The opening of the new consolidated headquarters of Brown Shoe Company in St. Louis will have to wait better times, as the company is cutting down investments through 2011 after a “sudden and rapid decline” in consumer spending, expecting more of the same in the near future.
Same-store sales at the company’s Famous Footwear chain dropped by 5.0 percent in the third quarter ended Nov. 1 and total revenues dropped by 2.2 percent to $631.7 million, while net earnings plunged by 61.5 percent to $10.4 million. These figures included costs related to the head office consolidation and information technology initiatives in the quarter, and spending on the company’s long-standing “Earning Enhancement Plan” in the same period in 2007. Excluding these items, adjusted earnings were 31.4 percent below last year’s at $20.5 million.
Operating earnings for the quarter fell by 69.9 percent to $12.9 million, which was 2.0 percent of sales compared with 6.6 percent in the same period last year. Gross margins were down by 1.0 percentage point to 39.3 percent, in part because of increased promotional activity in retail and higher markdowns and allowances in wholesale. There was also an increased sales mix of licensed brands versus owned brands, and an increased mix of mid-tier channel sales.
In Brown Shoe’s retail operations, revenues from Famous Footwear grew by 0.5 percent to $362.7 million, despite the comparable store decrease. The gross margin fell by 0.7 percentage points because of increased promotional activity to keep its market share and to manage inventory. In the quarter Famous Footwear opened 18 new stores and closed seven, leaving it with 1,138 stores as of Nov. 1. This compares with 1,060 at the end of the third quarter 2007.
The best performance from Famous Footwear came in August and the back-to-school period, with sales dropping after that, especially in states particularly affected by the housing crisis in the USA. Sales of athletic shoes were nearly flat, dropping just 0.3 percent, but women’s footwear fell by 10.2 percent, men’s decreased by 9.8 percent and children’s were down by 12.3 percent. Traffic fell by 6.9 percent, while average unit retail grew by 2.4 percent. Sales of accessories increased by 4.2 percent.
Famous Footwear’s inventory was up by 9 percent, but because of new stores it was flat on a per-store basis.
The group’s specialty retail division, which largely consists of Naturalizer stores and Shoes.com, saw a 7.3 percent drop in sales to $65.6 million, and a comparable store decrease of 6.7 percent. Shoes.com alone had a sales decline of 7.0 percent. In this segment, Brown Shoe opened seven stores and closed one, leaving it with 286 stores in North America at quarter’s end compared with 278 a year ago. It also opened two Naturalizer stores in China under its B&H Footwear joint venture for a total of 17, with 36 more in that country being run by an affiliate of the joint venture partner.
In Brown Shoe’s wholesale division, sales were down by 4.8 percent to $203.4 million as the company’s retail partners were more careful with inventory. Its best performers were Etienne Aigner, Naturalizer, Dr. Scholl’s and Sam Edelman, while LifeStride, while the private label and private brands did not do so well. The drop in consumer spending led to more markdowns and higher allowances, which along with the sales mix meant a 0.40 percentage point drop in gross margins for the division.
The company is forecasting sales of $2.27 billion to $2.29 billion for the full fiscal year, with a drop of 5.1 percent to 5.5 percent in comparable store sales at Famous Footwear. For 2008, it expects 89 new Famous Footwear stores, with 25 closing, and 30 new specialty retail stores, of which 15 to 20 are in China, with three closing. Its guidance for wholesale net sales is down by 7.0 percent to 9.0 percent.
In response to the troubled economy, especially in the home market of the USA, Brown Shoe is scaling back its ambitions. In addition to putting its headquarters consolidation on hold, it is also revising the number of stores it plans to open from 2009-2011 – opening just 40 to 50 next year –and keeping an eye on expenditures for its new ERP platform. Its capital expenditures for 2009-2011 will be $72.0 million lower than previously expected.