Brown Shoe Company, Inc. (BWS)

BWS 
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Industry: Consumer Non-Durables
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Brown Shoe Company, Inc. (BWS)

Q4 2008 Earnings Call

March 4, 2009 9:00 am ET

Executives

Ronald Fromm – CEO

Mark Hood – SVP & CFO

Diane Sullivan – President & COO

Joseph Wood – President, Brown Shoe Retail

Kenneth Golden – Director IR

Analysts

Scott Krasik - C.L. King & Associates

Christopher Svezia - Susquehanna Financial Group

Heather Boksen - Sidoti & Company

Sam Poser - Sterne, Agee & Leach

Jillian Caruthers – Johnson Rice

Presentation

Operator

Welcome to the fourth quarter year-end Brown Shoe Company, Inc. earnings conference call. I would now like to turn the call over to Kenneth Golden, Director of Investor Relations.

Kenneth Golden

Good morning everyone and welcome to the Brown Shoe fourth quarter and year-end 2008 financial results conference call. This call is also available to the public via webcast in accordance with the SEC's regulation FD.

Before I turn the call over to Ronald Fromm, I'd like to remind you of the company's Safe Harbor language. During this call, the company will make certain forward-looking statements to help you better understand its financial results and competitive outlook. Discussion of the company's future plans and other statements in this call that are not current or historical facts are forward-looking statements.

These involve known and unknown risks and uncertainties that could cause the actual results to materially differ from historical results or from any future results expressed or implied by forward-looking statements. Factors that could cause actual results to differ materially include those listed in our press release issued this morning and available on our 8-K filed prior to this call and other risk factors listed from time to time in the company's SEC reports. Copies of the company's reports are available online and from the company's Investor Relations Department.

The company does not undertake any obligation or plan to update these forward-looking statements even though the situation may change.

Now I’d like to turn the call over to Ronald Fromm, Chairman and CEO.

Ronald Fromm

Thanks Kenneth, good morning everyone. Thank you for joining us today. With me today are Mark Hood, our Chief Financial Officer, Joseph Wood, President of Brown Shoe Retail, and joining us from our office in Italy is Diane Sullivan, our President and Chief Operating Officer. Following my opening remarks Diane, Mark, and Joseph will cover the quarter and then we’ll open it up for questions.

The fourth quarter marked one of our most challenging periods in our company’s 130-year history. The continuation of the economic uncertainties and credit crisis drove a dramatic increase in the promotional activity of retailers throughout the quarter which had a decremental effect on our sales and profitability.

While we are not satisfied we did deliver results within the adjusted guidance we laid out on our last call. However our GAAP results were also negatively impacted by a number of nonrecurring special costs including those related to initiatives that were previously announced as well as the goodwill and intangible asset impairment of $119.2 million after tax that were not forecasted in our guidance.

The total of these charges was $141.5 million after tax or $3.40 per diluted share. Without the impact of these items our adjusted loss in the quarter was $11.5 million or $0.28 per share, at the midpoint of our $0.33 to $.023 per diluted share range which we provided on the third quarter results call.

Mark will walk through these items with you in a few moments. Over the last few months we have taken actions to position our company for operating profitably and positive cash flow in what we expect to be a continuing challenging 2009. To this end we have improved our inventory positioning with aging well below the prior year. We have increased our financial flexibility with the expansion of our borrowing capacity under the credit facility and lengthened the term to five years.

We have implemented actions that we expect will generate cost savings of $28 to $31 million in 2009. We continue to focus on managing our real estate portfolio and we are working with our landlords to align rents to the traffic being generated in their centers. And we reduced our capital expenditure plans by lowering store openings putting our headquarters project indefinitely on hold, and increasing financial expectations on investing capital.

Capital expenditures in 2009 which includes a full year of expenditures related to our IT initiatives are planned in a range of $60 to $65 million, down from $77 million in 2008. The investment in our west coast distribution centers will provide transportation savings beginning in 2009 and our IT initiatives will begin delivering cost savings in 2010.

Additionally we expect these projects to increase our speed to market, improve inventory turns, and improve our business intelligence capabilities, enhancing sales growth, and profitability. Additionally we completed the move of Famous Footwear from Madison in St. Louis and are now benefiting from being a truly integrated wholesale retail operation.

During the year we also made investments to broaden our consumer reach with international expansion, the growth and consolidation of Sam Edelman and enhancing our D to C capabilities with Shoes.com, as well as the introduction of new footwear brands Fergie, Fergalicious, Vera Wang Lavender Label and Libby Edelman. While small today, these brands offer us two vertical opportunities and are expected to be drivers of our future growth.

Operationally the year included solid progress toward achieving some of our long-term goals. We did increase our diversification aligning our portfolio of wholesale brands to the channels where our customers shop. We expect this effort to enable us to expand our growth opportunities and increase our resiliency going forward. To this end our overall wholesale branded sales mix in the national chain and shoe chain channels has increased while continuing to lower our penetration of less profitable private label business and demands.

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