Retail news : Brown Shoe's Q3 Earnings Gain on Healthy Famous Footwear Comps

Brown Shoe Company reported third quarter 2013 financial results, with net sales of $702.8 million up 1.0 percent versus third quarter 2012 net sales of $696.0 million, excluding sales from discontinued operations for both quarters. Results for the third quarter of 2013 and 2012 included sales of $0.2 million and $1.4 million, respectively, from brands and businesses the company has exited.

The company reported third quarter 2013 net earnings of $27.3 million, or $0.63 per diluted share, up 12.4 percent compared to $24.3 million, or $0.56 per diluted share, in the prior year. Third quarter 2012 included $2.6 million of costs related to the company’s portfolio realignment efforts ($1.6 million on an after-tax basis, or $0.04 per diluted share). Gross profit margin for the third quarter of 2013 declined 50 basis points to 39.6 percent from 40.1 percent in 2012.

“Famous Footwear reported record sales in the third quarter, with strength across all geographies, climate zones and genders. We also reported a 4.9 percent increase in same-store-sales(1) for the quarter,” said Diane Sullivan, president and chief executive officer of Brown Shoe Company. “For our wholesale business, we saw continued improvement. Sales were up 4.5 percent in the quarter, as our trend-right styles continued to resonate with consumers.”

US$M, except per share (unaudited)
  13 Weeks   3Q

3Q’13   3Q’12
Consolidated net sales   $702.8   $696.0   1.0%
Famous Footwear   439.6   436.8   0.6%
Wholesale Operations   205.3   196.4   4.5%
Specialty Retail   57.9   62.8   (7.8%)
Gross profit   278.2   279.3   (0.4%)
Margin   39.6%   40.1%   (50 bps)
SG&A   233.5   236.2   (1.1%)
% of net sales   33.2%   33.9%   (70 bps)
Restructuring and other special charges, net   --   2.1   n/m
Operating earnings   44.7   41.0   9.0%
% of net sales   6.4%   5.9%   50 bps
Net interest expense   5.1   5.3   (3.8%)
Earnings from continuing operations before income taxes   39.5   35.7   10.9%
Tax rate   31.6%   32.0%   (40 bps)
Net earnings (loss) from discontinued operations   0.2   --   n/m
Net earnings (loss)   $27.3   $24.3   12.4%
Per diluted share   $0.63   $0.56   12.5%
Adjusted net earnings   $27.3   $25.9   5.5%
Per diluted share   $0.63   $0.60   5.0%

Third Quarter Highlights

Famous Footwear third quarter 2013 record sales of $439.6 million were up 0.6 percent year-over-year, with same-store-sales up 4.9 percent. For the back-to-school selling season, weeks 24 through 33, same-store-sales were up 5.6 percent. The strong performance in the quarter was led by good sales growth in sport slides, canvas shoe styles, sandals and lightweight running. During the quarter, the company closed or relocated 22 stores and added 11 new stores, as average revenue per square foot continued to improve.

Wholesale sales of $205.3 million were up 4.5 percent in the third quarter, excluding sales from discontinued brands. For the Healthy Living platform, wholesale sales of $106.6 million were down 5.6 percent (excluding sales from discontinued brands) reflecting the shift of approximately $7 million of sales into the second quarter from the third quarter, primarily for Naturalizer. On a year-to-date basis, Healthy Living sales improved 1.2 percent over 2012. The company’s Contemporary Fashion wholesale sales of $98.4 million were up 19.3 percent in the third quarter, excluding sales from discontinued brands, with strong double-digit growth from both Sam Edelman and Franco Sarto.

Consolidated gross profit of $278.2 million was down 0.4 percent in the third quarter, and gross margin of 39.6 percent declined by approximately 50 basis points versus the prior year. SG&A for the third quarter was $233.5 million, or 33.2 percent of net sales, which was down approximately 70 basis points from 33.9 percent of net sales in the prior year. For the quarter, operating margins improved 50 basis points to 6.4 percent.

Inventory at the end of the third quarter was $544.6 million, up from $512.2 million in the prior year. Wholesale inventory was up 8.5 percent, while Famous Footwear inventory was up 4.8 percent.

At quarter-end, Brown Shoe Company had no borrowings against its revolving credit facility and $42.4 million in cash and cash equivalents. The company’s debt-to-capital ratio improved to 30.6 percent from 41.7 percent in the third quarter of 2012.

Financial Review and 2013 Outlook

“To account for our strong performance year-to-date, we are raising our adjusted diluted EPS guidance to a range of $1.36 to $1.40,” said Russ Hammer, chief financial officer of Brown Shoe Company. “For the fourth quarter, we expect to operate under the same level of caution as many of our peers, as uncertainty around traffic, promotional activity and consumer sentiment appears to be permeating the overall industry this holiday season.”

Metric   FY’13
Consolidated net sales   $2.53 to $2.54 billion
Famous Footwear same-store sales   Up low-single digits
Wholesale Operations net sales   Up mid-single digits for continuing operations
Gross profit margin   Up approximately 10 basis points for continuing operations
SG&A   $910 to $915 million
Non-recurring costs   $31 million
Net interest expense   $21 to $22 million
Effective tax rate, on adjusted basis   31% to 32%
Earnings per diluted share   $0.82 to $0.86
Adjusted earnings per diluted share   $1.36 to $1.40
Depreciation and amortization   $54 to $56 million
Capital expenditures   $54 to $56 million

By press release

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