Although Famous Footwear continues to see encouraging trends in athletics, soft consumer spending led to a decline in store traffic and increased promotional activity as the retail chain showed a 2.9% Q2 comp decline. Earnings came in well below those of a year ago. Brown Shoe, Famous Footwears parent company, downwardly revised its full year guidance after the quarter ended to a range of $1.12 to $1.29 per share, and reduced its planned store openings for Famous Footwear from 130 new stores to 90. In May, at the time of its first quarter release, BWS was expecting full year earnings in the range of $1.29 to $1.53 per diluted share.
“While comparisons do get easier in the back half, uncertainty relative to consumer [spending] remains,” said Mark Hood, CFO of Brown Shoe, in a conference call with analysts discussing the quarters results. “In addition to the on going macro concerns in the back half, we will also get our first read on how the consumer responds to price inflation in footwear.”
At Famous Footwear, total sales in the quarter rose 3.2% to $326.6 million – the low end of the companys guidance – as the addition of 103 net new doors since the second quarter last year offset the comp decline. Operating earnings at Famous Footwear were cut in about half to $9.6 million, or 2.9% of sales, compared to $18.9 million, or 6.0% of sales, last year. The decline was driven by a combination of a 120 basis points drop in the gross margin rate due to increased promotional activity and 190 basis points of expense leverage from an increase of the 103 stores, higher utility costs, and an incremental $2 million spend in marketing.
Among merchandise categories, athletics was the only category to see comps increase, up 1.3% for the second quarter.
“The athletic category did gain momentum throughout the quarter driven by Nike, Converse, New Balance and our skate business,” said Joe Wood, president of Brown Shoe Retail, on the conference call. “We are continuing to see the shift from women’s junior and casual purchases to fashion athletic and continuing low profile styling. We believe that we are well positioned to capitalize on the momentum in athletic having shifted additional inventory dollars into that category for back to school selling this season. And obviously, we tailored our marketing communications back to school toward the athletic brands.”
Among the other categories, declines were seen in women’s, down 6.9%; men’s, off 1.5%; and kids, tumbling 13.5%. Overall customer traffic at Famous Footwear was down 5.2% from last year, and that weak trend was seen across all three channels: mall, strip centers and outlets. Conversion rate was off 5.9%. On the positive side, average unit retail was up 0.5% from last year despite the additional promotional activity.
Inventory at Famous was up 9.2% to $373.4 million due to the new stores. On a per store basis, inventory was down 1%; however it would have been down 3% had Famous not accelerated planned receipts to be better positioned to back to school.
Wood said the transition of its Famous Footwear operations from Madison, WI to St. Louis, MO “was smoother than we had anticipated.” In connection with this move, Famous hired and trained 200 new associates, having filled approximately 98% of open positions during the quarter.
Looking to Q3, Wood said current customer traffic trends continue to be below last year’s level and management is planning Famous cautiously.
