Brown Shoe Company Reports Second Quarter 2014 Results

Brown Shoe Company (NYSE: BWS)(brownshoe.com) today reported second quarter 2014 financial results, with net sales of $635.9 million up 2.3% versus second quarter 2013 net sales of $621.7 million. Second quarter 2014 net earnings of $18.1 million, or $0.41 per diluted share, were up 17.6% compared to net earnings of $15.4 million, or $0.35 per diluted share, in the second quarter of 2013. Gross margin for the second quarter of 2014 was 40.8% compared to 41.0% in the prior year.

“Our second quarter results reflect the health of both our retail and wholesale businesses, as we continue to benefit from — and expand on — our portfolio realignment efforts,” said Diane Sullivan, CEO, president and chairman of Brown Shoe Company. “At Famous Footwear, our focus on delivering a seamless omni-channel experience to our consumers helped kick off our Back-to-School selling season. At our wholesale brands, our trend-right merchandise is resonating with both consumers and retailers.”

Second Quarter Highlights

Famous Footwear second quarter 2014 sales of $393.6 million were up 1.4% year-over-year, with same-store-sales up 1.6%. Performance in the quarter was driven by canvas, as casual styles continued to resonate with consumers. During the quarter, 16 stores were closed or relocated and 17 new stores were added.

Wholesale sales of $194.3 million were up 7.7% in the second quarter. For the Healthy Living platform, wholesale sales of $106.6 million were up 1.7% in the second quarter, while Contemporary Fashion wholesale sales of $87.3 million were up 17.1%.

Consolidated gross profit of $259.6 million was up 2.0% in the second quarter, while gross margin decreased by 20 basis points to 40.8%. SG&A for the second quarter was $228.3 million, or 35.9% of net sales, which was down approximately 130 basis points versus the prior year. For the quarter, operating margins improved approximately 120 basis points year-over-year to 4.9%.

Inventory at the end of the second quarter was $657.7 million, up 6.8% from $615.9 million in the prior year. Wholesale inventory was up 22.9%, while Famous Footwear inventory was up 2.5%. At quarter-end, Brown Shoe Company had no borrowings against its revolving credit facility and $46.9 million of cash and equivalents. The company’s debt-to-capital ratio improved to 28.1% from 34.2% in the second quarter of 2013.

Financial Review and 2014 Outlook

“Despite a continued, industry-wide decline in traffic patterns and an overall tough retail environment, we were able to deliver against expectations in the second quarter,” said Russ Hammer, chief financial officer of Brown Shoe Company. “To account for our better-than-expected second quarter performance, we are raising our annual guidance range to $1.50 to $1.60.”

Investor Conference Call

Brown Shoe Company will webcast an investor conference call at 9:00 a.m. ET today, August 27, 2014. The webcast and slides will be available at investor.brownshoe.com/news/events. A live conference call will be available at (877) 217-9089 for analysts in North America or (706) 679-1723 for international analysts by using the conference ID 86307819. A replay will be available for a limited period at investor.brownshoe.com/news/events/archive.

Investors may also access the replay by dialing (855) 859-2056 in North America or (404) 537-3406 internationally and using the conference ID 86307819 through Wednesday, Sept. 3, 2014.

Definitions: All references in this press release, outside of the condensed consolidated financial statements that follow, unless otherwise noted, related to net earnings attributable to Brown Shoe Company, Inc. and diluted earnings per common share attributable to Brown Shoe Company, Inc. shareholders, are presented as net earnings and earnings per diluted share, respectively.

Non-GAAP Financial Measures: In this press release, the company’s financial results are provided both in accordance with generally accepted accounting principles (GAAP) and using certain non-GAAP financial measures. In particular, the company provides historic and estimated future gross profit, operating earnings, net earnings and earnings per diluted share adjusted to exclude certain gains, charges and recoveries, which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help identify underlying trends in the company’s business and provide useful information to both management and investors by excluding certain items that may not be indicative of the company’s core operating results. These measures should not be considered a substitute for or superior to GAAP results. Reconciliations to the applicable GAAP financial measures have been included in the attached schedules.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This press release contains certain forward-looking statements and expectations regarding the company’s future performance and the performance of its brands. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include (i) changing consumer demands, which may be influenced by consumers’ disposable income, which in turn can be influenced by general economic conditions; (ii) rapidly changing fashion trends and purchasing patterns; (iii) intense competition within the footwear industry; (iv) the ability to accurately forecast sales and manage inventory levels; (v) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the company relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (vi) cybersecurity threats or other major disruption to the company’s information technology systems; (vii) customer concentration and increased consolidation in the retail industry; (viii) a disruption in the company’s distribution centers; (ix) foreign currency fluctuations; (x) additional duties, quotas, tariffs or other trade restrictions;(xi) compliance with applicable laws and standards with respect to labor, trade and product safety issues; (xii) the ability to recruit and retain senior management and other key associates; (xiii) the ability to attract, retain and maintain good relationships with licensors and protect intellectual property rights; (xiv) the ability to secure/exit leases on favorable terms; and (xv) the ability to maintain relationships with current suppliers. The company’s reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption Risk Factors in Item 1A of the company’s Annual Report on Form 10-K for the year ended February 1, 2014, which information is incorporated by reference herein and updated by the company’s Quarterly Reports on Form 10-Q. The company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.

About Brown Shoe Company: Brown Shoe Company is a $2.5 billion, global, footwear company whose shoes are worn by people of all ages, from all walks of life. Our products are available virtually everywhere — in the over 1,200 Famous Footwear and Naturalizer retail stores we operate, in hundreds of major department and specialty stores, on 14 branded ecommerce sites, and on many additional third-party retail websites. Through our broad range of products, we serve three key market segments. Our Family brands — Famous Footwear, Famous.com and shoes.com — are one-stop-shopping destinations for high quality, affordable styles for a family’s every occasion. Active people who want comfort, style and performance, can look to our Healthy Living brands — Naturalizer, Dr. Scholl’s, LifeStride and Ryka. Our Contemporary Fashion brands — Sam Edelman, Franco Sarto, Vince, Via Spiga, Fergie Footwear and Carlos Santana — keep fashionistas in step with the latest trends. At Brown Shoe Company, we inspire people to feel good and live better... feet first!