Brown Shoe Company, Inc. reported a 10.0% increase in consolidated net sales to $575.5 million for the first quarter of fiscal 2006, ended April 29, versus $523.3 million last year.
Net earnings were $10.0 million or 35 cents per diluted share, versus net earnings of $3.8 million or 13 cents per diluted share on a post-split basis, the year before. First quarter 2006 net earnings reflect stock option expense of $1,020,000 or $0.03 per share. First quarter 2005 net earnings included charges of $10,199,000 or $0.36 per diluted share for taxes related to the repatriation of foreign earnings and for a bridge loan fee (detailed in Schedule 4).
All per-share numbers are adjusted for the Company’s 3-for-2 stock split, effective April 3, 2006.
“We are pleased to report first quarter results that were both solid and slightly ahead of our expectations,” said Brown Shoe Chairman and CEO Ron Fromm. “Sales gained momentum during the quarter, with the late Easter leading to an outstanding April for Famous Footwear. As previously forecast, our first quarter performance at wholesale reflected difficult comparisons with last year as a higher quality, continuous-flow, sell-in model has been deployed by our Naturalizer division. In addition, results were adversely affected by the timing of children’s license sales, which should improve by the second quarter of 2006. Accordingly, strengthened performance of the wholesale division is planned for the second quarter. At Famous Footwear, same-store sales rose 1.9 percent; operating earnings, however, declined slightly due to lower margins as we aggressively cleared inventory to prepare for new product arrivals.
“Our consumer is telling us she wants fresh new styles each season. Therefore, we continue to focus on retail sell-through rates and increasing our turns while managing our business with less inventory. This is consistent with our commitment to react faster to consumer demand and changing trends, and should, we believe, lead to improved earnings for both Famous Footwear and our Wholesale business over the rest of the year,” Fromm said.
Inventories at quarter-end were very well controlled at $404.6 million, down from $423.7 million at the end of the first quarter in 2005.
Retail Divisions
Sales at Famous Footwear were up 4.7 % to $302.3 million for the quarter, from $288.7 million for the same 13-week period last year. Same-store sales for the quarter increased 1.9%. Operating earnings were $15.9 million versus $16.5 million for the year-ago period, down 3.7%.
All categories but athletics were positive for the first quarter, with kids and women’s posting double-digit gains. Sales in the women’s category were driven by junior sport-fusion, fashion dress and clog styles. Men’s non- athletic sales were boosted by sandals and casual footwear. In the athletic category, sales of men’s and boys skate styles were up dramatically, but could not offset lackluster sales of other athletic footwear.
The chain opened 10 stores in the quarter and closed 11 stores, resulting in 952 stores open at quarter-end. For the full year, Famous Footwear will open approximately 90 stores and close about 40.
The Specialty Retail segment, which includes Naturalizer, Via Spiga, FX LaSalle, Franco Sarto and other concept stores, plus the Shoes.com e-commerce business, reported sales of $56,387,000, an increase of 5.9 percent over last year’s $53,260,000. The segment’s operating loss decreased to $2,903,000 from last year’s loss of $3,509,000, as better results were achieved in our Naturalizer stores where the gross margin rate improved and better expense leverage was achieved following the closing of 95 underperforming stores in 2005.
The 312 U.S. and Canadian-based stores had a same-store sales increase of 0.6 percent. The division opened one store during the quarter and closed three.
Wholesale Divisions
Wholesale sales were up 19.6 percent to $216,833,000, versus $181,288,000 last year, due primarily to recording a full quarter of revenues from the Bennett brands, which were acquired on April 22, 2005.
Wholesale operating earnings declined to $14,148,000 from $17,504,000 a year ago, attributable primarily to the planned lower sales at Naturalizer and in the kids business.
Gains were realized by the LifeStride and Carlos by Carlos Santana brands as well as in the specialty/private label business. While down versus last year, Naturalizer’s performance exceeded expectations, as the brand focused on its new business model that institutes a continuous flow of new goods versus large pre-season sell-ins. Results also reflected difficult comparisons in the kids business due to the timing of licenses.
The Company’s financial position remains strong. Net cash provided by operating activities was $20.6 million for the quarter. Total debt decreased to $200.0 million from $279.5 million at the end of the first quarter 2005 (following the acquisition of Bennett). The debt-to-capital ratio at quarter- end improved to 30.6 percent from 41.5 percent at the end of 2005’s first quarter.
For fiscal 2006, the Company reiterates its guidance for sales of approximately $2.48 billion, and now expects net earnings per diluted share of $2.25 to $2.30 on a post-split basis, which is an increase over the lower end of its prior guidance of $2.23 to $2.30. This guidance includes costs of approximately $0.15 per share to expense stock options as required by Statement of Financial Accounting Standards No. 123® – – Share Based Payment. This estimate is predicated on a same-store-sales increase of 2 to 3 percent at Famous Footwear. In addition, it reflects the Company’s belief that order flow in the consolidating department store channel will normalize during the second half of the year. It also reflects a better matching of merchandise flow to customer demand in order to improve inventory turns and margin performance.
On an adjusted basis, earnings per diluted share for fiscal 2006 are estimated at $2.40 to $2.45, compared to adjusted earnings per share of $2.22 in fiscal 2005 on a post-split basis, as set forth in Schedule 5.
For the second quarter of 2006, the Company expects sales of $580-$590 million and reiterates its guidance for net earnings per diluted share at 37 to 43 cents per diluted share, including stock option expense of approximately 4 cents per diluted share. This compares to second quarter 2005 diluted earnings per share of 14 cents on a post-split basis. In the second quarter of 2005, Naturalizer restructuring charges of 6 cents were incurred as set forth in Schedule 5, which resulted in adjusted earnings per share of 20 cents.
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share data)
Thirteen Weeks Ended
April 29, April 30,
2006 2005
Net Sales $575,538 $523,283
Cost of Goods Sold 352,541 312,677
Gross Profit 222,997 210,606
- % of Sales 38.7% 40.2%
Selling & Administrative Expenses 204,403 187,538
- % of Sales 35.5% 35.8%
Operating Earnings 18,594 23,068
Interest Expense, Net 4,204 2,950
Earnings Before Income Taxes 14,390 20,118
Income Tax Provision 4,359 16,339
NET EARNINGS $ 10,031 $ 3,779
Basic Net Earnings per Common Share $ 0.36 $ 0.14
Diluted Net Earnings per Common Share $ 0.35 $ 0.13
Basic Number of Shares 27,780 27,112
Diluted Number of Shares 28,997 28,218
