Brown Shoe Company’s total sales slid by 0.5 percent to $576.6 million in the 2nd quarter ended Aug. 4. The gross margin improved by 0.4 percentage points to 40.1 percent. Operating earnings fell to $17,963,000 from $26,266,000 in the year-ago quarter, and earnings before income taxes (EBIT) dropped to $15,128,000 from $22,325,000. Net earnings totaled $9,830,000, down 35.5 percent from the same period last year, but they would have risen by 11 percent excluding extraordinary charges related to the company’s ongoing “earnings enhancement plan.”.

The company, which met the low end of its guidance for the quarter, was again driven by Famous Footwear retail unit, which registered an 8.0 percent increase in net sales to $316.1 million and a rise in comparable store turnover of 3.6 percent. Operating earnings for the chain jumped by 59.3 percent to $19.0 million. During the recent quarter, 22 new locations were opened and seven were closed, giving Famous Footwear a network of 1,024 stores as of Aug. 4, as compared to 963 at the end of the 2nd quarter of 2006. About 85 percent of its store network has been remodeled, featuring cherry and chocolate as the main colors.

In a conference call to report the quarterly results to investors, Brown Shoe representatives said that Famous Footwear’s growth was balanced across all footwear categories. On the other hand, men’s sandals and children’s shoes fared best.

The group’s specialty retail segment, which includes Naturalizer stores and Shoes.com, the company’s e-commerce vehicle, reported sales growth of 4.3 percent to $62.0 million. The segment had an operating loss of $1.7 million, up from a loss of $1.5 million in last year’s 2nd quarter. This was mainly due to a lower gross margin in the Shoes.com business.

Wholesale turnover fell by 12.6 percent to $198.4 million despite improvements from the Dr. Scholl’s and Naturalizer brands, as well as strength in children’s shoes. Overall, wholesale sales were hurt by the exit of the Bass license and by what Brown described as a tough retail environment. The division’s gross margin was up by 1.6 percentage points, but its operating earnings dropped to $12.9 million from $19.1 million, in line with expectations.

During Brown Shoe’s conference call the company told investors that it has been shifting its resources towards its flagship brands in the wholesale segment and will continue to do so. The private label business is expected to pull down wholesale sales through the remainder of Brown Shoe’s current fiscal year, byt the wholesale segment should subsequently to return to stable growth in 2008.