory below last year.


In a Q&A session, Wood commented that although Q4 wasn’t “robust” for the category, athletics is seeing a slight turn in February, driven by Nike, New Balance, Converse and skate, led by DC Shoes.  “We are seeing a better performance out of our athletic business,” said Wood. “We'll see what that leads us to as we get into spring and then obviously back to school. We have had a nice increase there going forward.”  In athletic fashion, early spring readings are good for brands such as Chuck's, Marc Ecko, and DC. Among non-athletic brands, Skechers “continues to have a small, but nice increase, and that's on a big volume base.”


Addressing overall trends, Wood said the wedge business has been surprisingly strong in early spring reads. Also strong in women's has been bright colors and accents, particularly in wedges and athletics.
Management also sees price increases from Chinese shoe manufacturers taking effect in the second half of the year at both the retail and wholesale level.


“The consumer response to that is not yet known,” said president and COO Diane Sullivan on the call.


Going forward, Wood said Famous is planning cautiously due to the slowed consumer spending, the likely continued highly promotional climate, and an early Easter that “has historically not been a positive for business.” The chain's primary near-term focus will be on controlling inventory and expenses, and flowing new inventory into the store. On the positive side, the tough climate is helping Famous gain greater access to additional brands in its portfolio that will be flowing into stores beginning late in the first quarter.