Brown Shoe Company Reports Third Quarter 2014 Results

Brown Shoe Company (NYSE: BWS) (brownshoe.com) today reported third quarter 2014 financial results, with net sales of $729.3 million up 3.8% versus third quarter 2013 net sales of $702.8 million. Third quarter 2014 net earnings of $33.1 million, or $0.75 per diluted share, were up 21.2% compared to net earnings of $27.3 million, or $0.63 per diluted share, in the third quarter of 2013. Gross margin for the third quarter of 2014 was 39.9% up 30 basis points compared to 39.6% in the prior year.

“Wholesale overachieved again, with sales up 18.2% in third quarter, and both Healthy Living and Contemporary Fashion contributed strong double-digit sales improvement. At Famous Footwear, our focus on big ideas for back-to-school continued to deliver. Same-store-sales were up 1.6%, for the 10 weeks that make up this key selling season,” said Diane Sullivan, CEO, president and chairman of Brown Shoe Company. “Although our biggest quarter of the year is past, with nine strong months behind us -- and an easier comp ahead of us for the fourth quarter -- we expect to deliver a strong 2014.”

Third Quarter Highlights

Famous Footwear third quarter 2014 sales of $435.4 million were down 1.0% year-over-year, with same-store-sales down 0.2%. For the back-to-school selling season, weeks 24 through 33, same-store-sales were up 1.6%. Performance in the quarter was driven by continued strong growth in canvas and aided by an increase in both sandals and boots. During the quarter, six stores were closed or relocated and 12 new stores were added.

Wholesale sales of $242.6 million were up 18.2% in the third quarter. For the Healthy Living platform, wholesale sales of $118.3 million were up 12.4%, while Contemporary Fashion wholesale sales of $124.1 million were up 24.4%.

Consolidated gross profit of $290.7 million was up 4.5% in the third quarter, while gross margin improved by 30 basis points to 39.9%. SG&A for the third quarter was $237.5 million, or 32.6% of net sales, which was down approximately 60 basis points versus the prior year. For the quarter, operating margins improved approximately 90 basis points year-over-year to 7.3%.

Inventory at the end of the third quarter was $567.8 million, up 4.3% from $544.6 million in the prior year. Famous Footwear inventory was down 1.2%, while Wholesale inventory was up 31.0%. At quarter-end, Brown Shoe Company had $14.0 million of borrowings against its revolving credit facility and $39.1 million of cash and equivalents. The company’s debt-to-capital ratio improved to 28.3% from 30.6% in the third quarter of 2013.

Financial Review and 2014 Outlook

“Thanks to strong wholesale results in the third quarter, along with steady performance at Famous Footwear, we are raising our full-year EPS guidance to $1.65 to $1.69,” said Russ Hammer, chief financial officer of Brown Shoe Company. “While we expect to end the year on a positive note, we remain aware of the promotional potential at retail for the holiday season and alert to possible shifts in consumer sentiment.”

Investor Conference Call: Brown Shoe Company will webcast an investor conference call at 9:00 a.m. ET today, November 25, 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 26708713. 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 26708713 through Tuesday, December 2, 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!