Brown Shoe In Line, Trims Outlook - Analyst Blog

Footwear retailer and wholesaler Brown Shoe Company, Inc ( BWS ) recently posted third quarter 2011 adjusted earnings of 51 cents per share, in line with the Zacks Consensus Estimate but ahead of the year-ago quarter earnings of 45 cents per share. The better-than-expected results were attributable to higher sales and margin expansion at the wholesale division.

St. Louis, Missouri-based company reported net sales of $713.8 million, down 0.3% year over year. The decline in sales was mainly on the back of challenging economic conditions resulting in lower consumer spending.

Segment wise, Famous Footwear sales fell 1.3% to $416.2 million in the third quarter, due to the continuous decline in toning sales, partially offset by higher sales of running shoes and sandals. Revenues at the Specialty Retail dropped 5.0% to $64.0 million. However, sales at Wholesale division rose 2.3% to $233.6 million driven by the ASG acquisition in February 2011.

Same-store sales at Famous Footwear inched down 0.4% and also compared unfavorably with the year-ago rise of 10.6%. Same-store sales at Specialty Retail plunged 1.9% during the quarter as opposed to a 2.1% upside in the year ago quarter.

During the quarter, gross margin plunged 70 bps to 38.7%, due to sluggish performance of the Famous Footwear division (down 150 bps) and Specialty Retail division (down 160 bps), partially offset by strong performance of the Wholesale division (up150 bps).

Store Update

During the quarter, Brown Shoe opened 17 new Famous Footwear stores and closed 12 underperforming stores. At the end of the quarter, the company had more than 1100 Famous Footwear stores and 260 Specialty Retail stores.

To boost profitability, the company continues to realign its portfolio by closing underperforming stores and getting rid of struggling business units. The company has already sold its AND1 brand. Brown Shoe also plans to exit several businesses units and shut down between 70 and 75 Famous Footwear stores in fiscal 2011 and 2012, thus bringing the number of store closures to 145 stores. The company also intends to close all of its Brown Shoe Closet and F.X. LaSalle stores as well as its Sun Prairie, Wis., distribution center in 2012.

Financial Position

At the end of the quarter, the company had cash and cash equivalent of $42.0 million and shareholders' equity of $419.6 million. At the end of the quarter, Brown Shoe had $300.0 million available under its current revolving credit facility.


Brown Shoe remains skeptical regarding the upcoming holiday season given the cautious consumer spending trend and hence trimmed its outlook. For 2011, the company reduced its adjusted earnings guidance in the range of 73 to 85 cents per share as compared with its previous expectations of 85 to 97 cents per share. The sales target has also been cut down from $2.68 - $2.71 billion to $2.60 - $2.62 billion.

Our Take

Though the company reported better-than-expected results, we expect estimates to go down in the coming days as Brown Shoe remains cautious regarding its outlook and exit from several business lines. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 78 cents and $1.07 per share, respectively.

To promote its brands, the company has also agreed to license its Buster Brown, Sam Edelman and Avia wholesale children's brands to global footwear firm BBC International, which licenses several children's shoe brands. The transition of the brands will begin immediately and continue through the first quarter of 2012.

Brown Shoe has a Zacks #3 Rank, implying a Hold rating over the short term. We also reiterate our long-term Neutral recommendation on the stock.

One of Brown Shoe's primary competitors, Deckers Outdoor Corporation (DECK) posted third quarter 2011 earnings of $1.59 per share above the Zacks Consensus Estimate of $1.34, and surged 48.6% from $1.07 earned in the prior-year quarter. The better-than-expected results were based on healthy demand for the product lines under the UGG and Teva brands and the recent acquisition of the Sanuk brand.

BROWN SHOE CO ( BWS ): Free Stock Analysis Report

DECKERS OUTDOOR ( DECK ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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