News Column

Brown Shoe Company Reports First Quarter 2014 Results

May 28, 2014

Raises annual EPS guidance range to $1.47 to $1.57

ST. LOUIS--(BUSINESS WIRE)-- Brown Shoe Company (NYSE: BWS), (brownshoe.com) today reported first quarter 2014 financial results, with net sales of $591.2 million up slightly versus first quarter 2013 net sales of $588.7 million. First quarter 2014 net earnings of $15.4 million, or $0.35 per diluted share, were up compared to a net loss of ($10.8) million, or ($0.26) per diluted share, in the first quarter of 2013. Gross profit margin for the first quarter of 2014 improved to 41.0% from 40.8% in the prior year.

“First quarter results exceeded our expectations, thanks to strong Contemporary Fashion platform sales and a return to more seasonal weather for the last two weeks of April,” said Diane Sullivan, CEO, president and chairman of Brown Shoe Company. “We feel optimistic about second quarter and the potential to benefit from pent-up spring shoe demand.”

                   
                       
US$M, except per share (unaudited)     13 Weeks       13 Weeks1Q
      1Q'14       1Q’13       Change
Consolidated net sales     $ 591.2         $ 588.7         0.4 %
Famous Footwear       354.6           352.3         0.7 %
Wholesale Operations       191.8           181.6         5.6 %
Specialty Retail       44.8           54.8         (18.3 %)
Gross profit       242.3           240.0         1.0 %
Margin       41.0%         40.8%       20 bps
SG&A       213.6           213.8         (0.1 %)
% of net sales       36.1%         36.3%       (20 bps)
Restructuring and other special charges, net       –           0.5         (100 %)
Operating earnings       28.7           21.0         37.1 %
Margin       4.9%         3.6%       130 bps
Net interest expense       5.2           5.7         (7.5 %)
Earnings from continuing operations, before income taxes       23.5           15.3         53.5 %
Tax rate       34.1%         51.9%       (1,780 bps)
Net loss from discontinued operations       –           (18.2 )       100.0 %
Net earnings     $ 15.4         $ (10.8 )       243.4 %
Per diluted share     $ 0.35         $ (0.26 )       234.6 %
 


First Quarter Highlights

Famous Footwear first quarter 2014 sales of $354.6 million were up 0.7% year-over-year, with same-store-salesup 1.3%. Performance in the quarter was driven by athletics -- specifically canvas, which continued to do well. During the quarter, 21 stores were closed or relocated and 11 new stores were added.

Wholesale sales of $191.8 million were up 5.6% in the first quarter. For the Healthy Living platform, wholesale sales of $104.7 million were up 0.7%. Contemporary Fashion wholesale sales of $86.9 million were up 12.3% in the first quarter,with strong improvement coming from the Via Spiga brand.

Consolidated gross profit of $242.3 million was up 1.0% in the first quarter, while gross margin increased by 20 basis points to 41.0%. SG&A for the first quarter was $213.6 million, or 36.1% of net sales, which was down 20 basis points from 36.3% of net sales in the prior year. For the quarter, operating margins improved 130 basis points year-over-year to 4.9%.

Inventory at the end of the first quarter was $512.8 million, up 5.5% from $485.9 million in the prior year. Wholesale inventory was up 6.2%, while Famous Footwear inventory was up 5.8%. At quarter-end, Brown Shoe Company had no borrowings against its revolving credit facility and $36.7 million of cash and equivalents. The company’s debt-to-capital ratio improved to 28.8% from 39.1% in the first quarter of 2013.

Financial Review and 2014 Outlook

“We’re pleased with our first quarter results -- especially with the weather-related headwinds we faced in February and March -- and we are optimistic about the remainder of the year,” said Russ Hammer, chief financial officer of Brown Shoe Company. “To account for a better-than-anticipated first quarter, we are raising our annual guidance range to $1.47 to $1.57, as we’re also slightly more positive regarding our potential at Wholesale for the year.

         
Guidance Metric       FY’14
Consolidated net sales       $2.58 to $2.60 billion
Famous Footwear same-store sales Up low-single digits
Specialty Retail net sales Down mid-single digits
Wholesale Operations net sales Up mid-single digits
Gross margin Up approximately 10 bps
SG&A $920 to $930 million
Net interest expense $20 to $21 million
Effective tax rate 33% to 35%
Earnings per diluted share $1.47 to $1.57
Depreciation and amortization $51 to $54 million
Capital expenditures       $53 to $57 million
 


Investor Conference Call

Brown Shoe Company will webcast an investor conference call at 9:00 a.m. ET today, May 28, 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 46090884.

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 46090884 through Wednesday, June 4, 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. 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 schedules attached to the May 28, 2014, earnings release. All references in this document, 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.

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, Via Spiga, Vince, 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!

         
 
SCHEDULE 1
 
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 
(Unaudited)
13 Weeks Ended
May 3, May 4,
(Thousands, except per share data) 2014 2013
 
Net sales $ 591,162 $ 588,656
Cost of goods sold   348,821   348,640
Gross profit   242,341   240,016
Selling and administrative expenses 213,615 213,879
Restructuring and other special charges, net – 519
Impairment of assets held for sale   –   4,660
Operating earnings   28,726   20,958
Interest expense (5,306) (5,721)
Interest income   76   68
Earnings before income taxes from continuing operations   23,496   15,305
Income tax provision   (8,020)   (7,946)
Net earnings from continuing operations   15,476   7,359
 
Discontinued operations:
Loss from discontinued operations, net of tax benefit of $0 and $3,583 – (5,637)
Disposition/impairment charge of discontinued operations, net of $0 tax   –   (12,554)
Net loss from discontinued operations   –   (18,191)
 
Net earnings (loss)   15,476   (10,832)
 
Net earnings (loss) attributable to noncontrolling interests   47   (70)
 
Net earnings (loss) attributable to Brown Shoe Company, Inc. $ 15,429   $ (10,762)
 
Basic earnings (loss) per common share:
From continuing operations $ 0.35 $ 0.18
From discontinued operations   –   (0.44)
Basic earnings (loss) per common share attributable to
Brown Shoe Company, Inc. shareholders $ 0.35 $ (0.26)
 
Diluted earnings (loss) per common share:
From continuing operations $ 0.35 $ 0.18
From discontinued operations   –   (0.44)
Diluted earnings (loss) per common share attributable to
Brown Shoe Company, Inc. shareholders $ 0.35 $ (0.26)
 
Basic number of shares 41,887 41,070
Diluted number of shares   42,116   41,268
           
 
SCHEDULE 2
 
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
May 3, May 4, February 1,
(Thousands) 2014 2013 2014
ASSETS
 
Cash and cash equivalents $ 36,668 $ 44,669 $ 82,546
Receivables, net 105,746 96,734 129,217
Inventories, net 512,811 485,923 547,531
Prepaid expenses and other current assets 37,913 43,167 33,136
Current assets - held for sale – 12,496 –
Current assets - discontinued operations   –   39,159   119
Total current assets   693,138   722,148   792,549
 
Property and equipment, net 141,818 137,299 143,560
Goodwill and intangible assets, net 137,750 80,996 73,673
Other assets 136,256 115,591 139,621
Noncurrent assets - discontinued operations   –   38,673   –
Total assets $ 1,108,962 $ 1,094,707 $ 1,149,403
 
LIABILITIES AND EQUITY
 
Borrowings under revolving credit agreement $ – $ 66,000 $ 7,000
Trade accounts payable 195,703 188,948 226,602
Other accrued expenses 141,718 118,632 152,545
Current liabilities - held for sale – 5,306 –
Current liabilities - discontinued operations   –   16,183   708
Total current liabilities   337,421   395,069   386,855
 
Long-term debt 199,057 198,870 199,010
Deferred rent 37,368 35,631 38,593
Other liabilities 42,345 45,435 47,583
Noncurrent liabilities - discontinued operations   –   6,768   –
Total other liabilities   278,770   286,704   285,186
 
Total Brown Shoe Company, Inc. shareholders’ equity 492,073 412,190 476,699
Noncontrolling interests   698   744   663
Total equity   492,771   412,934   477,362
Total liabilities and equity $ 1,108,962 $ 1,094,707 $ 1,149,403
         
 
SCHEDULE 3
 
BROWN SHOE COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
13 Weeks Ended
May 3, May 4,
(Thousands) 2014 2013
OPERATING ACTIVITIES:
Net earnings (loss) $ 15,476 $ (10,832)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization 12,707 13,805
Amortization of debt issuance costs and debt discount 628 629
Share-based compensation expense 1,555 1,617
Tax benefit related to share-based plans (1,769) (1,962)
Loss on disposal of facilities and equipment 319 68
Impairment charges for facilities and equipment 291 366
Impairment of assets held for sale – 4,660
Disposition/impairment of discontinued operations – 12,554
Deferred rent (1,225) 1,920
Provision for doubtful accounts 56 307
Changes in operating assets and liabilities, net of dispositions:
Receivables 23,385 16,363
Inventories 35,144 17,223
Prepaid expenses and other current and noncurrent assets (1,917) 653
Trade accounts payable (31,081) (26,561)
Accrued expenses and other liabilities (16,694) (1,565)
Other, net   (492)   (3,284)
Net cash provided by operating activities   36,383   25,961
 
INVESTING ACTIVITIES:
Capital expenditures (8,626) (8,407)
Acquisition of trademarks (65,065) –
Proceeds from sale of assets   –   1,500
Net cash used for investing activities   (73,691)   (6,907)
 
FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 251,000 383,000
Repayments under revolving credit agreement (258,000) (422,000)
Dividends paid (3,053) (3,027)
Issuance of common stock under share-based plans, net (803) (2,070)
Tax benefit related to share-based plans   1,769   1,962
Net cash used for financing activities   (9,087)   (42,135)
Effect of exchange rate changes on cash and cash equivalents   517   (473)
Decrease in cash and cash equivalents (45,878) (23,554)
Cash and cash equivalents at beginning of period   82,546   68,223
 
Cash and cash equivalents at end of period $ 36,668 $ 44,669
                                   
SCHEDULE 4
 
BROWN SHOE COMPANY, INC.
RECONCILIATION OF NET EARNINGS (LOSS) AND DILUTED EARNINGS (LOSS) PER SHARE (GAAP BASIS) TO ADJUSTED NET EARNINGS AND ADJUSTED DILUTED EARNINGS PER SHARE (NON-GAAP BASIS)
 
(Unaudited)             (Unaudited)          
13 Weeks Ended May 3, 2014   13 Weeks Ended May 4, 2013
(Thousands, except per share data) Pre-Tax Impact of Charges/ Other Items Net Earnings Attributable to Brown Shoe Company, Inc. Diluted Earnings Per Share Pre-Tax Impact of Charges/ Other Items Net (Loss) Earnings Attributable to Brown Shoe Company, Inc. Diluted (Loss) Earnings Per Share
 
GAAP earnings (loss) $ 15,429 $ 0.35 $ (10,762) $ (0.26)
 

Charges/Other Items - Continuing Operations:

Portfolio realignment
Business exits and cost reductions $ – – – $ 519 317 0.01
Non-cash impairment charges   –   –   –   4,660   4,660   0.11
Total Continuing Operations – – – 5,179 4,977 0.12
 

Charges/Other Items - Discontinued Operations:

Portfolio realignment
Business exits and cost reductions – – – 11,108 7,030 0.16
Non-cash impairment charges   –   –   –   12,554   12,554   0.30
Total Discontinued Operations   –   –   –   23,662   19,584   0.46
Total charges/other items $ –   –   – $ 28,841   24,561   0.58
 
Adjusted earnings $ 15,429 $ 0.35 $ 13,799 $ 0.32
                                       
 
SCHEDULE 5
 
BROWN SHOE COMPANY, INC.
SUMMARY FINANCIAL RESULTS BY SEGMENT
(Unaudited)
                     
SUMMARY FINANCIAL RESULTS
 
Famous Footwear     Wholesale Operations     Specialty Retail     Other     Consolidated
13 Weeks Ended     13 Weeks Ended     13 Weeks Ended     13 Weeks Ended     13 Weeks Ended
May 3, May 4, May 3, May 4, May 3, May 4, May 3, May 4, May 3, May 4,
(Thousands)   2014         2013         2014       2013         2014         2013         2014         2013         2014         2013  
 
Net Sales $ 354,623 $ 352,279 $ 191,785 $ 181,625 $ 44,754 $ 54,752 $ – $ – $ 591,162 $ 588,656
 
Gross Profit $ 161,778 $ 158,661 $ 62,019 $ 57,819 $ 18,544 $ 23,536 $ – $ – $ 242,341 $ 240,016
Adjusted Gross Profit $ 161,778 $ 158,661 $ 62,019 $ 57,819 $ 18,544 $ 23,536 $ – $ – $ 242,341 $ 240,016
 
Gross Profit Rate 45.6 % 45.0 % 32.3 % 31.8 % 41.4 % 43.0 % – – 41.0 % 40.8 %
Adjusted Gross Profit Rate 45.6 % 45.0 % 32.3 % 31.8 % 41.4 % 43.0 % – – 41.0 % 40.8 %
 
Operating Earnings (Loss) $ 27,871 $ 29,042 $ 13,754 $ 3,107 $ (3,692 ) $ (1,329 ) $ (9,207 ) $ (9,862 ) $ 28,726 $ 20,958
Adjusted Operating Earnings (Loss) $ 27,871 $ 29,042 $ 13,754 $ 8,270 $ (3,692 ) $ (1,329 ) $ (9,207 ) $ (9,846 ) $ 28,726 $ 26,137
 
Operating Earnings (Loss) % 7.9 % 8.2 % 7.2 % 1.7 % (8.2 %) (2.4 %) – – 4.9 % 3.6 %
Adjusted Operating Earnings (Loss) % 7.9 % 8.2 % 7.2 % 4.6 % (8.2 %) (2.4 %) – – 4.9 % 4.4 %
 
Same-store Sales % (on a 13-week basis) 1.3 % 1.1 % – – (5.6 %) (0.3 %) – – – –
 
Number of Stores 1,034 1,054 – – 172 215 – – 1,206 1,269
                                                       
 
                     
RECONCILIATION OF ADJUSTED RESULTS (NON-GAAP)
 
Famous Footwear     Wholesale Operations     Specialty Retail     Other     Consolidated
13 Weeks Ended     13 Weeks Ended     13 Weeks Ended     13 Weeks Ended     13 Weeks Ended
May 3, May 4, May 3, May 4, May 3, May 4, May 3, May 4, May 3, May 4,
(Thousands)   2014         2013         2014       2013         2014         2013         2014         2013         2014         2013  
 
Gross Profit $ 161,778 $ 158,661 $ 62,019 $ 57,819 $ 18,544 $ 23,536 $ – $ – $ 242,341 $ 240,016
 

Charges/Other Items:

Portfolio realignment
Business exits and cost reductions – – – – – – – – – –
                                                     
Total charges/other items   –         –         –       –         –         –         –         –         –         –  
 
Adjusted Gross Profit $ 161,778       $ 158,661       $ 62,019     $ 57,819       $ 18,544       $ 23,536       $ –       $ –       $ 242,341       $ 240,016  
 
Operating Earnings (Loss) $ 27,871 $ 29,042 $ 13,754 $ 3,107 $ (3,692 ) $ (1,329 ) $ (9,207 ) $ (9,862 ) $ 28,726 $ 20,958
 

Charges/Other Items:

Portfolio realignment
Non-cash impairment charges – – – 4,660 – – – – – 4,660
Business exits and cost reductions – – – 503 – – – 16 – 519
                                                     
Total charges/other items   –         –         –       5,163         –         –         –         16         –         5,179  
 
Adjusted Operating Earnings (Loss) $ 27,871       $ 29,042       $ 13,754     $ 8,270       $ (3,692 )     $ (1,329 )     $ (9,207 )     $ (9,846 )     $ 28,726       $ 26,137  
       
 
SCHEDULE 6
 
BROWN SHOE COMPANY, INC.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE RECONCILIATION
 
(Unaudited)
13 Weeks Ended
May 3, May 4,
(Thousands, except per share data) 2014 2013
 
Net earnings attributable to Brown Shoe Company, Inc.:
Net earnings from continuing operations $ 15,476 $ 7,359
Net (earnings) loss attributable to noncontrolling interests (47) 70
Net earnings allocated to participating securities   (592)   –
Net earnings from continuing operations   14,837   7,429
 
Net loss from discontinued operations – (18,191)
Net earnings allocated to participating securities   –   –
Net loss from discontinued operations   –   (18,191)
 
Net earnings (loss) attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities $ 14,837 $ (10,762)
 
 
Basic and diluted common shares attributable to Brown Shoe Company, Inc.:
Basic common shares for continuing operations and discontinued operations 41,887 41,070
Dilutive effect of share-based awards for continuing operations and discontinued operations   229   198
Diluted common shares for continuing operations and discontinued operations attributable to Brown Shoe Company, Inc.   42,116   41,268
 
Basic earnings (loss) per common share:
From continuing operations $ 0.35 $ 0.18
From discontinued operations   –   (0.44)
Basic earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders $ 0.35 $ (0.26)
 
Diluted earnings (loss) per common share:
From continuing operations $ 0.35 $ 0.18
From discontinued operations   –   (0.44)
Diluted earnings (loss) per common share attributable to Brown Shoe Company, Inc. shareholders $ 0.35 $ (0.26)
       
 
SCHEDULE 7
 
BROWN SHOE COMPANY, INC.
BASIC AND DILUTED ADJUSTED EARNINGS PER SHARE RECONCILIATION
 
(Unaudited)
13 Weeks Ended
May 3, May 4,
(Thousands, except per share data) 2014 2013
 
Adjusted net earnings attributable to Brown Shoe Company, Inc.:
Adjusted net earnings from continuing operations $ 15,476 $ 12,336
Net (earnings) loss attributable to noncontrolling interests (47) 70
Net earnings allocated to participating securities   (592)   (591)
Adjusted net earnings from continuing operations   14,837   11,815
 
Adjusted net earnings from discontinued operations – 1,393
Net earnings allocated to participating securities   –   (67)
Net earnings from discontinued operations   –   1,326
 
Adjusted net earnings attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities $ 14,837 $ 13,141
 
 
Basic and diluted common shares attributable to Brown Shoe Company, Inc.:
Basic common shares for continuing operations and discontinued operations 41,887 41,070
Dilutive effect of share-based awards for continuing operations and discontinued operations   229   198
Diluted common shares for continuing operations and discontinued operations attributable to Brown Shoe Company, Inc.   42,116   41,268
 
Basic adjusted earnings per common share:
From continuing operations $ 0.35 $ 0.29
From discontinued operations   –   0.03
Basic adjusted earnings per common share attributable to Brown Shoe Company, Inc. shareholders $ 0.35 $ 0.32
 
Diluted adjusted earnings per common share:
From continuing operations $ 0.35 $ 0.29
From discontinued operations   –   0.03
Diluted adjusted earnings per common share attributable to Brown Shoe Company, Inc. shareholders $ 0.35 $ 0.32





Brown Shoe Company

Investors and Media:

Peggy Reilly Tharp, 314-854-4134

ptharp@brownshoe.com


Source: Brown Shoe Company


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