Net sales for Brown Shoe Company dropped by 8.8 percent to $521.0 million in the fourth quarter, ended Jan. 31. The net loss totaled $153.0 million, but excluding special charges the total loss was $11.5 million, compared with adjusted net earnings in the fourth quarter of 2007 of $16.5 million.
The gross margin in the fourth quarter fell by 1.8 percentage points to 37.2 percent. The drop was attributed mostly to more promotional activity in the retail divisions and higher markdowns and allowances in wholesale, partially offset by a higher mix of retail sales, which have a higher gross margin.
The company saw an operating loss of $205.1 million in the fourth quarter of 2008, versus operating earnings of $17.8 million in the fourth quarter of 2007.
During the quarter the company amended its asset-based revolving credit facility for five years, increasing borrowing capacity of $380 million, and announced cost-cutting measures that should save $28 million to $31 million annually. They resulted in charges of $30.9 million in the fourth quarter. Brown Shoe also cut capital expenditures by $35 million.
Even Famous Footwear, Brown Shoe’s main retail chain, had an operating loss of $11.9 million in the quarter, compared with an operating profit of $13.4 million from 2008. Total sales were up by 0.5 percent to $312.5 million, thanks to 64 additional stores. Excluding impairment and restructuring charges just within Famous Footwear, its operating loss was $4.6 million, compared with a profit from 2007 or $13.4 million.
Comparable store sales fell by 3.6 percent in the highly promotional quarter, and traffic was off by 2.8 percent year-over-year; pairs per transaction were relatively flat. Gross margins dropped by 2.3 percentage point in the quarter, as Famous Footwear increased promotional activity to maintain market share and manage inventory. The company said that Famous Footwear was particularly hurt in areas of the U.S. that had been most affected by the mortgage crisis, to the tune of 1.1 percentage points off the comparable sales figure.
Citing a clean inventory position within its 1,138 doors – down by 2.6 percent on a per-store basis – the chain’s management says its «buy one, get one free» (BOGO) promotional campaign will be pared back significantly this year as Famous Footwear aims to «re-engage» the 6 million members of its customer loyalty program who have not made recent purchases. BOGO promotional events will be replaced with «better value and promotional vehicles,» management said.
By category on a comparable basis, athletic styles were down by 2 percent at Famous Footwear; women’s shoes were off by 2.3 percent, men’s fell by 11 percent and kids’ dipped by 9 percent. Athletic shoes, which historically make up 43-50 percent of the chain’s total business, continue to be strong. The retailer has shifted some dollars out of the struggling women’s category to and skate styles, which were cited as particularly strong.
Famous Footwear opened four new stores and closed four during the quarter, resulting in 1,138 stores open at the end of the quarter compared with 1,074 during the year-ago period.
Brown Shoe’s specialty retail segment, which primarily consists of Naturalizer stores and the Shoes.com e-commerce business, reported a 5.9 percent drop in net sales to $66.0 million. Comparable store sales fell by 0.3 percent in the period. Net sales for the quarter at Shoes.com decreased by 5.1 percent versus the year-ago period. The segment’s operating loss during the quarter, which included special charges of $17.2 million, was $19.7 million compared with a loss of $1.5 million a year earlier. During the quarter, the division opened five stores and closed four, for a total of 287 stores in North America at the end of the quarter, compared with 279 at the end of the year-ago period.
In Brown Shoe’s wholesale division, net sales fell by 25.1 percent in the quarter to $142.7 million, as the company’s retailers decreased their open-to-buy levels in response to the continued deterioration of the consumer-spending environment. Additionally, sales were impacted by a late January ice storm and power outage at a Missouri distribution center, which meant that about $6 million of year-end shipments were shifted into the first quarter of 2009.
Sales declines were experienced across the majority of the company’s wholesale businesses. The division’s gross margins declined by 2.9 percentage points in the quarter due to the softness and promotional nature of its customers’ retail sales in the quarter, which led to increased markdowns and allowances. These factors, along with special charges of $143.4 million in the quarter, contributed to an operating loss of $146.8 million versus operating earnings of $18.5 million in the year-ago period.
Looking ahead for this year, the company expects sales to be $2.2 billion to $2.3 billion for 2009. Brown Shoe plans to open 55 Famous Footwear stores and close 35, which should somewhat offset a mid-single-digit decrease in comparable store sales. Although the company expects a quarterly loss in its fiscal first quarter of 2009, it forecasts positive operating earnings for the full year.