Famous Footwear Posts Q2 Loss on BOGO Climate and Weaker Traffic

Its parent, Brown Shoe Company, posted a loss after charges in the period and lowered its full-year guidance due to the sales shortfall.  On a conference call with analysts, Diane Sullivan, Brown Shoe's president and COO, said the company changed its promotional cadence at Famous early in the quarter in favor of single-pair promotions. But she said, “Unfortunately, the industry and consumers remained focused on BOGO which disadvantaged our same-store sales performance.” After reintroducing BOGOs in June, comps improved but at the expense of margins.

Sullivan said Famous was also hurt by tax-free weeks, school openings and other promotions that shifted to the third quarter. BTS selling began about two weeks later than management expected.
Athletics across all genders were down 3.7% but outperformed all other categories. Athletics continued to be driven by brands like Puma and Converse, as well as by strong skate styles from brands like DC.
Joe Wood, president of Brown Shoe Retail, said athletics is also boosted by running — led by Nike and Asics — as well as vulcanized/skate styles such as Converse. Wood doesn’t' seen an uptick in classics, noting that it “remains somewhat still an urban business.”

Comps and traffic have turned positive in regions where schools are starting back. For BTS, more athletic footwear is being brought in due to the category's strength. Athletics typically ramps up to represent 60% of its volume during the period. “Make Today Famous,” its largest ad campaign ever, launched in July.  

Wood said Famous is still running BOGO sales since the customer is responding to them but he also noted that the climate doesn’t' seem to be any more promotional than last year. 

“What we are finding if you really dig under the motor and look at the SKU base — this isn't really about price,” said Wood. “So it isn't, as we get further into this, it's not about $19.99 and $29.99, it is about the brands. It’s about giving them a good value.”

Outside athletics, each footwear category experienced low double-digit comp sales declines. Kids, combining the athletic and non-athletic business, comped down 4.2% for the quarter. Accessories, the smallest category, continued to see strong positive comp momentum.
The $4.2 million loss for Brown Shoe included after-tax costs of $1.3 million, or 3 cents a share, due to a new information technology platform. Last year's earnings of $2.2 million, or 5 cents a share, included costs of 15 cents a share for its headquarters consolidation. Gross margins improved 50 basis points as a mix of higher-margin branded sales, vertical profit resulting from an increase in in-house brands at Famous, and lower allowances to wholesale customers offset lower margins at Famous.

BWS now expects sales of $2.18 billion to $2.20 billion for the full year, down from a prior forecast for sales of $2.20 billion to $2.30 billion. Brown still expects positive earnings in both the third and fourth quarters based on flat to down sales in the second half.  Comps at Famous are expected to decline in the low- to mid-single-digit range in the back half.