Helped by a better-than-expected performance by its Wholesale segment and healthy back-to-school selling at Famous Footwear, Brown Shoe Inc. reported third-quarter earnings rose 21.2 percent to $33.1 million, or 75 cents a share.
Results topped Wall Streets consensus estimate of 67 cents a share, prompting the company to raise its guidance for the year. Trendwise, Famous Footwear offered further evidence that the running category remains soft but canvas was a bright spot.
On a conference call with analysts, Diane Sullivan, CEO, president and chairman, said the performance benefited from efforts to rationalize its Famous store base over the last few years as well as efforts to shed underperforming wholesale brands, which have included And 1 and Avia.
Im very pleased with our results, especially considering what a mixed quarter we had in terms of weather, traffic patterns, and consumer sentiment, she said. Even with these industry-wide trends contributing to increase on certainty and markdown activity we maintained our planned promotional cadence.
At Famous Footwear, sales were down 1.0 percent to $435.4 million. Comparable-store sales were down 0.2 percent versus a gain of 4.9 percent in the year-ago period. Operating earnings improved 1.4 percent to $37.6 million. Gross margins rose to 43.4 percent from 42.6 percent. Traffic was down mid-single digits.
Sullivan said same-store sales were up 1.6 percent for back-to-school. Combined, comps over the last two years are up 4.7 percent for the third quarter and up 7.2 percent for back-to-school, noted Sullivan.
While August and September this year were positive, mild weather led to negative comps in October. Sullivan added, Weve seen much better shopping patterns as the weather has turned and our November month-to-date same-store sales are up mid-single digits.
In the third quarter, Sullivan said inventory investments in big ideas paid off with canvas ahead 25 percent. Overall athletics was up low single digits on a same-store basis as the canvas strength offset declines in the running category.
Sullivan added, We saw a significant increase in athletics lifestyle product as consumers continue to shift away from more technical athletic footwear.
Elaborating on the running weakness, Rick Ausick, president of Famous Footwear, said running didnt perform to the level we expected and is athletlcs biggest contributor. Added Ausick, Our investment has been into the more lifestyle driven businesses, primarily canvas where the customer seems to be not able to get enough.
Famous will seek to maintain the running business with expectations for flat sales in the category for Spring 2015. New launches coming over the next few months will hopefully energize the business a little bit. But were not expecting it to run its 15 percent, 20 percent like it did for two or three years in a row.
In other categories, sandals was up 6.2 percent in the third quarter with women’s climbing just over 10 percent. Boots were ahead 2.5 percent in the quarter despite the mild weather in October. Shearling boots particularly did well, up over 20 percent.
Famous app has been downloaded over 1 million downloads since its introduction in September 2013. The chain also added 1 million new members to its rewards program during the quarter as part of its back-to-school effort and now has nearly 10 million members. Said Sullivan, We all know that these multi-channel consumers like these rewards members continue to be more valuable as the average annual shop is over 60 percent higher than consumers who shop using a single channel.
Famous improved its trailing 12-month revenue per square foot to $213 as it closed or relocated six stores in the quarter and opened 12. For the year, it still expects to open approximately 50 stores in 2014 and close roughly 60. It had 1,041 stores as of Nov. 1
Sullivan said the fourth quarter remains highly dependent on weather. She noted that comps were down 1.8 percent in the fourth quarter last year as Famous lost nearly 4 percent of its store selling days due to weather-related closures.
While we certainly dont know what to expect of weather this winter, we do expect to take the same approach to the promotional holiday environment and despite what other retailers are doing, we plan to maintain our promotional cadence as we did last year, said Sullivan. We do not intend to sacrifice margin for sales and we expect to deliver a strong overall 2014 at Famous Footwear.
In its Wholesale segment, revenues rose 18.2 percent in the third quarter to $242.5 million. Operating earnings jumped 65.9 percent to $27.8 million. Gross margins improved to 32.9 percent from 31.8 percent.
Eight of its 10 brands delivered solid growth, according to Sullivan. Naturalizer, Sam Edelman, Franco Sarto, Vince and Via Spiga all grew 20 percent or more, while Dr. Scholl’s, LifeStride, and Carlos all grew at high single to low double-digit rates. The segment also includes Ryka and Fergie.
Strong categories included booties for Via Spago; riding boots and classic dress silhouettes, for Naturalizer; and casual flats, like menswear styles and oxfords and some lace-up booties for Sam Edelman. Said Sullivan, Im really pleased with these results as well, especially after hearing so much about the impact of weather, caution at retail, and lack of trends.
She added that while the cold weather over the past few weeks have boosted boot sales, there’s no doubt that this has potential to be a very promotional holiday season.
Overall gross margin in the quarter was 39.9 percent, up 30 basis points year-over-year. SG&A improved to 32.6 percent, lower by 60 basis points year-over-year due to sales leverage and cost management actions.
Due to the above-plan performance at wholesale, Brown Shoe raised its annual EPS guidance range to $1.65 to $1.69, which compares with $1.41. Comps at Famous Footwear are expected to be up low-single digits, specialty retail sales down high-single digits due to store closures and reflecting performance to-date, net sales at wholesale operations up mid- to high-single digits, and gross margin up approximately 10 basis points.