Famous Footwear reported a dismal first quarter with comps down 7.4% and operating earnings plunging 64%. But Joe Wood, president of Brown Shoe Retail, noted that the athletics category, while down 2.7% in the quarter, has gained momentum, especially in April and May.
The gains were led by Nike, Converse, Asics, New Balance and the overall skate category. Further, Wood predicted athletics may be ready for a resurgence.
“We are seeing a shift from womens junior purchases to athletic,” said Wood on a conference call with analysts. “While perhaps too early to call a new athletic cycle, we are encouraged as our inventory and positioning ourselves to take advantage of this trend currently.”
Wood noted that during the back-to-school season, Famous seasonally skews more towards the athletic category.
Asked during the Q&A session on the quarterly call to elaborate on what's driving athletics, Wood said the strength is coming across men's, women's and kids. Nike, New Balance and Asics are driving “very good” results in performance, while athletic casual, or lifestyle, shoes such as Converse and DC are also strong.
“Right now performance is going very well and what I would consider street athletic casual is going very well,” said Brown. “I'm encouraged to see that type of trend in April and we have seen that the first 20 days in May so far too.”
He also assured investors that he saw no signs of the skate category peaking. Famous continues to add skate brands and Wood particularly pointed to strong demand for DC and Converse.
The 2.7% decline in athletics compared with declines of 12.9% in women's, 7.9% in men's, 11.6% in kids and 2.3% in accessories. Wood noted that the strength in athletics seemed to reflect a shift away from low-profile sneakers in the juniors category, which had been led by Skechers. The overall comp decline compared with a 2.5% gain in Q1 last year.
Famous Footwear operating earnings declined to $7.6 million from $21.0 million as a result of the sales decline and a 140 basis point erosion in gross margins. Traffic was down 5.8% from Q1 last year and conversion rates were down 3.9% for the period. Wood said macroeconomic issues, a slump in consumer spending, cold spring weather, and an early Easter all contributed to the under-performance.
“This obviously affected our footwear sales prompting higher promotional activity at Famous and across the industry,” said Wood. “However, we have seen in the back end of the quarter and so far in May improved performance with comp sales running slightly positive, and while that is encouraging, the environment remains highly promotional.”
Wood also said he has been pleased by the number of Famous Footwear employees that have decided to relocate from Madison, WI to new headquarters location in St. Louis, the headquarters of parent Brown Shoe Co.
“I have 70% of the buying staff coming down and a few still trying to make family decisions and trying to make that transition,” says Wood. “Our chief merchant is coming. All of our DMs are coming. So the leadership group of Famous is relocating here to St. Louis. I'm very pleased with that. It is the leaders that we want to move here and they are coming.”
