Brown Shoe Company, Inc. consolidated net sales for the third quarter ended October 29, 2005 rose 20.0% to a record $617.7 million versus $514.8 million last year.

Sales at Famous Footwear increased 5.3% to a record-high of $328.1 million for the quarter versus $311.7 million for the year-ago period. Operating earnings for Famous Footwear were up 7.3% to a record $26.2 million, attributable to broadly based sales gains, solid margins and good expense leverage. This compares to $24.4 million for the year-ago quarter. Same-store sales were up 2.1% for the quarter.

Net earnings were $19,772,000, or $1.04 per diluted share, and included after-tax charges of $3,229,000, or $0.17 per share, related to the Company's previously announced initiative to further strengthen its flagship Naturalizer brand by closing underperforming stores and consolidating retail administration. This compares to net earnings of $18,566,000, or $1.00 per diluted share, for the year-ago quarter.

Excluding Naturalizer charges, adjusted net earnings for the third quarter 2005 were $23,001,000, or $1.21 per diluted share.

“Earnings exceeded projections, as our Famous Footwear division had a record quarter for sales and earnings supported by solid margins,” said Brown Shoe Chairman and CEO Ron Fromm. “Results in our Wholesale divisions also were well ahead of last year, driven by our newly acquired Via Spiga and Franco Sarto brands, as well as improved results in our Dr. Scholl's and Children's businesses. In addition, we continue to benefit from our ongoing company-wide product design, inventory and speed-to-market initiatives. And, strong cash flow allowed us to strengthen our balance sheet.”

Brown Shoe's inventories at quarter-end were well positioned at $429 million, up from $410 million last year due to the acquisition of Bennett and additional stores at Famous Footwear. The Company's debt-to-capital ratio at the end of the quarter improved to 39.0 percent from 41.2 percent at the close of the second quarter.

Sales at Famous Footwear increased 5.3% to a record-high of $328.1 million for the quarter versus $311.7 million for the year-ago period. Operating earnings for Famous Footwear were up 7.3% to a record $26.2 million, attributable to broadly based sales gains, solid margins and good expense leverage. This compares to $24.4 million for the year-ago quarter. Same-store sales were up 2.1% for the quarter.

“Famous Footwear benefited from product assortments that were fashion- right and on-target as consumer demand increased during the quarter. We saw strong sales of women's fashion footwear — up mid-single digits on a comp- store basis, driven by women's casuals, junior fashion and women's boots. Strong sales of Men's footwear were driven by the casual, work and hiking categories, and Kid's footwear benefited from interest in boys' and girls' casual styles as well as girls' dress,” Fromm said.

The Specialty Retail division, which is comprised of 381 stores in North America — under the Naturalizer, F.X. LaSalle and Via Spiga names and our e-commerce subsidiary Shoes.com — posted sales of $63,137,000 for the quarter versus $54,444,000 for the year-ago quarter. The division had an operating loss of $6,993,000, compared to an operating loss of $1,644,000 in the year- ago quarter. The operating loss this year includes costs of $5,229,000 to close underperforming Naturalizer stores and consolidate Canadian operations.

In June, the Company announced a series of initiatives to strengthen its flagship Naturalizer brand by closing underperforming stores, consolidating retail administration and opening outlet stores. The Company now expects this initiative to result in the closing of 97 underperforming stores. Due to timing factors, a substantial portion of charges related to these closings are planned to occur in the fourth quarter of fiscal 2005. The total charge is projected to be $0.45 to $0.50 per diluted share, which is within the range of the Company's prior estimate. When completed, these initiatives are expected to eliminate operating losses of approximately $0.15 per diluted share on an annual basis.

During the quarter, Famous Footwear opened 23 stores and closed 13 stores; the Specialty Retail division opened 32 new stores and closed 20.

Wholesale sales for the quarter were $226,480,000, up 52.3% versus $148,696,000 last year. This includes $65,142,000 in sales from the newly acquired Bennett division. Excluding the Bennett contributions, sales from the Brown Shoe Wholesale division were up 8.5%.

Operating earnings for the Wholesale businesses were $19,201,000, as compared to $10,375,000 for the prior-year quarter. The gain was driven by a 30 percent increase in operating earnings from the Brown Shoe Wholesale division, and a contribution of $5,765,000 to operating earnings from the newly acquired Bennett division during the quarter. After inclusion of interest costs to finance the acquisition, the Bennett division contributed $0.16 to the Company's earnings per diluted share for the quarter.

“We experienced improved sales and earnings in our Children's, Santana and Original Dr. Scholl's brands,” said Fromm. “Our new Franco Sarto and Via Spiga brands performed very well at retail. And, our Naturalizer and LifeStride brands were about even with last year.”

At quarter end, unfilled orders for the Wholesale division were up 11.5% versus last year, excluding the orders of the Bennett division.

For the first nine months of fiscal 2005, Brown Shoe's consolidated sales increased 15.5% to a record-high of $1,692,439,000, compared to $1,465,314,000 last year.

Consolidated net earnings for the first nine months were $27,634,000 or $1.46 per diluted share, down 20.5% compared to $34,760,000 or $1.84 per diluted share, in the year-ago period.

The nine month fiscal 2005 net earnings reflect special charges of $0.80 per share comprised of the following: (i) a $9,564,000 tax provision, or $0.51 per share, related to the repatriation of $60,463,000 of foreign earnings under the American Jobs Creation Act of 2004; (ii) an after-tax cost of $5,027,000 or $0.26 per share to close underperforming Naturalizer stores and consolidate retail administration; and (iii) an after-tax cost of $635,000, or $0.03 per diluted share, for a bridge loan fee incurred in connection with financing the acquisition of Bennett Footwear (completed April 22, 2005). In the year-ago period, results reflected costs of $3,223,000 after-tax, or $0.17 per diluted share, for the assimilation and transition of the Bass footwear license, which Brown Shoe acquired February 2, 2004. Accordingly, adjusted earnings per diluted share for the first nine months of fiscal 2005 were $2.26 compared to $2.01 for the same period last year.

For the nine-month period:

  • Famous Footwear: Sales increased 5.8 percent to
    $903,040,000 from $853,620,000 for the year-ago period.
    Year-to-date same-store sales were up 1.9 percent.
    Operating earnings increased 5.9 percent to $51,988,000
    versus $49,096,000 in the year-ago period.

  • Specialty Retail: Sales increased 12.7 percent to
    $174,252,000 versus $154,569,000. Same-store sales for
    the division were up 1.0 percent. The division incurred
    an operating loss of $15,973,000, which included
    $7,578,000 related to the closing of underperforming
    stores. This compares to an operating loss of $6,541,000
    for the first nine months of fiscal 2004.

  • Wholesale Divisions: Sales increased 34.6 percent to
    $615,147,000 versus $457,125,000 for the first nine months
    of last year. Operating earnings for the division
    increased 64.8 percent to $52,967,000 versus $32,144,000.

    The Bennett wholesale business has generated operating earnings of $7,996,000 for the first nine months of fiscal 2005, which includes $2,327,000 of lower-than-normal gross margins from the selling of inventory that was written-up to fair market value. After inclusion of all interest costs incurred to finance the acquisition, the after-tax net earnings impact of the acquisition was accretive by $0.06 per diluted share through the first three- quarters of fiscal 2005. The Company continues to expect that the acquisition will be accretive by $0.15 to $0.20 per diluted share for fiscal 2005.

    Regarding guidance for the fourth quarter, the Company estimates earnings in the range of $0.46 to $0.61 per share. This guidance is predicated on continued strength in the Wholesale businesses and a same-store sales increase of approximately 2 percent at Famous Footwear. This guidance reflects an estimated cost of (i) $0.19 to $0.24 per diluted share for lease buyouts, severance and inventory markdowns in connection with the Company's initiative to close underperforming Naturalizer stores, and (ii) an estimated $800,000 tax provision, or $0.04 per diluted share, related to the repatriation of foreign earnings under the American Jobs Creation Act of 2004.

    Excluding these costs, the fourth quarter adjusted diluted earnings per share are anticipated to be in the range of $0.74 to $0.84, versus earnings per diluted share of $0.46 for the year-ago fourth quarter.

    The Company is raising its estimated range for fiscal 2005 diluted earnings per share to $1.92 to $2.07 per share, from $1.75 to $2.00 per share. Fiscal 2005 net sales are estimated at $2.3 billion, versus fiscal 2004 net sales of $1.9 billion. On an adjusted basis, excluding the $1.03 to $1.08 in estimated charges mentioned, the Company anticipates diluted earnings per share will be in the range of $3.00 to $3.10 for fiscal 2005.

    “In summary, we remain committed to building a portfolio of premier brands with high consumer preference at retail, utilizing our great talent, and delivering superior execution. We believe this strategy will position us to continue to gain market share in the footwear industry,” said Fromm.

    
    
                                 BROWN SHOE COMPANY, INC.
                      CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                                       (Unaudited)
    
    
        (Thousands, except per share data)
    
                                 Thirteen Weeks Ended   Thirty-Nine Weeks Ended
                                            As Restated             As Restated
                                 October 29, October 30, October 29, October 30,
                                    2005        2004        2005        2004
    
        Net Sales              $  617,676  $  514,825  $ 1,692,439 $ 1,465,314
        Cost of Goods Sold        378,223     306,782    1,026,734     868,661
    
        Gross Profit              239,453     208,043      665,705     596,653
         - % of Sales                38.8%       40.4%        39.3%       40.7%
    
        Selling &
         Administrative Expenses  208,058     180,178      600,468     540,900
         - % of Sales                33.7%       35.0%        35.5%       36.9%
    
        Operating Earnings         31,395      27,865       65,237      55,753
    
        Interest Expense, Net      (5,023)     (1,759)     (12,946)     (6,083)
    
        Earnings Before
         Income Taxes              26,372      26,106       52,291      49,670
    
        Income Tax Provision       (6,600)     (7,540)     (24,657)    (14,910)
    
        NET EARNINGS            $  19,772   $  18,566    $  27,634   $  34,760
    
        Basic Net Earnings
         per Common Share       $    1.09   $    1.03    $    1.52   $    1.94
    
        Diluted Net Earnings
         per Common Share       $    1.04   $    1.00    $    1.46   $    1.84
    
        Basic Number of
         Shares                    18,214      17,943       18,145      17,902
    
        Diluted Number
         of Shares                 18,954      18,649       18,928      18,852