Profits at The Walking Co. dropped 15% to $2.3 million from $2.7 million in 2006. Revenues jumped 55.9% to $135.7 million from $87 million.

In a filing with the Securities & Exchange Commission, Big Dog Holdings, its parent, said Walking Co's sales gains were primarily attributable to the acquisitions of Footworks in August, 2005 and Steve’s Shoes in January, 2006, which increased sales by $7.5 million and $21.2 million, respectively. The gain was also helped by new store openings and a 10.6% same-store increase at the core Walking Co. The comp gain was attributed to improved inventory levels and merchandise selection at the Walking Co. stores since the chain was purchased out of bankruptcy in March 2004.

Walking Co's gross margins remained flattish at 51.7% in 2006 versus 51.8% in 2005, but selling, marketing and distribution expenses grew due to increased expenses related to operation of Steve’s Shoes stores and an increase in corporate infrastructure to facilitate future growth at Walking Co.

In the fourth quarter, The Walking Co. achieved a comparative store sales increase of 14.5%. However, increased expenses relating to freight and distribution expenses decreased Walking Co.'s margin in the fourth quarter, the company said in a conference call. Steve's Shoes achieved stability in the 4th quarter and posted flat comparative sales, although it's not reported in the company's comparative sales for stores opened for 12 months.

Walking Co. finished the year at 151 stores, up from 92 last year. The jump reflects the 35-unit Steve's Shoes acquisition as well as 24 new store openings.

Women's footwear was Walking Co.'s biggest category last year, making up 55.2% of revenues versus 54.2% in 2005; followed by men's footwear, 30.7% versus 30%; and accessories, 14.1% versus 15.8%

Walking Co. inventories at year-end was $34.8 million, versus $20.9 million and that reflects a 67% increase. Management said that's is in-line with its inventory plan and is due to the new stores and reflects an increase in stock levels support its existing stores and new stores slated TWC store comp growth, as well as inventory for new stores we have slated to open early this year. Walking Co.'s average store inventory for TWC increased 7% from $180,000 to $193,000 this year.

Overall, Big Dog Holdings, Inc. saw net sales for the fourth quarter jump 22.2% to $72.6 million from $59.4 million in the same quarter of 2005. Consolidated net income slid to $3 million, or 31 cents a share, from $3.6 million, or 38 cents a year ago.

For the year, income dropped to $1 million, or 10 cents, from $4.7 million, or 49 cents, a year earlier. Consolidated net sales for the year ended December 31, 2006 were $218.6 million, a 22.1% increase, as compared to $179.1 million in 2005.

The company's first quarter 2007 financial results are expected to show an approximate comparative stores sales growth of 12% for the TWC chain and 27% for Steve Shoes' acquisition stores. (Note that the Steve's Shoes' acquisition stores will be included in Walking Co. store comparative sales base as of February 1, 2007.) Walking Co.'s gross margin appears to be slightly higher from last year. The Big Dogs chain comparative store sales are approximately 5% down from last year, however gross margins are up compared to last year. Big Dogs store contribution level appears to be approximately the same as last year.

As previously announced, the company relocated its Los Angeles distribution center and set up a new distribution center in North Carolina. Resulting from this move, the company incurred one time operating expenses of approximately $1.4 million of which about half were incurred in the 4th quarter 2006 and the remaining were incurred in the 1st quarter 2007.

CEO Andrew Feshbach stated, “Overall, we are pleased with the progress we have made in 2006. Although our net income declined year over year, 2006 was a building year, which required us to lay the foundation in our operating infrastructure to support our future TWC growth. We believe we were effective in growing the TWC business and have now stabilized the results of Big Dogs.”