Brown Shoe Company Reports Fourth Quarter and Full Year 2013 Results

Brown Shoe Company (NYSE: BWS) (brownshoe.com) today reported fourth quarter 2013 financial results, with net sales of $600.0 million down 3.0% versus fourth quarter 2012 net sales of $618.7 million. Fourth quarter 2013 net earnings of $6.2 million, or $0.14 per diluted share, were slightly ahead of company expectations. In the fourth quarter of the prior year, net earnings were $4.0 million, or $0.09 per diluted share. Fourth quarter 2012 results included $2.9 million of costs related to the company’s portfolio realignment efforts ($1.8 million on an after-tax basis, or $0.05 per diluted share).

For full year 2013, net sales of $2,513.1 million were up 1.4% compared to $2,477.8 million in 2012. Net earnings for 2013 were $38.1 million, or $0.88 per diluted share, versus $27.5 million, or $0.64 per diluted share, in 2012. Earnings for 2013 included portfolio realignment costs of $30.7 million, while earnings for 2012 included portfolio realignment, organization change and integration related costs of $32.9 million. On an adjusted basis, 2013 net earnings of $61.5 million, or $1.41 per diluted share, were up 26.5% compared to $48.6 million, or $1.13 per diluted share, in 2012.

Gross profit margin for the fourth quarter of 2013 improved to 40.2% from 40.0% in the fourth quarter of 2012. For the full year, it improved to 40.4% from 39.9% in 2012.

“Brown Shoe Company delivered a successful fourth quarter and 2013. We reported year-over-year operating earnings growth of 32.4%, while delivering a 2.9% increase in 2013 Famous Footwear same-store-sales. Our wholesale brands continued to make progress, growing sales 13.5% in the fourth quarter and 5.3% in 2013,” said Diane Sullivan, CEO, president and chairman of Brown Shoe Company. “We are looking forward to continuing to execute against our strategies to deliver increasing shareholder value, as we grow our retail and wholesale businesses in 2014.”

Fourth Quarter Highlights

Famous Footwear fourth quarter 2013 sales of $347.4 million were down 8.6% year-over-year, with same-store-sales(1) down 1.8%. Performance in the quarter was impacted by severe winter weather, which hurt running shoe sales while helping to drive boot sales. During the quarter, 13 stores were closed or relocated and nine new stores were added.

Wholesale sales of $196.3 million were up 13.5% in the fourth quarter. For the Healthy Living platform, wholesale sales of $107.2 million were up 4.3%, led by a double-digit improvement in Naturalizer. The company’s Contemporary Fashion wholesale sales of $89.1 million were up 28.2% in the fourth quarter, with double-digit growth from key brands Sam Edelman and Franco Sarto.

Consolidated gross profit of $241.4 million was down 2.4% in the fourth quarter, while gross margin increased by 20 basis points to 40.2%. SG&A for the fourth quarter was $231.2 million, or 38.5% of net sales, which was up 90 basis points from 37.6% of net sales in the prior year. For the quarter, operating margins declined by 30 basis points year-over-year to 1.7%.

Inventory at the end of the fourth quarter was $547.5 million, up 8.7% from $503.7 million in the prior year. Wholesale inventory was up 8.7%, while Famous Footwear inventory was up 8.6%.

At quarter-end, Brown Shoe Company had $7.0 million of borrowings against its revolving credit facility and $82.5 million in cash and equivalents. Net of short term borrowings, cash and equivalents were $75.5 million, an improvement of $112.3 million versus 2012. The company’s debt-to-capital ratio improved to 30.1% from 41.6% in the fourth quarter of 2012.

Full Year Highlights

Famous Footwear reported full year 2013 sales of $1,527.5 million, a 0.9% year-over-year improvement, while annual operating earnings of $107.1 million were up 13.8%. For 2013, same-store-sales(1) were up 2.9% over 2012. During the year, 62 stores were closed or relocated and 51 new stores were added, as average revenue per square foot improved to $207.

Wholesale Operations sales of $763.7 million (including $1.6 million of sales from exited brands) were up 5.3% over $724.9 million in 2013. In the Healthy Living portfolio, wholesale sales of $421.3 million were up 2.4% in 2013. For Contemporary Fashion, wholesale sales of $340.8 million were up 12.7%.

For 2013, gross margin of 40.4% improved 50 basis points over 2012. SG&A for 2013 was $909.7 million, or 36.2% of net sales up 20 basis points from 36.0% in the prior year. Operating earnings improved 32.4% to $98.6 million from $74.5 million in 2012. For the year, operating margins improved by 90 basis points to 3.9%. Capital expenditures of $49.2 million were down 22.8% from $63.7 million in the prior year.

Financial Review and 2014 Outlook

“At Brown Shoe Company, we executed on our strategy in 2013 and improved our operating performance, delivering steady improvement toward our long term financial goals by driving sustainable profitability,” said Russ Hammer, chief financial officer of Brown Shoe Company. “For 2014, we expect to continue to deliver toward our long term goals, while balancing our realistic outlook in terms of the economy, the consumer and the weather -- especially this early in the year. As a result, we believe we will deliver 2014 earnings per share of $1.45 to $1.55, or a 3% to 10% increase over 2013.”

Investor Conference Call

Brown Shoe Company will webcast an investor conference call at 9:00 a.m. ET today, March 14, 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 55795350.

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 55795350 through Friday, March 28, 2014.

(1) Same-Store-Sales: For comparability purposes, same-store-sales for the fourth quarter of 2013 are calculated based on retail sales for weeks 40 through 52 in 2013 as compared to weeks 41 through 53 in 2012. This adjustment is due to the impact of the 53rd week of sales in the fourth quarter of fiscal 2012. The calculation for the fourth quarter of 2013 appropriately reflects the change in same-store-sales on a true retail calendar basis. For the full year, same-store-sales are based on weeks one to 52 for 2013 versus weeks two to 53 for 2012.

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.

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.

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) intense competition within the footwear industry; (iii) rapidly changing fashion trends and purchasing patterns; (iv) customer concentration and increased consolidation in the retail industry; (v) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where Brown Shoe Company relies heavily on third-party manufacturing facilities for a significant amount of their inventory; (vi) the ability to recruit and retain senior management and other key associates; (vii) the ability to attract, retain and maintain good relationships with licensors and protect intellectual property rights; (viii) the ability to secure/exit leases on favorable terms; (ix) the ability to maintain relationships with current suppliers; (x) compliance with applicable laws and standards with respect to lead content in paint and other product safety issues; (xi) the ability to source product at a pace consistent with increased demand for footwear; and (xii) the impact of rising prices in a potentially inflationary global environment. 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 Feb. 2, 2013, 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 — Via Spiga, Vince, Sam Edelman, Franco Sarto, Carlos Santana and Fergie Footwear — keep fashionistas in step with the latest trends. At Brown Shoe Company, we inspire people to feel good and live better... feet first!