Brown Shoe Company, Inc. announced earnings of $2.52 per diluted share for the 52- week fiscal year ended February 1, 2003, dramatically higher than the previous year’s earnings and slightly higher than the company’s most recent guidance. With the effects of nonrecurring gains and nonrecurring losses factored out, the company’s earnings rose 56 percent from a year ago.
Sales for the 52 weeks rose to $1,841,443,000, an increase of 4.9 percent from the $1,755,848,000 for the 52 weeks of fiscal 2001. Net income for fiscal 2002 — including after-tax recoveries of $1.2 million, or 7 cents per diluted share, of nonrecurring charges recorded in fiscal 2001 — was $45,172,000, or $2.52 per diluted share. That compared with a net loss of $3,962,000, or 23 cents per diluted share, in fiscal 2001 — a loss that included nonrecurring charges of $32.2 million, or $1.84 per diluted share, from initiatives to improve competitiveness, eliminate redundant infrastructure, increase profitability and restructure debt.
To better illustrate the ongoing operating results of the company, income in 2002 excluding the nonrecurring gain, was $43,957,000, or $2.45 per diluted share. Excluding the nonrecurring charges, income in 2001 was $28,257,000, or $1.61 per diluted share. After these exclusions, net earnings rose 56 percent; and earnings per share increased 52 percent.
“In fiscal 2001 we initiated a broad program to improve our profitability and our competitiveness,” said Ron Fromm, Brown Shoe Chairman and CEO. “In fiscal 2002, we reaped the benefits.”
Sales for the fourth quarter of fiscal 2002 were $452,132,000, an 8.9 percent increase over sales of $415,270,000 in the fourth quarter of fiscal 2001. Income for the fourth quarter, including the recovery of nonrecurring charges taken in 2001, was $9,348,000, or 51 cents per diluted share. That compared with a loss of $28,019,000, or $1.63 per diluted share, in the fourth quarter of 2001. Excluding the recovery, income in the fourth quarter of 2002 was $8,133,000, or 45 cents per diluted share. Excluding the nonrecurring charge, income in the fourth quarter of 2001 was $4,200,000, or 24 cents per diluted share.
The after-tax nonrecurring gains in fiscal 2002 resulted from the recovery of $.5 million from the reserve established to close under-performing Naturalizer retail stores and $.7 million from the severance reserve established to implement a new shared services platform. Both programs were completed at lower costs than originally estimated.
Commenting on the year’s results, Fromm said, “Our consolidated sales, margins and profits continued to grow, with improvement coming from nearly every area. Our Wholesale branded, licensed and private label businesses had an exceptional year, as our footwear performed well at retail. In fact, Naturalizer, our leading brand, showed double-digit growth for its third straight year. It gained 17.8 percent in wholesale sales. Furthermore, the Naturalizer Retail segment performed better than in fiscal 2001.
“Famous Footwear’s new management team significantly improved its operating earnings. We put fresher merchandise in our Famous Footwear stores and our consumers responded. Our inventory turns at Famous Footwear, our branded family shoe-store chain, rose 19 percent in a year when traffic was down. Our gross margin rate remained strong throughout the year.
“Many of these improvements were the payoff to initiatives begun in 2001 under the name of Project IMPACT, the company’s enterprise-wide program to achieve Improved Performance and Competitive Transformation.
“Under Project IMPACT, we instituted new supply chain processes at Famous Footwear. We cleared aged goods and lowered our inventories while increasing the freshness of our product offering at Famous Footwear. We improved our consumer-focused product design processes to win more market share for our wholesale businesses. We launched a shared services initiative to boost our administrative efficiencies. We closed 106 under-performing Naturalizer stores in the U.S. And we built a new management team at Famous Footwear,” Fromm said.
“It worked. And in the process, our teams managed these initiatives at a cost of $1.2 million, or 7 cents per share, less than we had anticipated.
“Looking ahead, we expect 2003 to be a year in which we will balance our investment needs while sustaining our earnings momentum. We estimate earnings per share of $2.75, after factoring in the significant investment we are making in operations. Our major investments will be geared to driving traffic at our Famous Footwear stores and building greater preference for our wholesale brands.”
Famous Footwear achieved record sales in fiscal 2002 of $1.075 billion. This 2.9 percent increase reflected higher sales from new stores and increased square footage, offset in part by a 1.3 percent decrease in same-store sales. The same-store sales decline resulted from lower traffic counts through most of the year. However, because of an improved product mix, the percentage of customers making purchases increased.
In fiscal 2002, 53 new stores opened and 55 closed, leaving the company with 918 at year’s end. The new stores averaged about 10,000 square feet each, and the closing stores averaged about 5,000 square feet, so total square footage increased from 5.9 million square feet at the end of fiscal 2001 to 6.2 million at the end of fiscal 2002.
Fiscal 2002 operating earnings for Famous Footwear were $46.3 million, versus $25.5 million in fiscal 2001 — excluding nonrecurring charges last year of $16.5 million, $16 million of which was to write down inventory to accelerate the clearance of older merchandise. The chain’s significant improvement in operating earnings resulted from Project IMPACT-related changes in its buying, allocation and merchandising functions. These changes resulted in a fresher product mix, which led customers to increase their purchases of higher-margin, trend-right, in-season merchandise.
“Famous Footwear emerged from 2002 much stronger,” Fromm said, “with nearly all operating metrics positive except for store traffic levels. Inventories at year-end on a per square foot basis have been reduced 21% over the past 24 months, with the percentage of aged inventory at historically low levels. Under the leadership of Joe Wood, our new management team has done an outstanding job in their first year. We look for metrics to improve even further in 2003.”
Wholesale sales were $566.4 million, up 12.5 percent from the $503.3 million recorded a year ago. Operating earnings were $55.2 million, up 6.0 percent from last year’s $52.0 million, excluding nonrecurring charges of $0.5 million.
The sales gain was spread among nearly all of the operation’s branded, licensed and private label divisions.
Sales of the company’s flagship Naturalizer brand rose 17.8 percent, after rising 28.6 percent last year and 18.6 percent the year before. Naturalizer continues to gain market share in department stores, moving up to the third position in fiscal 2002 from fourth the year before. In fiscal 2000 the brand was in sixth position and was seventh in 1999.
Sales gains also were achieved by LifeStride, Dr. Scholl’s and Children’s licensed products, and private label product. In addition, sales and distribution expanded for the Carlos by Carlos Santana and Hot Kiss licensed footwear lines.
Looking ahead, the company remains comfortable with its previous earnings per share estimates of $2.75 for fiscal year 2003. Earnings for the first quarter are planned slightly up compared to 2002 — within the range of $0.44 to $0.48 per share versus $0.43 in 2002.
BROWN SHOE COMPANY, INC. CONSOLIDATED STATEMENTS OF EARNINGS (Thousands, except per share) Thirteen Weeks Ended Fifty-Two Weeks Ended February 1, February 2, February 1, February 2, 2003 2002 2003 2002 Net Sales $452,132 $415,270 $1,841,443 $1,755,848 Cost of Goods Sold 268,423 275,050 1,100,654 1,089,549 Gross Profit 183,709 140, 220 740,789 666,299 - % of Sales 40.6% 33.8% 40.2% 37.9% Selling & Administrative Expenses 165,838 170,595 660,571 650,246 - % of Sales 36.7% 41.1% 35.9% 37.0% Interest Expense 2,730 4,649 12,236 20,240 Loss on Early Redemption of Debt -- 7,556 -- 7,556 Other Expense 3,705 3,153 6,483 1,488 Earnings (Loss) Before Income Taxes 11,436 (45,733) 61,499 (13,231) Income Tax (Provision) Benefit (2,088) 17,714 (16,327) 9,269 Net Earnings (Loss) $9,348 $(28,019) $45,172 $(3,962)