An increase in stores and marketing activity failed to counter slower consumer spending at Famous Footwear in the third quarter ended Nov. 1. The family footwear retailer started the quarter with a “solid” back-to-school season, “driven largely by athletics and sandals” and transitioned into fall assortments well, but sales trends slowed dramatically mid-September driven by lower traffic as consumer spending contracted.
Traffic was down 6.9% from last year and conversion was down 2%. On a positive note, pairs per transaction were up 2.3% and average unit retails rose 2.4% even with the additional promotional activity. Tougher business in states most affected by the sub-prime mortgage mess – California, Arizona, Nevada and Florida – were said to have affected comps by 200 basis points to the negative.
Joe Wood, president of Brown Shoe Retail, said the core female consumer “continues to shop much later in the season awaiting better bargains during clearance,” but the business has “become much more challenging in between these key times.”
Net sales for Famous Footwear were $362.7 million, a 0.5% increase compared to $361.0 million last year. Same-store sales decreased by 5.0% in Q3 versus a 2.6% decrease in the third quarter last year. Gross margins declined 70 basis points, as Famous Footwear increased promotional activity to maintain market share and manage inventory.
The womens business was down 10.2%, men's was down 9.8% and the kids business was down 12.3% during the quarter. The women's casual category was called out as the category that has struggled the most. Famous Footwears accessory business achieved a 4.1% increase in comp sales.
After a pretty solid BTS period, athletic came in just under flat for the period, down about 0.3% for the quarter.
Famous Footwear opened 18 new stores and closed seven during the quarter, resulting in 1,138 stores open at the end of the quarter, compared to 1,060 during the year-ago period. The retailer now expects to open 89 new Famous Footwear stores and close 25 stores for the full year.
Parent company Brown Shoe has reduced its new store opening plans for 2009 to a net of 25 Famous Footwear stores and reduced the number of store remodels. In total, BWS expects to reduce its capital spending plan for the 2009 to 2011 timeframe by $72 million.
Operating earnings decreased to $20.0 million, or 5.5% of net sales, compared to $30.8 million, or 8.5% of net sales, in the year-ago period.
Inventory at Famous Footwear was up 9% to $352.4 million, but was flat on a per-store basis, which Wood attributes to the 78 net new stores opened since the third quarter of last year. Athletic, which was described as the “only bright spot” for the period, saw flat inventories at quarter-end, but the womens casual and mens businesses were both down.
Brown Shoe lowered its fiscal 2008 guidance to reflect the weakening economic outlook and its decision to scrap a headquarters redevelopment plan that had been expected to generate gains. Famous Footwear same-store sales are expected to be down 5.1% to down 4.4% for the full year and down 5.0% to down 7.0% in the fourth quarter.
